Town Prevails on Whistleblower Protection Act Case

Thursday, April 18, 2019

The Law Court entered a decision on April 11, 2019, which took the rare step of granting summary judgment in favor of the Town of Denmark in a case that an employee brought against the Town. The underlying facts were that the employee worked from 2003 to 2014 under a written employment contract with the Town to serve as a part-time Code Enforcement Officer (CEO). The contract stated that he was to “perform all duties as specified by the law and ordinance and to perform such other proper duties . . . as assigned by the Board of Selectmen.” In September 2014, the Town’s new Town Manager advised the CEO to report directly to him rather than the Board of Selectmen. The employee complained to the Manager and the Board that the directive was an illegal violation of his employment contract with the Town because he interpreted the contract to require that he report to the Board, not the Town Manager. Shortly thereafter, the Board of Selectmen approved a new job description for the CEO position and offered it to the employee. He objected to the new job description, asserting that it breached his contract and stated “that because it changed the CEO job description, the Town would need to form a Charter Commission and then call a public meeting to call a special election.” The following month, the employee was placed on paid administrative leave because of an allegation that he had been falsifying pay records. After investigation, it was determined that he had not falsified pay records and the Board voted unanimously to rescind his suspension. The Town Manager resigned his position. 

Under these facts, the Superior Court granted summary judgment and the Law Court affirmed. It closely analyzed the requirements of the Whistleblower Protection Act, 26 MRS §§ 831, et seq., to determine whether the employee reported to his employer what he had reasonable cause to believe was the employer’s unlawful activity. The Court found that the reasonable cause requirement required that the employee present evidence showing he had both a subjective belief that the employer engaged in illegal activity and, also, that the belief was objectively reasonable such that a reasonable person might believe illegal activity occurred. The employee argued three sections of statute—30-A MRS §§ 2601, 2601-A and 4451—plus the CEO job description demonstrated that the change was illegal. The Court rejected this argument and stated that an employee must report something other than a standard breach of an employment contract to put himself within the provisions of the Whistleblower Protection Act. Further, the Court held that even if the employee subjectively believed that the Town’s actions violated Maine law or the Town’s charter, that his subjective belief alone was insufficient to meet the reasonable cause requirement because neither the law nor the charter by any reasonable reading made the Town’s actions unlawful. 

Because these cases are generally very difficult to win on summary judgment, this narrower interpretation of the Whistleblower Protection Act is good news for municipalities and employers in general. 

(2019 ME 54 Michael A. Lee v. Town of Denmark)

Are Notices of “No Violation” Appealable in Maine?

Wednesday, April 3, 2019

If a code enforcement officer (CEO) issues a written decision finding “no violation” of a land use ordinance, is that decision appealable? Recently, Maine’s Law Court tackled this very question and answered “yes”—but only so long as the ordinance does not say otherwise.

In Raposa v. Town of York, an abutter became concerned about how a neighbor was using property. The abutter contacted the CEO, who responded to the abutter with an email explaining that no violations were warranted based on the neighbor’s use of the property. The CEO’s email included a notice advising the abutter that the Board of Appeals could hear an appeal from “any order, requirement, decision, or determination” made by the CEO or any other person charged with administering the ordinance. Heeding that advice, the abutter appealed the CEO’s “no violation” determination to the Board of Appeals and then to the Superior Court, where the Town of York moved to dismiss the appeal for lack of jurisdiction. The Superior Court granted the Town’s motion, finding that the Board’s review of the CEO’s decision was advisory and therefore unreviewable.

Reversing the Superior Court, the Law Court explained that Notices of Violation (NOVs) have been generally appealable since 2013—when the Legislature amended the statute governing appeals from municipal boards—except where an ordinance expressly provides that certain decisions are only advisory and may not be appealed. Although the Law Court noted that the plain language of the amended statute does not explicitly address “no violation” notices, the Court also noted that its previous decisions have “expressed the understanding that such ‘no violation’ actions are similarly appealable” because of their potential impact on property uses. In Raposa, the Law Court took the opportunity to make its previous expressions more concrete, holding conclusively that “a CEO’s written decision interpreting a land use ordinance is appealable to the Board and in turn to the Superior Court—whether the CEO finds that there is or is not a violation—so long as the ordinance does not expressly preclude appeal.” Because the Town of York’s ordinance did not have a provision that expressly precluded appeal, the Law Court found that the abutter’s appeal was not subject to dismissal by the Superior Court. 

In light of Raposa, municipalities should review the appeal provisions in their land use ordinances and update them accordingly.

Municipal Officers Can Pass Certain Ordinances

Thursday, March 7, 2019

Even in towns where all legislative authority rests with town meeting, the Selectmen or Town Council have authority to pass certain kinds of ordinances. Following is a list of those topics: 

Traffic Control Ordinances – Title 30-A M.R.S. § 3009 allows the municipal officers to enact ordinances governing: 

  • Pedestrian traffic, including the use and maintenance of sidewalks and crosswalks. (Yes, the municipal officers can pass an ordinance requiring property owners to clear snow from sidewalks.)
  • The operation of vehicles in the public ways and on publicly owned property. (Towns have used this to pass Jake brake ordinances, motorcycle noise ordinances, and various other issues that aren’t covered by state law).
  • Parking in public ways or public parking areas.

Extension of Moratoria – While town meeting must enact the original moratorium, the municipal officers may act to extend the moratorium for additional 180-day periods upon a finding that the conditions which called for the moratorium still exist. (30-A M.R.S. § 4356)

Cable TV Ordinances – The municipal officers may enact ordinances governing the franchising and regulation of cable TV within the municipal boundaries. (30-A M.R.S. § 3008)

General Assistance Ordinances – These ordinances govern the processing and application requirements for receiving general assistance from the municipality. Each year, the municipal officers must also amend the local maximum levels of assistance. (22 M.R.S. § 2305) (Note that Maine Municipal Association provides a model ordinance as well as annual suggested maximums.)

Local Snowmobile and ATV Access Routes – Under state law, snowmobiles and ATVs may not travel within the public way. However, 12 M.R.S. 13106-A(5)(G) gives the municipal officers authority to pass ordinances allowing for such travel if they determine that it can be done safely.

How to Handle Tax Foreclosures When the Property Has an IRS Lien

Friday, March 1, 2019

After a municipality goes through the statutory foreclosure process because of delinquent taxes on a piece of real estate, it normally takes the property free and clear of any pre-existing liens, mortgages, executions of judgment, or other clouds on the title to real estate. The exception to this is when the property has an IRS lien against it for unpaid income taxes by the property owner. There is, however, a method for dissolving those liens if the proper procedure is followed. When the lien is dissolved, the municipality will own the property free and clear of the IRS lien at the time that it takes title. 

At the time of foreclosure, the tax collector should send a copy of the lien certificate to the IRS at the same time it is recorded with the registry of deeds. The municipality should also send a copy of the notice of impending foreclosure to the IRS itself. The way to extinguish an IRS lien against the property is by the municipality sending the IRS a copy of a notice pursuant to 26 U.S.C.A. § 7425. Samples of the notice can be found on the IRS website (IRS publications 786 and 4235). The statutory notice will extinguish the IRS lien as long as it is sent to the IRS by certified mail at least 25 days prior to the date of automatic foreclosure. It is best to send the section 7425 notice to the IRS at the same time that the 30–45 day notice of pending foreclosure is sent. The IRS has a redemption period of 120 days following the date that the municipality takes title through the foreclosure process. Thus, it would be wise to wait the 120 days after taking possession before selling the property. 

While it is not clear that the IRS would foreclose on a lien against property that is no longer owned by a taxpayer, but rather is owned by the municipality, obviously clean title to the property is preferred, and the sending of this notice is the way to achieve that.

Amendments to Rule 15c2-12 Coming into Effect in February

Tuesday, February 12, 2019

On February 27, 2019, two new required municipal securities disclosure events will come into effect pursuant to amendments to U.S. Securities and Exchange Commission Rule 15c2-12. The amendments apply to municipal securities issued on or after February 27, 2019.

Currently, there are 14 different events for which notices must be filed pursuant to Rule 15c2-12, which include events such as rating changes or events affecting the tax-exempt status of the security. The purpose of these notices is to provide certain information to investors. These event notices are part of the continuing disclosure obligations Rule 15c2-12 stipulates underwriters of municipal securities must ensure the issuer or obligated person will fulfill. In addition to the event notices, the rule includes other requirements, such as the filing of annual financial information. This continuing disclosure information is provided to the Municipal Securities Rulemaking Board (MSRB) on an ongoing basis and made accessible to investors through its Electronic Municipal Market Access website. 

As of February 27, notices will be required for two new events:
  1. The incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the obligated person, any of which affect security holders, if material; and
  2. A default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the obligated person, any of which reflect financial difficulties.
As with the current list of events, notice of these two new events must be provided to the MSRB within 10 days of the event’s occurrence.

Standing to Appeal Requires “Continuous Participation”

Monday, February 4, 2019

Local appeals boards are usually in the habit of considering the particularized injury prong of the standing test, but often brush over the participation prong. The Lincoln County Superior Court recently issued a decision in Our Town, et. al. v. Town of Damariscotta, et. al. (Lin. Cty. Super. Ct. Dkt. WISSC-AP-2018-3), which serves as a good reminder to local boards of appeals that they have jurisdiction to review and determine whether the appellants before them have sufficiently participated in the hearing process. 

Most municipal ordinances allow for an “aggrieved party” to appeal local administrative decisions. To be “aggrieved,” a party must show that he or she participated throughout the administrative process, and that the decision causes him or her to suffer a particularized injury or harm. Participation generally requires the party to have attended the relevant meetings (whether in person or through written comments) and raised any issues he or she may have. When the appellant is an individual, participation is usually easy to demonstrate through examination of the meeting record. However, as discussed in the Our Town case, it can be more complicated when a group or coalition is appearing as an appellant. 

In Our Town, a group of affected individuals presented an appeal of a site plan approval issued by the Damariscotta Planning Board. When the Board of Appeals considered whether the group had standing, it noted that one of the members had appeared at a pre-application workshop, that none of the members had appeared at the Planning Board meetings on the application, and that one of the members had submitted written comments after the close of the hearing. Accordingly, it found that Our Town did not have standing because its members had not continuously participated in the review process. The Court agreed, holding that because it was the group that was asserting standing, the individual members had to have identified themselves as members of the group when they appeared. The Court also held that participation before and after, but not during the hearing, was not sufficient to demonstrate continuous participation. 

Appeals boards should, as a preliminary matter, evaluate both prongs of the standing test before proceeding to the merits of an appeal. If, on review of the record, it is clear that the appellant did not sufficiently participate in the review process, the Board is free to deny the appeal, and a court is likely to give that decision a good degree of deference.

Why Municipalities Should Convey Real Property by Quitclaim Deed

Tuesday, January 29, 2019

Municipalities own real estate that they convey to third parties in a variety of situations. Most often this occurs in the context of conveying property the town acquired because of unpaid property taxes back to the taxpayer once the past due amounts have been paid in full, but also in the context of municipal-owned property in industrial parks and other property suitable for development. Almost always a municipal quitclaim deed is the appropriate instrument for conveying tax acquired property. A municipal quitclaim deed releases any right, title, or interest the municipality may have in the described property to the identified grantee, without any covenants or guarantees of title. Put another way, such deeds do not contain any representation or warranty by the municipality as to whether or not it actually has title to the described property or whether or not the property is subject to any lien or encumbrance. Muni-quitclaim deeds are truly the “buyer beware” of deed forms.

Nonetheless buyers of property and other parties acquiring title to real property from a municipality often ask for a warranty deed or a quitclaim with covenant deed. The rationale these buyers offer is that they, unlike taxpayers paying back taxes, are paying real money for the property and they are entitled to know that the municipality has title and that it is free and clear of liens and encumbrances. These buyers are in effect asking the municipality to perform the buyer’s due diligence and search title to the property. For a number of reasons, this burden switching is inappropriate and improperly places the burden of insuring title on the municipalities’ residents.

While municipal quitclaim deeds offer nothing in the way of promises to the buyer, other forms of deeds—for illustration purposes, warranty deeds and quitclaim deeds with covenant—provide a number of such promises. A warranty deed is the seller’s promise that it has the interest in the property it is purporting to convey to the buyer; that there are no encumbrances on the property, such as mortgages, liens, or easements, other than those referenced in the deed; and that the buyer’s possession of the property will not be interrupted by someone with a superior interest in the property. Most importantly, the seller promises that its title to the property is free of defects, and that it will defend the buyer’s possession of the property against the claims of “all persons,” even with respect to defects or claims that may have arisen years before the seller acquired the property. By giving a warranty deed, then, a seller takes on potential liability not just for what the seller has done during his or her period of ownership, but also for claims arising well before he or she acquired the property, of which it likely has no knowledge. Quitclaim deeds with covenant offer similar promises, with the exception that the guarantee of no defects or claims covers only that period of the seller’s ownership.

A municipality often acquires property without having performed a complete title examination and is thus unable to know whether it has title to the property, whether such title is subject to any liens or encumbrances, and whether others have claims to the property. Only by a thorough title examination is the municipality able to answer these questions and to meaningfully evaluate what such promises might entail for potential future liability. Even though a tax foreclosure provides that a municipality owns a property free and clear of any encumbrances, the title standards require either a five- or fifteen-year waiting period for clean title, depending on when the period of redemption expired.

Even though the possibility of selling a property for more money exists when a deed other than a quitclaim is given, absent an action to quiet title, the risks outweigh the benefits.