Board of Trustees v. John K. Ruff, Inc.

Citations: 366 A.2d 360; 278 Md. 580; 1976 Md. LEXIS 658Docket: [No. 74, September Term, 1976.]

Court: Court of Appeals of Maryland; November 29, 1976; Maryland; State Supreme Court

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In *Board of Trustees of Howard Community College v. John K. Ruff, Inc.*, the Court of Appeals of Maryland addressed an appeal concerning a declaratory judgment regarding sales tax reimbursement under a contract between John K. Ruff, Inc. and the Board of Trustees. The Circuit Court for Howard County granted summary judgment in favor of Ruff, ordering the Board to reimburse sales tax for materials related to the construction project, including those purchased by subcontractors. 

A key issue in this appeal, which had not been raised or decided in the lower court, was the applicability of sovereign immunity. The court emphasized that the defense of governmental immunity cannot be waived unless there is express statutory authorization or implied consent. The court recognized the longstanding nature of the sovereign immunity doctrine in Maryland law, noting its historical significance and the necessity for legislative action to modify it, citing fiscal and administrative considerations. The court expressed a preference for changes to the doctrine to come from the legislature rather than the judiciary, reaffirming its established position on the matter.

The Governor's veto previously kept a bill regarding sovereign immunity alive, which was later enacted as ch. 450, Acts 1976, effective July 1, 1976. This legislation stipulates that, absent contrary provisions, state and municipal entities cannot invoke sovereign immunity in written contract actions initiated within one year after the claim arose or the contract was performed. However, this Act does not apply to contracts made before July 1, 1976.

Additionally, community colleges' sovereign immunity has been partially waived under ch. 549, Acts 1971, as amended by ch. 528, Acts 1972, which mandates that their boards of trustees carry comprehensive liability insurance. This waiver does not prevent the boards from claiming sovereign immunity for amounts exceeding their insurance limits or for self-insurance claims over $100,000. The law does not apply to the case in question.

To determine the applicability of sovereign immunity concerning the contract at issue, the court must ascertain if the Board is a state agency. If deemed an agency, sovereign immunity applies unless explicitly waived. Even with a waiver, immunity remains if the Board lacks funds to satisfy a judgment and cannot raise funds through taxation. Historical cases affirm that public education is a significant state interest, with the State Board of Education operating as an agency of the state, entitled to sovereign immunity unless waived. This precedent was applied to the Board of Trustees of community colleges, confirming that it, too, is considered a state agency for sovereign immunity purposes.

A community college, whether established for one county or multiple counties, is characterized as an agency of the State, as established by various legal precedents and statutes. In Prince George's County v. Board of Trustees, it was determined that community colleges are not county institutions but are created and controlled by the State. The State Board for Community Colleges oversees policies and annually reports to the General Assembly, with community colleges funded primarily by state resources—50% of current expenses come from the State. Boards of trustees possess the sovereign power of eminent domain, confirming their status as state agencies. 

Regarding legal actions against such boards, sovereign immunity applies unless there is explicit statutory waiver. Chapter 873 from 1973 clarifies that boards of community colleges can sue and be sued, which indicates a legislative intent to waive sovereign immunity under specific conditions. Past rulings, such as in Weddle v. School Commissioners, illustrate that while these boards may be sued, liability is limited to matters within their designated responsibilities. Therefore, if an action does not pertain to their duties, sovereign immunity remains intact.

In Weisner v. Bd. of Education, 237 Md. 391 (1965) and University of Maryland v. Maas, 173 Md. 554 (1938), it is established under Maryland law (Code Art. 77, § 38) that county boards of education are authorized to sue and be sued. However, boards of education do not inherently possess governmental immunity from lawsuits, as clarified in Bolick v. Bd. of Education of Charles Co., 256 Md. 180 (1969). The case of Charles E. Brohawn Bros. v. Board discusses the implications of a statute that allows community college boards of trustees to sue, noting that while the Chesapeake College board inherits the ability to sue from county boards of education, this does not apply to regional community colleges, which are not solely established by county boards.

The courts conclude that legislative authorization for an agency to be sued implies a waiver of sovereign immunity only within its defined duties. However, a money judgment cannot be enforced unless funds are specifically appropriated or the agency has the authority to raise funds. Legislative authority does not equate to unqualified liability; a suit cannot proceed without available funds for damages, either through specific legislative provision or the agency's own funding capabilities. Thus, government agencies cannot be sued in contract or tort unless there is explicit legislative authority, and even with such authority, the availability of funds is a prerequisite for maintaining any suit.

Sovereign immunity serves as a valid defense for the Board of Education against contract-related monetary judgments unless funds are appropriated or the Board has the authority to raise such funds through taxation. The Board is recognized as a state agency, thus subject to the same sovereign immunity principles. Although the General Assembly has waived the Board's sovereign immunity, this waiver does not exempt it from liability in a contract suit unless funds are available or can be generated by taxation. The Board can receive local, state, and federal funds, as well as private gifts, but lacks the authority to raise funds through taxation to satisfy contractual judgments.

The determination of whether funds are available for judgment satisfaction remains a factual issue that has not yet been addressed in the trial court. Discussion of sovereign immunity is pertinent only if the Board is found liable for sales tax obligations related to the contract. The trial court previously indicated the Board's liability, which is supported by the facts: in April 1974, the Board invited bids for a Nurse Education Facility, resulting in a contract with Ruff, whose bid of $2,088,100 was accepted. The contract, based on the American Institute of Architects' standard agreement, included specific documents that formed part of the contract. Notably, the Project Manual contained a tax exemption specification indicating that materials for the project would be exempt from sales tax, with the Board providing Ruff an exemption certificate. Ruff's bid did not account for sales tax, and subcontractors also excluded such sums from their bids.

On April 13, 1970, the Comptroller of the Treasury provided an exemption from sales tax for purchases made by the Board for its work. However, it was later determined that the construction of the facility was subject to Maryland sales tax, which the Comptroller communicated to Ruff and its subcontractors. Subsequently, on September 23, 1975, the State filed a tax lien against Ruff for unpaid sales taxes from September 23 to December 27, 1974, along with penalties and interest. The subcontractors, having bid based on the sales tax exemption, requested Ruff to adjust their contracts to account for the sales taxes incurred. The Board declined to amend the contract sum to cover these taxes.

On October 2, 1975, Ruff initiated a declaratory judgment action against the Board. After the Board responded, Ruff moved for summary judgment, which the court granted on April 19, 1976, declaring the parties' rights. The Board contested the summary judgment, arguing that there was a material fact dispute. However, the court found no bona fide issue between the parties, as the contract clearly stipulated that materials purchased would be exempt from sales tax. Ruff and its subcontractors had to pay sales tax despite this provision, and the Board failed to present sufficient evidence to dispute these claims.

The contract, specifically Specification 1.24, indicated that no sales tax would be considered in Ruff's bid, which was accepted by the Board. Thus, Ruff was obligated to perform the work for a set sum without sales tax liability. The requirement for Ruff to pay sales tax constituted a breach of contract, entitling Ruff to damages for the sales tax paid to the State or incurred by subcontractors. The court clarified that the issues of mistake or reliance on misrepresentation were irrelevant, as the Board had explicitly declared that no sales tax was payable, leading to the conclusion that Ruff was entitled to damages due to the breach of a clear contractual provision.

The judge ordered the Board to reimburse Ruff for all sales tax related to materials purchased under their contract, including those bought by subcontractors. The key issue is whether the Board has sufficient funds to cover a money judgment for the sales tax, interest, and penalties arising from the construction project. If funds are available, the Board waives sovereign immunity, allowing a breach of contract action. Conversely, if funds are unavailable, sovereign immunity would prevent such an action. The case is remanded for further proceedings to introduce additional evidence and determine the total sales tax, penalties, and interest owed, as well as the availability of funds. The trial court must amend its declaratory order based on its findings. The opinion is conclusive on all decided points, and costs will follow the outcome below. Additional notes reference the history and legal context of sovereign immunity in Maryland, the evolution of relevant court rules, and the powers of the current Board of Trustees, which succeeded the original Board. Article 4 of the contract stipulates that work must commence by July 15, 1974, with a completion deadline of 460 consecutive calendar days thereafter.