COURT OF APPEALS OF VIRGINIA
Present: Judges Frank, Humphreys and McClanahan
Argued by teleconference
JUDY CAROL HORNE
OPINION BY
v. Record No. 1319-10-3 JUDGE ELIZABETH A. McCLANAHAN
FEBRUARY 22, 2011
COMMONWEALTH OF VIRGINIA,
REAL ESTATE BOARD
FROM THE CIRCUIT COURT OF TAZEWELL COUNTY
Teresa M. Chafin, Judge
Thomas P. Walk (Altizer, Walk and White, PLLC, on brief), for
appellant.
Steven P. Jack, Assistant Attorney General (Kenneth T. Cuccinelli,
II, Attorney General, on brief), for appellee.
In this administrative appeal, Judy Carol Horne challenges an order of the circuit court:
(i) affirming the decision of the Commonwealth of Virginia’s Real Estate Board (“Board”) to
impose sanctions against Horne, as a “licensed real estate salesperson,” upon the Board’s
findings that she violated 18 VAC 135-20-310(2) (Count 2) and 18 VAC 135-20-260(10) (Count
3) by her conduct related to a certain real estate transaction; and (ii) denying Horne’s request for
attorney’s fees, pursuant to Code § 2.2-4030, incurred in defending the two alleged violations
that were ultimately rejected by the Board (Counts 1 and 4), and the two remaining alleged
violations that are the subject of this appeal (Counts 2 and 3).
Concluding that the Board’s findings on Counts 2 and 3 were based on arbitrary and
capricious interpretations of its regulations, and supported by insufficient evidence, we reverse
the judgment of the circuit court in affirming the Board’s decision. We also conclude that Horne
is entitled to attorney’s fees in defending Counts 2 and 3, which the circuit court denied when it
erroneously affirmed the Board’s decision. We further conclude, however, that Horne is not
entitled to attorney’s fees as to Counts 1 and 4, as those counts were not the subject of an appeal
to the circuit court; we thus affirm the circuit court as to that ruling. Accordingly, we remand
this case to the circuit court for a determination of reasonable attorney’s fees to be awarded to
Horne on Counts 2 and 3.
I. BACKGROUND
Kris and Jessica Shreve, the prospective buyers (“buyers”), and Jerry Hawkins, the
prospective seller (“seller”), entered into negotiations over the sale of certain residential property
located in Pounding Mill, Virginia. Horne, as a real estate agent with Coldwell Banker Security
Real Estate, Inc. (“Coldwell Banker”), represented the buyers, and Vicki England, as a real estate
agent with Century 21 Prime Properties, represented the seller. After a number of offers and
counter-offers were made between the buyers and the seller through their respective agents,
Horne and England, the parties “ratified” a sales contract for the property on July 12, 2007.
The contract provided, inter alia, the following: (i) “upon ratification” of the contract the
buyers were to pay to Coldwell Banker an earnest money deposit in the sum of $100; (ii) the
buyers were to provide the seller with a “pre-approval letter from [the] lending institution of
[buyers’] choice, within 10 business days from date of acceptance of contract,” or the contract
would be in “default at the option of the [seller]” and the earnest money deposit would be
“forfeited to the [seller]”; (iii) the contract was contingent upon the buyers obtaining financing
from their lending institution for the purchase of the property; and (iv) in the event the loan to the
buyers was not approved the contract could be “cancelled by the buyer(s),” and the buyers would
thereby be entitled to return of the earnest money deposit.
On July 16, 2007, Horne sent to England a facsimile stating that the buyer, Kris Shreve,
“is working with Tim at New Peoples Bank who is on vacation until the 23rd of this month; he
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will not have the [pre-approval] letter until Tim returns.” Horne also called England on July
16th and 18th and advised that Shreve had not yet delivered the earnest money deposit.
After failing to keep appointments with Horne on July 16th and July 18th for delivery of
the earnest money deposit, Shreve called Horne on July 19th (the fifth business day following
ratification of the contract) and explained that the bank had denied his loan request and that he
therefore wished to cancel the sales contract. On the same day, Horne sent to England a
facsimile stating:
[Shreve] . . . did not provide me with an earnest money deposit last
night as agreed. He did call me this afternoon to tell me that he
had spoken with another loan officer at New Peoples Bank who
told him he would have to come up with 20% of the total loan to
bring to closing. He has informed me that he will not be able to
provide 20% of the funding, and as of today he no longer wishes to
proceed with the offer to purchase.
On July 26th, England requested that Horne provide to her, among other things, a letter
from the buyers’ bank stating that it had denied financing to the buyers and a “signed release of
contract noting that escrow monies were not received.” Horne provided those documents to
England on the following day.
The seller subsequently filed a complaint against Horne with the Virginia Department of
Professional and Occupational Regulation (“Department”) 1 in regard to her conduct in
representing the buyers. Following the Department’s investigation, the Department prepared a
report of findings dated September 22, 2008, outlining four counts of Horne’s alleged violations
of the Board’s regulations. The Department then held an “informal fact-finding conference” on
July 29, 2009. Board member Sharon Johnson conducted the hearing in which she received
1
The Board is a separate agency within the Department, and the Department conducts
investigations in matters involving the various agencies under its authority.
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documentary evidence from both the Department and Horne, and heard Horne’s testimony. On
August 19, 2009, Johnson issued her written recommendations to the Board.
For Counts 1 and 4, Johnson recommended that “the file be closed” based on her findings
that Horne had not violated 18 VAC 135-20-300(6) or 18 VAC 135-20-180(B)(1)(a), as charged
in those counts, respectively.
As to Count 2, Johnson concluded Horne had violated 18 VAC 135-20-310(2), as
charged, based on her finding that Horne failed to provide written notice to England in a timely
manner that the buyers had not paid the earnest money deposit as required by the sales contract.
For this alleged violation, Johnson recommended that a penalty of $500 be imposed and that
Horne’s license be placed on probation until she completed four hours of specified continuing
education.
As to Count 3, Johnson concluded Horne had violated 18 VAC 135-20-260(10), as
charged, based on her finding that Horne did not produce a pre-approval letter from the buyers’
bank within ten days as required by the contract. For this alleged violation, Johnson
recommended that a penalty of $1,000 be imposed and that Horne’s license be placed on
probation until she completed three hours of specified continuing education.
At a Board meeting on September 10, 2009, the Board voted to accept Johnson’s
recommendations and a final order of the Board to that effect was entered on the same day.
Horne appealed the Board’s order to the circuit court, challenging its decision as to both Counts
2 and 3, and seeking an award of attorney’s fees for her defense to all four counts.
By final order dated May 21, 2010, the circuit court affirmed the Board’s September 10,
2009 order “in all respects” and dismissed Horne’s appeal. The court specifically found that
there was “substantial evidence” to support the Board’s decision and that the Board’s
construction of its regulations was “neither arbitrary nor capricious.” Upon rejecting Horne’s
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challenge to the Board’s disposition of Counts 2 and 3, the court made no award of attorney’s
fees to Horne under Code § 2.2-4030 for her defense to the alleged violations. The court also
rejected Horne’s request for attorney’s fees on Counts 1 and 4, explaining that, even though
Horne succeeded before the Board in her defense against those alleged violations, those two
counts “were not at issue before the [c]ourt in this appeal.”
II. ANALYSIS
The Virginia Administrative Process Act authorizes judicial review of agency decisions.
See Code § 2.2-4027. Under settled principles, the burden is upon the party appealing such a
decision to demonstrate error. Avante at Roanoke v. Finnerty, 56 Va. App. 190, 197, 692 S.E.2d
277, 280 (2010); Carter v. Gordon, 28 Va. App. 133, 141, 502 S.E.2d 697, 700-01 (1998). “Our
review is limited to determining (1) ‘[w]hether the agency acted in accordance with law;’
(2) ‘[w]hether the agency made a procedural error which was not harmless error;’ and
(3) ‘[w]hether the agency had sufficient evidential support for its findings of fact.’” Avante at
Roanoke, 56 Va. App. at 197, 692 S.E.2d at 280 (quoting Johnston-Willis, Ltd. v. Kenley, 6
Va. App. 231, 242, 369 S.E.2d 1, 7 (1988)).
On factual issues, the determination to be made by the reviewing court is “‘whether
substantial evidence exists in the agency record to support the agency’s decision. The reviewing
court may reject the agency’s findings only if, considering the record as a whole, a reasonable
mind would necessarily come to a different conclusion.’” John Doe v. Virginia Bd. of Dentistry,
52 Va. App. 166, 175, 662 S.E.2d 99, 103 (2008) (quoting Johnston-Willis, 6 Va. App. at 242,
369 S.E.2d at 7). See Virginia Real Estate Comm’n v. Bias, 226 Va. 264, 269, 308 S.E.2d 123,
125 (1983) (“The phrase ‘substantial evidence’ refers to ‘such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion.’” (quoting Consolidated Edison Co. v.
NLRB, 305 U.S. 197, 229 (1938))).
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Further, when reviewing claims of regulatory interpretive error in an administrative
appeal, we are to
“give ‘great deference’ to an agency’s interpretation of its own
regulations.” Board of Supervisors v. State Bldg. Code Tech.
Review Bd., 52 Va. App. 460, 466, 663 S.E.2d 571, 574 (2008).
“This deference stems from Code § 2.2-4027, which requires that
reviewing courts ‘take due account’ of the ‘experience and
specialized competence of the agency’ promulgating the
regulation.” Id. (quoting Real Estate Bd. v. Clay, 9 Va. App. 152,
160-61, 384 S.E.2d 622, 627 (1989)). However, “‘deference is not
abdication, and it requires us to accept only those principles of
agency interpretations that are reasonable in light of the principles
of construction courts normally employ.’” Id. (quoting EEOC v.
Arabian American Oil Co., 499 U.S. 244, 260, 111 S. Ct. 1227,
113 L. Ed. 2d 274 (1991)).
Avante at Roanoke, 56 Va. App. at 197, 692 S.E.2d at 280; see also Appalachian Voices v. State
Air Pollution Control Bd., 56 Va. App. 282, 293 n.2, 693 S.E.2d 295, 300 n.2 (2010) (“[A]n
agency’s interpretation [of its own regulations] must be given controlling weight unless it is
plainly erroneous or inconsistent with the regulation.” (citations and internal quotation marks
omitted)); Avalon Assisted Living Facilities v. Zager, 39 Va. App. 484, 503, 574 S.E.2d 298,
307 (2002) (principles of statutory construction apply with equal force “to the interpretation of
regulations adopted by an administrative agency”).
Accordingly, we give no deference to an agency’s interpretation of its regulation that is
“arbitrary and capricious,” meaning an interpretation that is “‘unreasonable’” or “‘without
determining principle.’” Williams v. Commonwealth of Virginia Real Estate Bd., 57 Va. App.
108, 135, 698 S.E.2d 917, 930 (2010) (quoting School Bd. of the City of Norfolk v. Wescott, 254
Va. 218, 224, 492 S.E.2d 146, 150 (1997)); see Clay, 9 Va. App. at 161, 384 S.E.2d at 627
(explaining that courts may reverse an administrative agency’s construction of its own regulation
if that construction is “arbitrary or capricious” (citing Johnston-Willis, 6 Va. App. at 244, 369
S.E.2d at 8)).
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A. Count 2
Under Count 2, the Board found that Horne violated 18 VAC 135-20-310(2), which
provides: “Actions constituting improper delivery of instruments include: . . . Failing to provide
in a timely manner to all principals to the transaction written notice of any material changes to
the transaction.” The Board based this finding on Horne’s alleged failure to provide timely
written notice to the seller’s agent, England, that the buyers had failed to deliver the earnest
money deposit of $100 to Coldwell Banker “upon ratification” of the sales contract, as was
required of the buyers under the contract.
Challenging this determination, Horne argues that 18 VAC 135-20-310(2) is inapplicable
because the failure of the buyers to deliver the earnest money deposit was not a “material
change[] to the transaction” between the buyers and the seller in light of the insignificant amount
of the deposit in comparison to the purchase price of $145,000 for the subject property. 18 VAC
135-20-310(2). That is, the deposit represented less that 7/100ths of one percent of the purchase
price. In the alternative, Horne argues that she nevertheless gave England timely written notice
of the buyers’ non-payment of the earnest money deposit, as required under the regulation, by
way of her July 19, 2007 facsimile to England, which specifically stated that “[Shreve] . . . did
not provide me with an earnest money deposit last night as agreed.” 2
Assuming without deciding that the buyers’ non-payment of the earnest money deposit
after ratification of the sales contract was a “material change” 3 to the transaction within the
meaning of 18 VAC 135-20-310(2), we agree with Horne that her July 19, 2007 facsimile to
England constituted timely written notice of that development under this regulation.
2
Horne sent this facsimile to England on July 19th after advising England orally on both
July 16th and 18th that the deposit had not been delivered.
3
See Williams, 57 Va. App. at 132-35, 698 S.E.2d at 928-30 (addressing the term
“material change” under 18 VAC 135-20-310(2)).
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As a threshold matter, the Board concedes that Horne’s July 19, 2007 facsimile to
England constituted a written notice. 4 We thus turn to the question of whether the notice was
“timely.” 18 VAC 135-20-310(2). Because 18 VAC 135-20-310(2) does not define the term
“timely,” the Board points to another one of its regulations, 18 VAC 135-20-180(B)(1)(a), for
guidance in defining the term. The latter regulation provides, in relevant part:
Upon the ratification of a contract, earnest money deposits and
down payments received by the principal broker or supervising
broker or his associates must be placed in an escrow account by the
end of the fifth business banking day following ratification, unless
otherwise agreed to in writing by the parties to the transaction . . . .
18 VAC 135-20-180(B)(1)(a). Based on this regulation, the Board reasonably concludes, in
interpreting its own regulations, that a real estate agent’s written notification of non-payment of
an earnest money deposit due “upon ratification” of the sales contract would be timely under 18
VAC 135-20-310(2) if given within five business days of the date of ratification, i.e., the same
time frame given for placing the deposit in escrow under 18 VAC 135-20-180(B)(1)(a).
That is precisely what occurred in this case when Horne gave written notification to
England on July 19, 2007—the fifth business day after ratification of the sales contract between
the buyers and the seller—and specifically stated that she had not received the buyers’ earnest
money deposit. Recognizing this fact, the Board, in an attempt to defend its position, challenges
the substance of Horne’s notification by asserting in its brief:
Although on the fifth business day after ratification, Horne sent a
fax to the listing agent stating that “The purchaser . . . did not
provide me with an earnest money deposit last night as agreed,”
Horne does not in that fax specify what the new status of the
[earnest money deposit] will be at the end of that day nor suggest
any amended language to insert into the contract.
4
See Logan v. Commonwealth, 47 Va. App. 168, 172, 622 S.E.2d 771, 773 (2005) (en
banc) (“‘A party can concede the facts but cannot concede the law.’” (quoting Cofield v.
Nuckles, 239 Va. 186, 194, 387 S.E.2d 493, 498 (1990))).
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(Emphasis added.) The obvious fallacy in this assertion is that 18 VAC 135-20-310(2) requires
only that the real estate agent give timely written notice of a material change to the transaction—
not some notice of the agent’s speculation of what the status of that change might be at some
future point in time, nor notice of the agent’s suggestion as to how the parties should respond to
that material change through some amendment to the contract.
We thus conclude the Board’s finding that Horne violated 18 VAC 135-20-310(2) under
Count 2 was based on an arbitrary and capricious construction of the regulation, and insufficient
evidence to support the finding. Accordingly, we reverse the judgment of the circuit court in
affirming the Board’s decision on Count 2.
B. Count 3
Under Count 3, the Board found that Horne violated 18 VAC 135-20-260(10), which
provides: “Actions constituting unworthy and incompetent conduct include: . . . Failing to act as
a real estate broker or salesperson in such a manner as to safeguard the interests of the public.”
Here, the contract required that the buyers provide to the seller a pre-approval letter from the
buyers’ bank within ten business days from the date the sales contract was ratified. Otherwise,
the contract was subject to default at the option of the seller, and, upon such default, the buyers’
earnest money deposit would be forfeited. According to the Board, because Horne had not yet
sent a pre-approval letter to England by July 26, 2007, which was the tenth business day
following ratification of the contract, the seller’s optional default provision was “trigger[ed],”
and thus, the Board concluded, Horne failed to “take reasonable steps necessary to safeguard her
clients’ interest,” in violation of 18 VAC 135-20-260(10).
Horne argues the Board’s finding that she violated 18 VAC 135-20-260(10) by her
failure to provide to England a pre-approval letter from the buyers’ bank within ten business
days of ratification of the contract is without merit. Given the reasons Horne did not provide the
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letter to England, Horne argues there was no basis for the Board’s conclusion that she was remiss
in “safeguarding” the buyers’ interest relative to the consequences of non-production of the
letter, such as would constitute a violation of the regulation. We agree.
On the fifth business day following ratification of the sales contract—i.e., six days before
the pre-approval letter was due—the buyers communicated to Horne, and Horne communicated
to England by her July 19, 2007 facsimile to England, (i) that the buyers were unable to obtain
financing from their bank for the purchase, and (ii) that the buyers were therefore exercising their
right to cancel the contract. Furthermore, Horne had already advised England by a facsimile sent
on July 16, 2007 that the buyers would not have a pre-approval letter until their banker, “Tim at
New Peoples Bank,” returned from vacation on the 23rd of that month. Horne thus had no
pre-approval letter to provide to England before the buyers’ cancellation on July 19, 2007; that
cancellation necessarily terminated what would have been the buyers’ obligation to produce the
letter on July 26th, or risk having the contract declared in default by the seller.
In any event, there was no indication that Horne failed to “take reasonable steps to
safeguard” the buyers against such default in connection with production of the pre-approval
letter from the buyers’ bank. Indeed, the evidence indicated that Horne had no control over the
production of the letter, and she obviously could not produce what did not exist. In this context,
the obligation of the realtor to “safeguard” her client’s interests, pursuant to 18 VAC
135-20-260(10), cannot mean she is strictly liable for some contractual risk to her clients that
was beyond her control and that did not, in fact, materialize. That would be the result, however,
under the Board’s application of the regulation to the facts of this case if its decision were to
stand.
Thus, like with Count 2, we conclude the Board’s finding that Horne violated 18 VAC
135-20-260(10) under Count 3 was based on an arbitrary and capricious interpretation of the
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regulation and insufficient evidence to support the finding. Accordingly, we reverse the
judgment of the circuit court in affirming the Board’s decision on Count 3.
C. Attorney’s Fees under Code § 2.2-4030
Horne seeks an award of attorney’s fees under Code § 2.2-4030(A) on all four counts
initiated against her by the Department. We conclude that she is not entitled to attorney’s fees
under the statute on Counts 1 and 4, but that she is entitled to an award of reasonable attorney’s
fees on Counts 2 and 3.
Code § 2.2-4030(A) provides, in relevant part, as follows:
In any civil case brought under Article 5 (§ 2.2-4025 et seq.) of this
chapter . . . in which any person contests any agency action, such
person shall be entitled to recover from that agency . . . reasonable
costs and attorneys’ fees if such person substantially prevails on the
merits of the case and the agency’s position is not substantially
justified, unless special circumstances would make an award unjust.
The award of attorneys’ fees shall not exceed $25,000.
Code §§ 2.2-4025 through -4029, in turn, address the statutory framework for judicial review of
agency actions instituted in “courts of original jurisdiction,” and the appeal of the judgments of
those courts to “higher courts as in other cases.” Code § 2.2-4026.
In instituting this “civil case” in circuit court, Horne did not “contest” the Board’s
findings on Counts 1 and 4 because the Board had already dismissed the alleged violations under
those two counts. Code § 2.2-4030(A). Thus, as Horne does not meet the threshold requirement
of Code § 2.2-4030(A) on Counts 1 and 4, we are without authority to consider awarding her
attorney’s fees under the statute for her defense to those counts before the Board. Accordingly,
we affirm the circuit court in denying Horne’s request for attorney’s fees on those two counts.
As to Counts 2 and 3, which Horne has contested in this case, the issues under Code
§ 2.2-4030(A) for determining Horne’s entitlement to an award of attorney’s fees on these counts
are: (1) whether she has “substantially prevail[ed] on the merits of [this] case,” (2) whether the
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“agency’s position is not substantially justified,” and (3) whether “special circumstances would
make an award unjust.” See Hollowell v. Virginia Marine Res. Comm’n, 56 Va. App. 70, 82-91,
691 S.E.2d 500, 506-11 (2010) (applying “the statute’s three-part test”).
First, in light of our rulings above on Counts 2 and 3 in favor of Horne, she has clearly
“substantially prevail[ed] on the merits” in this case. See id. at 86, 691 S.E.2d at 508 (a party has
“‘substantially prevailed on the merits’ of his action” under Code § 2.2-4030(A) if he has
“obtain[ed] a judgment in his favor on a significant issue in dispute”).
Second, because of the Board’s arbitrary and capricious construction of its regulations in
making its findings under Counts 2 and 3, coupled with the absence of evidence to support those
findings, we conclude that the Board’s position as to each of those counts was “unreasonable,
and thus not substantially justified, as a matter of law,” under the second prong of the Code
§ 2.2-4030(A) three-part test. Id. at 88, 691 S.E.2d at 509.
Finally, under the third prong of the statute’s three-part test, the Board has presented no
purported “special circumstances” for consideration that would make an award of attorney’s fees
to Horne “unjust.” Code § 2.2-4030(A). Nor did the circuit court find any such circumstances.
We therefore remand this case to the circuit court for a determination of reasonable
attorney’s fees to be awarded to Horne on Counts 2 and 3. As explained in Hollowell, “Code
§ 2.2-4030(A) mandates that attorney’s fees ‘shall’ be awarded where the requirements of the
three-part test are met. The actual amount of an award of fees under Code § 2.2-4030(A)
remains, of course, within the ‘broad discretion afforded to the trial court . . . based upon what is
reasonable and just.’” Hollowell, 56 Va. App. at 83, 691 S.E.2d at 507 (quoting Department of
Med. Assistance Servs. v. Beverly Healthcare of Fredericksburg, 268 Va. 278, 286 n.3, 601
S.E.2d 604, 608 n.3 (2004)).
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III. CONCLUSION
For the reasons stated above, we (i) affirm the circuit court in denying Horne’s request
for attorney’s fees under Code § 2.2-4030(A) on Counts 1 and 4; (ii) reverse the judgment of the
circuit court in affirming the Board’s decision against Horne on Counts 2 and 3; (iii) reverse the
circuit court in denying Horne’s request for attorney’s fees under Code § 2.2-4030(A) on Counts
2 and 3; and (iv) remand this case to the circuit court for a determination of reasonable attorney’s
fees to be awarded to Horne on Counts 2 and 3.
Affirmed in part,
reversed in part,
and remanded.
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