ELIZABETH GRADY FACE FIRST, INC. v. DIVISION OF OCCUPATIONAL LICENSURE & Another.

NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule
23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule 1:28,
as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to the parties
and, therefore, may not fully address the facts of the case or the panel's
decisional rationale. Moreover, such decisions are not circulated to the entire
court and, therefore, represent only the views of the panel that decided the case.
A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25,
2008, may be cited for its persuasive value but, because of the limitations noted
above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260
n.4 (2008).

COMMONWEALTH OF MASSACHUSETTS

APPEALS COURT

23-P-39

ELIZABETH GRADY FACE FIRST, INC.

vs.

DIVISION OF OCCUPATIONAL LICENSURE & another.1

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

As alleged in its complaint, the plaintiff held a license

to operate a private occupational school, issued by the division

of occupational licensure pursuant to G. L. c. 112, § 263

(§ 263), that required annual renewal. To be eligible to apply

for renewal, the licensing scheme first requires the licensee to

obtain from the Auditor of the Commonwealth a certificate of

financial eligibility to operate a private occupational school,

terms that are not defined in the statute or its regulations,

230 Code Mass. Regs. §§ 12-17 (2016). See G. L. c. 112,

§ 263 (d), second par.; 230 Code Mass. Regs. §§ 12.01, 13.03(3).

1 Auditor of the Commonwealth.
The plaintiff alleges that for forty years it profitably

operated a school of aesthetics and therapeutic massage. By

2020, shareholder equity in the school totaled $10 million and

the plaintiff had net income of $700,000. Yet, in 2021, the

Auditor refused to issue the plaintiff a certificate of

financial eligibility for the 2020-2021 year following a dispute

over the Auditor's requests for information.2 Accordingly, the

division notified the plaintiff that it would not renew the

plaintiff's license, stated that a hearing was not required, and

informed the plaintiff that it could appeal the division's

decision pursuant to G. L. c. 30A, § 14.

It was the Auditor's decisions that the plaintiff wanted

reviewed, however. At the very least, the plaintiff desired a

hearing on its financial eligibility and the reasonableness of

the Auditor's requests before the license it held for forty

years was allowed to expire. The plaintiff therefore filed a

2 "If, after investigation, the state auditor finds [an]
applicant is financially qualified to operate a private
occupational school, the state auditor shall notify the division
of the applicant's eligibility to apply for" license renewal.
G. L. c. 112, § 263 (d), second par. "If the state auditor
finds that an applicant or licensee is not financially
responsible and qualified to operate a private occupational
school, certification of financial eligibility shall be denied."
Id. at third par. In making its investigation, "the [A]uditor
is authorized to review the full records of the school" and to
request a wide range of information. Id. at first par. See 230
Code Mass. Regs. § 13.03(1) (applicant must submit "such
information as the State Auditor may require").

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verified complaint against both agencies alleging due process

violations and breach of contract and seeking declaratory,

certiorari, or administrative relief.3 A judge of the Superior

Court allowed a motion by the defendants to dismiss the

complaint, and the plaintiff appealed. We affirm in part,

vacate in part, and remand.

Background.4 In 2020, the plaintiff was delayed in

providing financial statements for its application for renewal

due to the COVID-19 pandemic. In January 2021 (the same year

that all events discussed hereafter took place), the Auditor

notified the division and the plaintiff that it would not

certify the plaintiff's financial eligibility because the

plaintiff had not provided financial statements for 2018 and

2019. The plaintiff provided the statements, but the Auditor

refused to withdraw its "adverse determination" and instead

propounded a series of far-reaching and irrelevant requests for

information it had never sought before. The plaintiff believed

3 The Auditor is an "agency" within the meaning of G. L.
c. 30A, § 1 (2), because it is a department of the Commonwealth,
G. L. c. 11, § 1, and "may adopt rules and regulations, issue
guidelines and prescribe forms to carry out" its duties under
§ 263. G. L. c. 112, § 263 (d), fifth par.

4 We draw these facts from the verified complaint, for
present purposes accepting them as true and drawing all
reasonable inferences therefrom in the plaintiff's favor.
Lanier v. President & Fellows of Harvard College, 490 Mass. 37,
43 (2022).

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that these additional materials were sought not to "determine

whether [the plaintiff] was 'financially qualified' to operate"

a school but because the analyst overseeing the audit, formerly

Medford's treasurer and collector, had been "frustrated" with

and angered when the plaintiff sold certain real property in

that city.

At the division's suggestion, the plaintiff and the Auditor

entered into a conditional licensure agreement (CLA) whereby the

plaintiff agreed to maintain a bond of $200,000 -- more than

twice the amount of tuition -- and provide a list of items to

the Auditor by February 26. The plaintiff maintained the bond

and provided all the items on time. The Auditor then requested

more information, which the plaintiff also provided. In doing

so, the plaintiff suggested that the Auditor was confusing the

calendar year with the tax year and that taxes paid by

shareholders had no bearing on the plaintiff's financial ability

to operate the school. The Auditor withdrew its request for

shareholders' tax returns.

In April, the Auditor requested information about the

plaintiff's receipt of Federal pandemic relief funds in 2020 and

2021. The plaintiff provided the information but could not say

whether the funds would be treated as income or a loan because

that depended on whether and when the small business

administration would forgive the funds, decisions over which the

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plaintiff had no control. Reasoning that the funds could be

treated as a loan and the amount of debt the plaintiff carried

was relevant to its financial condition, the Auditor notified

the division that the plaintiff's 2020 and 2021 financial

statements were "incomplete" because they did not contain a

final description of how the Federal funds would be treated. On

May 26, following a conference call with the division and the

plaintiff, the Auditor agreed (1) to accept financial statements

for 2020 and 2021 that contained a "subsequent event note, a

forward-looking statement to the effect that were such funds

forgiven they would be treated as income and otherwise as a

loan," and (2) that "it [did] not anticipate requesting

additional information from" the plaintiff.

Consistent with the May 26 agreement, which the complaint

alleges was an enforceable contract, the plaintiff provided

financial statements projecting what portions of the 2020 relief

funds would be treated as income or a loan and containing a

subsequent event note for the 2021 relief funds. On July 7,

however, the Auditor asserted in an e-mail message that there

was no subsequent event note for the 2021 funds. The message

did not identify any deficiencies in accounting for the 2020

funds. On July 8, the plaintiff resubmitted the documents with

a subsequent event note for the 2021 funds that tracked verbatim

the Auditor's language in the July 7 message (July 8 filing).

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The next month, without addressing the July 8 filing or

providing any rationale, and contrary to its agreement of May

26, the Auditor made more requests for information about the

relief funds and demanded other items the plaintiff had already

provided.

In September, still without mentioning the July 8 filing,

and even though it had not previously cited any deficiencies in

reporting for the 2020 funds, the Auditor made another demand

for information about those funds. That same month, the

plaintiff's national accreditor accepted the financial

statements submitted to the Auditor in the July 8 filing and the

plaintiff was re-accredited. In October, the plaintiff provided

the Auditor with the information it requested in September and

the small business administration forgave the 2020 and 2021

relief funds. This meant that the plaintiff had even higher

income in those years than had been reflected in the July 8

filing. Nevertheless, on November 15, the plaintiff received an

e-mail message from the Auditor stating that the plaintiff "did

not comply in fully submitting the information that was

requested of the school as indicated in the Conditional

Licensure Agreement. As a result, the Office of the State

Auditor will not be reversing [its] adverse determination." On

inquiry, the Auditor told the plaintiff that it did not comply

with the CLA because it did not provide additional information

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about the 2020 relief funds (not requested in the CLA), did not

provide an estimate of spring 2022 enrollment (the plaintiff

had), and did not provide a statement from a certain bank

account (identified for the first time in that very message).

The Auditor did not assert, and had no good faith basis to

assert, that the plaintiff was financially unqualified to

operate the school.

On December 22, the division notified the plaintiff that it

would not renew the plaintiff's license. On December 28, the

plaintiff filed suit. Though the Auditor plainly engaged in

some type of internal process that culminated in decisions to

request further information from the plaintiff, and though such

requests and materials related to them created by the Auditor

should have been retained and are not excluded from the

definition of "public records," see G. L. c. 4, § 7; see also

G. L. c. 112, § 263 (d), fourth par. ("financial information

submitted to the state auditor shall be retained in the office

of the state auditor and shall not be classified as public

records" [emphasis added]), neither agency filed an

administrative record as required by Superior Court Standing

Order 1-96(1), (2) (2020). Instead, the parties "agree[d] that

there is no administrative record to review." Concluding that

the Auditor "has extraordinarily broad statutory authority to

request financial information about an applicant" and that he,

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the judge, was "ill-equipped to determine that any such request

was necessary or unnecessary" because "I have no record before

me," the judge dismissed all counts of the complaint. The judge

went on to suggest that the plaintiff go through the application

process anew; and, if the plaintiff were to do so, directed the

Auditor to provide written requests for information and reasons

for its decisions.

Discussion. We review the grant of a motion to dismiss de

novo to determine whether the allegations of the complaint

plausibly suggest an entitlement to relief. Lanier v. President

& Fellows of Harvard College, 490 Mass. 37, 43 (2022). Applying

this standard, we conclude that counts one, five, and six were

properly dismissed, while counts two through four were not.

1. Counts properly dismissed. By count one the plaintiff

sought declarations of the legality of the Auditor's and

division's administrative practices and that the Auditor's

requests for additional information were arbitrary, capricious,

and exceeded its authority. A declaration of the legality of an

agency's practices is available where the "violation has been

consistently repeated." G. L. c. 231A, § 2. Here, however, the

agencies are alleged to have acted in ways they never had in

forty years before reaching an unfair result in the plaintiff's

case. It is well settled in such circumstances that the

declaratory judgment act is not the appropriate mechanism for

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obtaining review. See Frawley v. Police Comm'r of Cambridge,

473 Mass. 716, 724 (2016); Konstantopoulos v. Whately, 384 Mass.

123, 129 (1981).

Count five sought relief for the defendants' failures to

hold the adjudicatory hearing or maintain the administrative

record required by G. L. c. 30A, §§ 13 and 14. But neither

statute applies here, as the judge discerned. General Laws

c. 30A, § 13, which entitles a licensee to a hearing before

nonrenewal of the license, does not apply "[w]here the . . .

refusal to renew is based solely upon failure of the licensee to

file timely reports, schedules, or applications." The plaintiff

here specifically alleges that the Auditor's "adverse

determination," as well the division's denial, were based solely

upon the plaintiff's claimed failure "to file timely reports,

schedules, or applications."

Equally inapplicable is G. L. c. 30A, § 14, which applies

to "a final decision of any agency in an adjudicatory

proceeding." Here, of course, no such proceeding is alleged to

have happened and, under the licensing scheme, neither agency's

decision could in any event be deemed "final." On the contrary,

the relevant provisions expressly provide that the Auditor's

finding of financial eligibility "shall not be construed as the

granting of a license by the division," G. L. c. 112, § 263 (d),

second par., because the division conducts its own investigation

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before making a decision that is expressly subject to G. L.

c. 30A review. See G. L. c. 112, § 263 (e), second par.; 230

Code Mass. Regs. § 16.01(2). These provisions suggest that the

Auditor's preliminary finding is not subject to administrative

review, while the Auditor's finding of financial ineligibility

only must be accompanied by a written statement of reasons. See

G. L. c. 112, § 263 (d), third par. No provision provides for

judicial review of that finding. Finally, we observe that in

the event that the division does not grant a license "due to the

applicant failing to provide complete information," that

decision "shall not be considered a denial and shall not be

entitled to further review." 230 Code Mass. Regs. § 16.01(2).

Count six, alleging breach of the May 26 "contract," was

rightly dismissed because an enforceable contract requires valid

consideration, Knott v. Racicot, 442 Mass. 314, 322 (2004),

defined as doing something one was privileged not to do or

giving up something one was privileged to retain. Sheraton

Serv. Corp. v. Kanavos, 4 Mass. App. Ct. 851, 852 (1976). The

Auditor was privileged to investigate the plaintiff's finances,

and, as a condition of being eligible to apply for the

permission that is required by law to operate its school, the

plaintiff was required to comply. See G. L. c. 112, § 263 (c)

("All private occupational schools operating in the commonwealth

shall be licensed by the division"). See also G. L. c. 30A,

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§ 13 (defining "license"). The Auditor was also privileged to

not issue a certificate of financial eligibility. By the May 26

agreement, the Auditor agreed to accept financial statements

with subsequent event notes and that it probably would not need

anything after that, but it did not agree to end its

investigation or issue a certificate of financial eligibility if

the plaintiff did so. As a matter of law, the Auditor's

agreement to perform its existing legal duty in a particular way

was not sufficient consideration to form a contract. Boston

Professional Hockey Ass'n v. Commissioner of Revenue, 443 Mass.

276, 287 (2005).

2. Counts that survive. Count two sought certiorari

review of the Auditor's requests for information and decision

not to withdraw its "adverse determination." Certiorari

requires a judicial or quasi judicial proceeding that gives rise

to a substantial injury or injustice and from which there is no

other adequate remedy. Frawley, 473 Mass. at 726. Here the

Auditor's actions were quasi judicial because the plaintiff

applied for license renewal and "was required to attest to

certain facts, the [Auditor] conducted an investigation into the

veracity of those facts, and the [Auditor] made an

individualized determination concerning [the plaintiff's]

entitlement to" a certificate of financial eligibility. Id. at

726-727. See Hoffer v. Board of Registration in Med., 461 Mass.

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451, 457 (2012). There is no other adequate remedy given that

review is not available under § 263, the applicable regulations,

or G. L. c. 30A. Likewise, G. L. c. 112, § 64, does not provide

for review as the license was not cancelled, revoked, or

suspended. And there is substantial injury because, due to the

decision, the plaintiff's ability to operate its established

private occupational school will expire even though it allegedly

is "financially qualified" within the meaning of the statute.

Filed within sixty days of the Auditor's November 15 e-mail

message, see G. L. c. 249, § 4, the complaint adequately stated

a claim for certiorari review. See Kasper v. Registrar of Motor

Vehicles, 82 Mass. App. Ct. 901, 901 (2012) (action in nature of

certiorari appropriate "[b]ecause there was no other avenue for

appeal"). Cf. Service Employees Int'l Union, Local 509 v.

Auditor of the Commonwealth, 476 Mass. 80, 84 (2016) (action in

nature of certiorari appropriate means by which to challenge

Auditor's determination whether privatization contract complied

with Pacheco Law).

We recognize that the judge was without guidance from

caselaw interpreting § 263 or its regulations. However, rather

than rely on the absence of an administrative record to require

the plaintiff to go through the application process again to

build one, the judge should have ordered whatever records the

Auditor had in connection with its information requests and

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decision-making process to be "brought before [the court]."

G. L. c. 249, § 4. Although we express no opinion on the

question, the judge could then have reviewed those materials to

determine whether they established that the Auditor's decisions

to keep requesting information and then conclude that the

plaintiff had not complied with its requests, without (1)

acknowledging submissions like the July 8 filing, (2) explaining

its reasoning, or (3) giving the plaintiff a chance to comply in

the case of the bank account identified for the first time on

November 15, were "legally erroneous or so devoid of factual

support as to be arbitrary and capricious." Service Employees

Int'l Union, Local 509, 476 Mass. at 85. It may be that on such

review the judge becomes satisfied that the decisions were not

made for reasons "extraneous to the prescriptions of the

regulatory scheme" and "related, rather, to an ad hoc agenda,"

Fafard v. Conservation Comm'n of Reading, 41 Mass. App. Ct. 565,

568 (1996), which is what the complaint adequately alleges. See

Ballarin, Inc. v. Licensing Board of Boston, 49 Mass. App. Ct.

506, 513 (2000) (shifting rationale for board's decision

reinforced conclusion that decision was arbitrary and

capricious). And it may be that the plaintiff is not entitled

to the issuance of the requested certificate, see Roslindale

Motor Sales, Inc. v. Police Comm'r of Boston, 405 Mass. 79, 85

(1989). But it cannot be that the Auditor's decisions are not

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subject to any review. "The integrity of a licensing scheme

depends upon standards that ensure fair and even-handed review

of applications by the [agency], and a framework for judicial

review of whether a particular decision is arbitrary and

capricious, or based upon error of law." Grenier v. Selectmen

of Shrewsbury, 80 Mass. App. Ct. 460, 464 (2011).

Counts three and four alleged a property interest in the

license of which the plaintiff was deprived without due process

of law. "As a matter of substantive due process principles

under both [State and Federal] Constitutions, an occupational

license constitutes a protected interest," Kewley v. Department

of Elementary & Secondary Educ., 86 Mass. App. Ct. 154, 161

(2014), because if the plaintiff is financially qualified as

alleged, the Auditor "shall notify the division of the

applicant's eligibility to apply for" license renewal (emphasis

added). G. L. c. 112, § 263 (d), second par. Compare

Roslindale Motor Sales, Inc., 405 Mass. at 82-85 (no protected

interest where "commissioner 'may' grant a license to a proper

person"). Accordingly, a hearing on the plaintiff's financial

eligibility to operate a private occupational school, along with

an adequate opportunity for judicial review, was

constitutionally required before the Auditor could refuse to

issue the requested certificate. Arno v. Alcoholic Beverages

Control Comm'n, 377 Mass. 83, 90-91 (1979). See Forsyth Sch.

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for Dental Hygienists v. Board of Registration in Dentistry, 404

Mass. 211, 214 (1989).

Conclusion. For all these reasons, so much of the judgment

as dismissed counts one, five, and six of the verified complaint

is affirmed. So much of the judgment as dismissed counts two

through four is vacated, and the case is remanded for further

proceedings on those counts consistent with this memorandum and

order.

So ordered.

By the Court (Meade, Singh &
Smyth, JJ.5),

Assistant Clerk

Entered: May 28, 2024.

5 The panelists are listed in order of seniority.

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