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E. Warner et al v. State et al (10/17/91), 819 P 2d 28
<![CDATA[
NOTICE: This opinion is subject to
formal correction before publication in the
Pacific Reporter. Readers are requested to
bring typographical or other formal errors to
the attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska
99501, in order that corrections may be made
prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
EUGENE WARNER, )
) Supreme Court No. S-3478
Appellant, )
v. ) Superior Court No.
) 3AN-88-5985 Civil
STATE OF ALASKA, REAL ESTATE )
COMMISSION, and ROBIN BERNARD, ) O P I N I O N
)
Appellees. )
___________________________________)
)
DAVID R. LESTER, JOAN LAGOULIS, )
MARK D. WOODWARD, DEBBIE M. ) Supreme Court No. S-3805
WOODWARD and JAMES P. MACALUSO, )
)
Appellants, ) Superior Court No.
) 3AN-89-2994 Civil
v. )
)
STATE OF ALASKA, DEPARTMENT OF )
COMMERCE & ECONOMIC DEVELOPMENT, )
REAL ESTATE COMMISSION and )
CHARLES TOOP, )
)
Appellees, )
___________________________________)
)
RAPHAEL APOSTOL and LOVEGILA )
APOSTOLL, )
) Supreme Court No. S-4148
Appellants, )
)
v. ) Superior Court No.
) 3AN-89-8179 Civil
STATE OF ALASKA, ALASKA REAL )
ESTATE COMMISSION, )
)
Appellees. ) [No. 3764 - October 17,
1991]
___________________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
William H. Fuld, Judge, S-3478 and S-3805.
Glen C. Anderson, Judge Pro Tem, S-4148
Appearances: Eugene G. Warner, Pro Per,
S-3478. Lawrence C. Delay, Assistant
Attorney General, Anchorage, Douglas B.
Baily, Attorney General, Juneau, for
Appellees, S-3478. Sandra J. Wicks, Law
Offices of William L. McNall, Anchorage, for
Appellant, S-3805. Lawrence C. Delay,
Assistant Attorney General, Anchorage,
Douglas B. Baily, Attorney General, Juneau,
for Appellees, S-3805. John R. Strachan,
Anchorage, for Appellants, S-4148. Linda
O'Bannon, Assistant Attorney General,
Anchorage, Douglas B. Baily, Attorney
General, Juneau, for Appellees, S-4148.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton, and Moore,
Justices.
RABINOWITZ, Chief Justice.
This appeal is a consolidation of three cases. Each
appellant asserted a surety fund claim before the Alaska Real
Estate Commission (Commission) against a licensed real estate
broker or salesperson. The Commission denied each claim as
untimely under the one year statute of limitations it had
established by regulation 12 AAC 64.295. The superior courts
which reviewed these cases affirmed. We hold 12 AAC 64.295 void,
and reverse the dismissals of appellants' claims. As to all
other issues, we affirm.
I
We begin with an overview of the Real Estate Surety
Fund Act, AS 08.88.450-.495 (Act). The Act establishes that, in
lieu of obtaining a corporate surety bond, brokers, associate
brokers, and salespeople licensed by the Commission must pay
their license fee and a surety fund fee into the fund. AS
08.88.455. Under the Act, "[a] person seeking reimbursement for
a loss suffered in a transaction as a result of fraud,
misrepresentation, deceit, or the conversion of trust funds on
the part of a real estate broker, associate real estate broker,
or real estate salesman licensed under this chapter"may make a
claim before the Commission against the fund. AS 08.88.460.
Alaska Statute 08.88.460 specifies that claimants must
file a claim form provided by the Commission, enumerates six
items that must be included on the claim form, and requires a
filing fee of $250. Under AS 08.88.465, the Commission may hold
a hearing to consider the claim, or it may consider the claim
established if a record exists from a licensing revocation
hearing concerning the same facts. The Commission may postpone a
decision on the claim until after a licensing hearing or a court
proceeding has been held. AS 08.88.465(e). To establish a
claim, the claimant must prove all facts by a preponderance of
the evidence. AS 08.88.465(d).
If the Commission finds that the claim is supported, it
must make written findings and conclusions on the evidence. It
may award an individual claimant a maximum of $10,000. AS
08.88.470. The maximum liability of the fund for any one
individual licensee may not exceed $50,000. AS 08.88.475. If
$50,000 is insufficient to cover the valid claims against one
individual licensee, "the $50,000 shall be distributed among the
claimants in the ratio that their individual claims bear to the
aggregate of valid claims, or in another manner that the
commission considers equitable. Distribution shall be among the
persons entitled to share in the recovery, without regard to the
order of priority in which their claims were filed." AS
08.88.475(b). After a claimant has been paid out of the fund,
the claimant must subrogate all right to that amount to the
Commission. AS 08.88.490.
Under AS 08.88.460(c), a licensee may choose to defend
a claim in small claims court, rather than before the Commission.
To exercise this option, the licensee must make this election
within seven days of the filing of the claim, and the amount in
question must not exceed the jurisdiction of the small claims
court.
The surety fund statutes themselves contain no
limitation establishing a deadline for filing a claim. See AS
08.88.450-.495. Consequently, the Commission promulgated 12 AAC
64.295, which states,
DEADLINES. For a claim to be considered
valid for the purposes of reimbursement from
the surety fund, the claimant must file a
claim in accordance with AS 08.88.460 within
one year after the date the alleged loss was
discovered or could have been discovered, but
in any event, not later than two years after
the transaction is recorded or the transfer
of interest date.
Appellants challenge the validity of this regulation.
II
The facts of each case consolidated in this appeal are
similar. In Warner v. State, Warner filed a surety fund claim
with the Commission, alleging $71,280 in losses. Warner alleged
that a licensed real estate broker had committed several breaches
of duty which had caused his damages.
After a hearing, the hearing officer found that "the
date of discovery began in November, 1984, and that the one year
period began to run then. Since the claim was not filed until
September 15, 1986, the claim should be dismissed because it was
filed after the statute of limitation had run." The Commission
adopted this decision.
On appeal, the superior court concluded that there was
substantial evidence to support the conclusion of the Commission
that the discovery date for Warner's claim was November 1984.
The court then analyzed Warner's argument that 12 AAC 64.295 was
invalid, and concluded that the regulation was not "arbitrary and
capricious." The court reasoned that "[i]t is also a close
question whether there was a legislative intent to allow the
agency to adopt a one-year time limit or if this was a
legislative omission. Since some time limit must apply, the
agency has inherent authority to adopt a reasonable time limit."
Even though the court concluded that "[t]he one-year time serves
as a trap for the unwary Alaskan", it reluctantly affirmed the
decision of the Commission.
In Lester v. State, Lester and his co-appellants
filed separate surety fund claims with the Commission in May and
June of 1987. Each claim was against the same broker, and each
admitted that the claimant had discovered their losses more than
one, but less than two, years earlier.
A consolidated hearing on the surety fund claims was
held on January 28, 1988. The hearing officer determined that
each claimant had incurred damage in excess of $10,000, but that
each claim was outside of the one-year time limit for filing
surety fund claims. The Commission denied the claims. On
appeal, the superior court upheld the validity of 12 AAC 64.295,
concluding that "the authority to adopt a time limitation must be
implied from the legislative enactment creating a surety fund."
In Apostol v. State, a hearing officer found that the
Apostols and other claimants were victims of a "property
acquisition scheme"run by a licensed real estate broker which
"ended in failure and in the systematic fleecing of a number of
sellers." The Apostols did not discover their loss until the
broker ceased making payments several years after the actual
transaction. They filed their surety fund claim within one year
of that discovery, but the hearing officer found that "the
transaction took place at least seven years ago, and that would
bar consideration under 12 AAC 64.295, which requires the claim
be filed within two years after the transaction is recorded."
The Commission denied the claim.
The superior court affirmed the Commission's denial of
the claim and concluded that "the challenged regulation is within
the Real Estate Commission's implied authority and is reasonably
necessary to carry out the purposes of the Real Estate Surety
Fund."
III
The primary question before this court is whether the
Commission had authority to promulgate 12 AAC 64.295. We have
previously stated that "[a]dministrative agencies are creatures
of statute, deriving from the legislature the authority for the
exercise of any power they claim." Rutter v. State, 668 P.2d
1343, 1349 (Alaska 1983) (citing McDaniel v. Cory, 631 P.2d 82,
83 (Alaska 1981)). Accordingly, "[r]egulations promulgated by an
executive department must be authorized by statute." State v.
Alyeska Pipeline Serv. Co., 723 P.2d 76, 78 (Alaska 1986).
Alaska's Administrative Procedure Act (APA) provides
that "[t]o be effective, each regulation adopted must be within
the scope of authority conferred and in accordance with standards
prescribed by other provisions of law." AS 44.62.020. Moreover,
"authority to adopt a regulation to implement, interpret, make
specific, or otherwise carry out the provision of the statute"
may be "by express or implied terms of a statute." AS 44.62.030.
The APA further states, however, that it does not "confer
authority upon or augment the authority of a state agency to
adopt, administer, or enforce a regulation." AS 44.62.020.
In short, "[w]hen administrative rule-making is based
upon clear authority from the legislature to formulate policy in
the adoption of regulations, the rule-making activity takes on a
quasi-legislative aspect." Kelly v. Zamarello, 486 P.2d 906, 909
(Alaska 1971). See also, K. Davis, Administrative Law Treatise
5.03 at 252 (Supp. 1970) ("regulations will have the force of law
if the statute has granted authority to the administrator to
issue them").
Kelly outlined how to assess the validity of a
regulation as follows:
[W]here an administrative regulation has
been adopted in accordance with the
procedures set forth in the Administrative
Procedure Act, and it appears that the
legislature intended to commit to the agency
discretion as to the particular matter which
forms the subject of the regulation, we will
review the regulation in the following
manner: First, we will ascertain whether the
regulation is consistent with and reasonably
necessary to carry out the purposes of the
statutory provisions conferring rule-making
authority on the agency. This aspect of
review insures that the agency has not
exceeded the power delegated by the
legislature. Second, we will determine
whether the regulation is reasonable and not
arbitrary. This latter inquiry is proper in
the review of any legislative enactment.
Id. at 911. See also State v. Anderson, 749 P.2d 1342, 1343
(Alaska 1988); Chevron U.S.A. Inc. v. LeResche, 663 P.2d 923, 926-
27 (Alaska 1983). Thus, the first inquiry under the APA and
Kelly is whether the legislature intended to commit the question
of a surety fund claim deadline to the discretion of the
Commission.
12 AAC 64.295 itself cites 08.88.081 as authorizing its
promulgation. AS 08.88.081 states,
Commission regulations. The commission
shall adopt regulations pertaining to the
responsibilities of persons licensed under
this chapter and the grounds for revoking or
suspending a license.
Additionally, AS 08.88.111 states,
Commission regulations. The commission
shall adopt procedural regulations describing
(1) how it conducts an examination
(2) how a person applies to take an
examination, applies for a license, and
registers that person's office.
While both these statutes grant the Commission rulemaking
authority, neither appears in the Real Estate Surety Fund Act.
Rather, both statutes appear in the Real Estate Brokers and
Salesmen Act, and both relate to the Commission's licensing
powers. Further, both statutes are clear in the grant of
authority they provide. Neither statute grants to the Commission
the discretion to determine a statute of limitations for surety
fund claims. Thus, the Commission erred when it cited to AS
08.88.081 as authority to promulgate 12 AAC 64.295.1
Drawing on State v. Anderson, 749 P.2d 1342, 1344
(Alaska 1988), the state argues that the Commission had implied
authority to promulgate 12 AAC 64.295. In Anderson, we stated,
Therefore, in determining the
validity of [the regulation], we will
ascertain (1) whether the regulation is
within the scope of authority conferred on
the [agency]; i.e., whether it is consistent
with and reasonably necessary to carry out
the purposes of the enabling statute, (2)
whether it is reasonable, and (3) whether it
directly conflicts with any other state
statute.
The state concludes that the test for a grant of authority is
whether the regulation is consistent with and reasonably
necessary for implementation of the statute which it purports to
be based on. Thus, in the state's view, if a regulation is
necessary for implementation of a statute, then the statute
impliedly confers authority for the promulgation of the
regulation.
The Anderson test, however, is the test to determine
the scope of an agency's authority when an agency has been given
a broad grant of general rulemaking authority by statute.
Anderson assumes the existence of some grant of rulemaking
authority within the enabling statute. Id. The enabling statute
must confer authority to make rules; it is not sufficient that
the enabling statute needs interpretation in order to be
implemented.
The Real Estate Surety Fund Act, AS 8.88.450 -
8.88.495, specifies the procedure the Commission must follow in
adjudicating surety fund claims. These statutes contain only one
grant of rulemaking authority, AS 8.88.455, which authorizes the
Commission to enact regulations dealing with the collection of
fees when the surety fund exceeds $250,000.2 Unlike those cases
in which we have evaluated the scope of an administrative
agency's implied authority,3 the surety fund statutes do not
confer a broad grant of rulemaking authority.4
In a similar situation, the supreme court of
Massachusetts invalidated a regulation which would have prevented
insurance companies from testing for AIDS. Life Ins. Ass'n of
Mass. v. Comm'r of Ins., 530 N.E.2d 168 (Mass. 1988). The court
found that "there is no statute authorizing the promulgation of
regulations that has any relationship to the regulations that
[the commissioner] issued." The court concluded that "[a]n
implication of authority cannot arise from a statutory vacuum."
Id. at 172.5 Similarly, here the legislature has not granted the
Commission the authority to enact, 12 AAC 64.295. Therefore, we
remand these cases to the superior court with instructions to
remand them to the Commission for hearings in accordance with the
Surety Fund Claims Act.
IV
In his pro se appeal, Eugene Warner argues that the
court erred by joining the broker, Robin Bernard, and not
permitting the claim to be pursued against the surety alone.6 It
is not clear whether Warner is arguing against joinder of Bernard
or against consolidation of a licensing hearing with a surety
fund hearing. However, as no consolidation took place, the
asserted error is moot.7
As to joinder, there is no error in joining the
licensee as a party to a surety fund claim. Alaska Statute
08.88.460(c) allows the licensee the option of transfer to small
claims court. This option clearly contemplates joinder of the
licensee as a party. Moreover, joinder is liberally allowed.
Alaska R. Civ. P. 20. The licensee has an interest to defend in
the surety fund claim and the claimant is not prejudiced by
joinder.
V
Finally, Lester argues that ample evidence exists in
the record for the superior court to exercise its inherent
equitable powers and decide the surety fund claims on their
merits. We reject the request. Allowing the superior court to
hear these cases on their merits would directly conflict with the
statute. Moreover, the authority cited by Lester is inapposite
and incorrectly interpreted.8
VI
In conclusion, 12 AAC 64.295 is not a regulation with
the force of law because it was not promulgated pursuant to a
legislative grant of authority. The decisions of the superior
courts are REVERSED and these cases REMANDED to the superior
court with instructions to remand to the Commission for further
proceedings.
_______________________________
1. We have previously applied strict construction to
questions of statutory grants of authority to an administrative
agency when resolving the availability of damages as an
administrative remedy. McDaniel v. Cory, 631 P.2d 82, 88 (Alaska
1981) (fine levied by Human Rights Commission held invalid where
"no statutory authority exists which gives the Commission the
power to award damages to complainants in public accommodation
discrimination cases.") Following McDaniel, we will narrowly
interpret a statute as to the question of whether it grants the
agency discretion to promulgate rules.
2. AS 08.88.455 states in part, "[a]fter the fund reaches
$250,000 the commission shall by regulation adjust the surety
fund fees . . . ."
3. See, e.g., Vail v. Coffman Engineers, Inc., 778 P.2d 211
(Alaska 1989) (Alaska Department of Labor regulation found not
reasonably necessary to carry out purpose of statute; court did
not perform analysis of agency authority to promulgate
regulations; however, AS 23.10.395 states "[t]he Department may .
. . adopt regulations necessary to carry out [these statutes]");
State v. Anderson, 749 P.2d 1342 (Alaska 1988) (regulations
upheld as within scope of Department of Environmental
Conservation's authority because they were "consistent with and
reasonably necessary to carry out the purpose of the enabling
statute"; court initially notes that DEC has statutory rulemaking
power); State v. Alyeska Pipeline Serv. Co., 723 P.2d 76 (Alaska
1986) (regulation requiring permit to travel on highway invalid
because it bears no reasonable relation to enabling statute which
established state duty to maintain highways; court initially
notes that agency has authority to promulgate regulations under
that enabling statute); Chevron U.S.A., Inc. v. LeResche, 663
P.2d 923 (Alaska 1983) (AS 38.05.020(b)(1) grants Department of
Natural Resources authority to "establish reasonable procedures
and adopt reasonable rules and regulations necessary to carry out
this chapter"; this, together with AS 38.05.180 established
implied authority to promulgate regulation in question); Kelly v.
Zamarello, 486 P.2d 906 (Alaska 1971) (starting point in analysis
of validity of regulation is that "AS 38.05.020(b)(1) of the
Alaska Land Act provides that the Commissioner may 'establish
reasonable procedures and adopt reasonable rules and regulations
necessary to carry out' the provisions of the state's land act");
see also Beran v. State, 705 P.2d 1280 (Alaska App. 1985) (to
determine validity of regulation, the court first looks to grant
of authority to promulgate regulation; here, AS 16.05.251(a)
states, "The Board of Fisheries may adopt regulations it
considers advisable in accordance with the Administrative
Procedure Act [for enforcement of this act]).
4. The superior court in Apostol agreed that AS 08.88.081
provided the necessary authority, saying, "it is clear that the
legislature provided a substantial nexus between the Commission's
hearing of claims against the surety fund and its disciplinary
power relating to the responsibilities of real estate licensees."
This argument, however, also clearly involves implied
authority. By this reasoning, 12 AAC 64.295 is valid because it
is reasonably necessary to administer the joint duties of the
agency as license disciplinarians and surety fund adjudicators.
It says nothing about a grant of power from the legislature to
promulgate rules of procedure for surety fund awards. Without an
indication that the legislature intended to leave these rules to
agency discretion, no general rulemaking authority can be implied
merely by reading two statutes in confluence.
Moreover, the superior court in Lester rejected this "nexus"
argument. The Lester court found that "[t]hese [licensing]
obligations are far removed from the business of filing a claim.
Therefore, the court concludes the Real Estate Commission did not
have actual authority under AS 08.88.081." We agree with the
Lester court on this issue.
5. See also Kauer v. Amemiya, 532 P.2d 664 (Haw. 1975) (per
curiam) (Director of Consumer Protection Agency was without power
to promulgate rules under the consumer protection statute); Fahey
v. Cook County Police Dep't Merit Bd., 315 N.E.2d 573 (Ill. App.
1974) (Police Merit Board had no authority to promulgate rule on
compulsory retirement age). See generally, 1 K. Davis,
Administrative Law Treatise 5.01 - 5.09 (1958 & Supp. 1970).
6. Warner also asserts that the hearing officer erred when
she determined that Warner knew or should have known of his claim
by November 1984. Given our holding that a two-year statute of
limitations applies to surety fund claims, this issue is moot.
7. There is no evidence in the record that a license
hearing was consolidated with the surety fund hearing. What
actually seemed to have happened is that the hearing officer
notified the parties that "[u]pon notice to the parties a pending
licensing action may be consolidated with the surety claim."
However, because Warner's hearing was noticed and held solely on
the issue of the statute of limitations, no such consolidation
ever took place.
8. Appellants argue that Arnold v. Morton, 529 F.2d 1101
(9th Cir. 1976) established a "subjectively certain"test which
would allow the superior court to hear this claim on its merits.
Id. at 1105. The "subjectively certain"test is only applicable
under federal law, where the court of appeals may only uphold an
agency decision on the same grounds as set forth by the agency in
support of that decision. The test could not apply here, where
appellants are asking this court to apply the "subjectively
certain" test to overrule an agency decision. Moreover, this
test is superfluous under Alaska law, where an appellate court
may uphold a decision on any basis supported by the record. Sea
Lion Corp. v. Air Logistics of Alaska, 787 P.2d 109, 116 (Alaska
1990). Finally, we are not "subjectively certain" about the
outcome on remand.
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