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Fourth Circuit Affirms the Dismissal of a Construction Company’s Case for Failure to Exhaust Administrative Remedies

Balfour Beatty Infrastructure, Inc. v. Mayor & City Council of Baltimore
No. 16-1322 (4th Cir. April 25, 2017)

by Matthew S. Sarna, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.ca4.uscourts.gov/Opinions/Published/161322.P.pdf

In Balfour Beatty Infrastructure, Inc. v. Mayor & City Council of Baltimore, No. 16-1322 (4th Cir. April 25, 2017), the Fourth Circuit held that Balfour Beatty Infrastructure Inc. (“Balfour”) failed to exhaust all of its administrative remedies against the City before bringing suit in federal court. Accordingly, the Fourth Circuit affirmed the district court’s dismissal for lack of subject matter jurisdiction.

Several years ago, Balfour entered into a public works contract with the City, agreeing to construct parts of a wastewater treatment system. The contract stipulated a completion date, providing the City a right to assess liquidated damages if the project was not completed by that deadline. The contract also provided that, for all claims and dispute resolution, Balfour must seek administrative review with the City before bringing suit in court. After several setbacks pushed the project over the deadline, the City began to impose its liquidated damages against Balfour. Against the contract, Balfour passed over any administrative review process and brought suit in federal court. According to Balfour, the City’s actions constituted an illegal and ultra vires abandonment of the Green Book, the Department of Public Works’ manifesto, administrative process and precluded Balfour’s obligation to use that process.

The district court found for the City, holding that administrative exhaustion was a cornerstone of Maryland law. Specifically, “Where an administrative agency has primary or exclusive jurisdiction over a controversy, the parties to the controversy must ordinarily await a final administrative decision before resorting to the courts for resolution of the controversy.” See Heery Int’l, Inc. v. Montgomery Cty., Md., 862 A.2d 976, 981 (Md. 2004). Further the court noted that the exhaustion requirement can only be surpassed when the “reviewing agency is ‘palpably without jurisdiction’” to adjudicate the claim, and when a party is pleading an “irreparable injury.” See id. at 989. The court found that neither of these required exceptions were present and dismissed the claim for lack of subject matter jurisdiction.

On appeal, the Fourth Circuit summarily disagreed with Balfour’s argument, explaining, “[Balfour’s] position reflects a fundamental misunderstanding of the “palpably without jurisdiction” exception to the exhaustion requirement under Maryland law. Logically speaking, the “palpably without jurisdiction” exception applies where a dispute is pending before an adjudicatory administrative agency that does not have jurisdiction to review the matter. See State v. Md. State Bd. Of Contract Appeals, 773 A.2d 504, 511 (Md. 2001); see also United Ins. Co. of Am. V. Md. Ins. Admin., 144 A.3d 1230, 1249 (Md. 2016) (recognizing the exhaustion exception “[w]here the administrative agency cannot provide to any substantial degree a remedy.”).

The Fourth Circuit explained that the exception had no application in the case at hand. The Green Book, as well as the contract, made clear that the Department of Public Works officials charged with administrative review of contract claims arising from public works contract have express authority to hear and resolve those claims.

Not alleging a lack of jurisdictional, Balfour attempted to argue that the City lacked authority to assess its liquidated damages without first engaging in the Green Book administrative process. However, the Court explained that Balfour’s argument went to the merits of the dispute, as opposed to the argument for the “palpably without jurisdiction” exception. Even if the City’s interpretation of assessing liquidated damages ended up being the incorrect interpretation, the Court had no need to resolve that question at this stage. Under Maryland law, “[a] party’s argument that an agency will be exceeding its authority if it ultimately… decides the case contrary to that party’s position[] does not excuse the failure” to exhaust administrative remedies. See Heery, 862 A.2d at 982–83.

Unlike the district court, the Fourth Circuit did not review Balfour’s argument for the second prong of the exception, “irreparable injury.” Because the exception to administrative exhaustion is a conjunctive test, failing the first prong failed the test in its entirety. Nor did the court find any merit in Balfour’s argument that allowing the Department of Public Works to review and adjudicate on this matter allowed for unfair bias to creep into the proceedings. The Court explained that, if Balfour’s theory succeeded, that City officials are inevitably “predisposed” to favor the City’s position, thus excusing exhaustion, the “bias” exception would swallow the rule.

Accordingly, the Court affirmed the lower court’s decision to dismiss the case for lack of subject matter jurisdiction.

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