July 29, 2011
RICHARD DEMARCO, D/B/A COOPERATIVE PARKING SYSTEMS, PETITIONER-APPELLANT,
NEW JERSEY MOTOR VEHICLE COMMISSION, RESPONDENT-RESPONDENT.
On appeal from the New Jersey Motor Vehicle Commission.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 6, 2010
Before Judges Lisa, Sabatino and Alvarez.
Richard DeMarco, d/b/a Cooperative Parking Systems, appeals from the November 13, 2009 Final Decision, entered after a remand from this court, of the New Jersey Motor Vehicle Commission (MVC). The decision terminated appellant's "LIMITED ON-LINE ACCESS PROGRAM AGREEMENT" (Agreement) with the MVC on the grounds that DeMarco has a criminal record. During the remand proceedings, when the MVC informed appellant of its intention to terminate the agreement based on his criminal record, appellant requested a hearing before the Office of Administrative Law (OAL). The MVC denied the request and proceeded to issue its final decision. For the reasons that follow, we conclude that a hearing was required in order to resolve material issues of fact and to assess the need for rulemaking. Accordingly, we vacate the November 13, 2009 final decision and remand for further administrative proceedings.
Appellant is in the business of providing a service to automobile body shops, automobile repair shops, towing yards, and other entities or private parties who come into possession of abandoned vehicles. The service is to identify the owner of the vehicle and any lien holder with an interest in the vehicle, and provide those interested parties with notice of the vehicle's location, the steps necessary to reclaim it, and the consequences of failing to do so.
DeMarco began this business in 1994. Prior to that time, he operated a body shop for more than twenty-five years. During that time, he also sometimes engaged in towing of vehicles. He learned through that experience the procedures for obtaining through the then-Division of Motor Vehicles (DMV) the identities of owners and lien holders, so that he could lawfully dispose of abandoned vehicles.
In a hearing in these proceedings, DeMarco described the service his current business provides as follows:
Well, the towing companies, all these different entities that I solicit all the time is to move these vehicles in a more expedient manner so that the owner realizes that his accruing storing charges or he could be sued for leaving the car abandoned, also gives the banks and collateral lien holders an opportunity to reclaim these vehicles due to the fact that their customers, that they would be losing their collateral interest in these vehicles if the towing companies or all these different entities ended up filing this application and the DMV divests them of ownerships.
DeMarco continued by explaining why there was a need in this industry for the kind of service he provides:
Well, I came into the business in '94 and I realized that there was a ton of these different facilities and businesses that I was related to that they were just junking and converting people's property without due process. What I do is the due process part, I guess, is to send the notices out. They were just junking people's cars after a certain period time and - - I belong to the Towman's Association and the Auto Body Association, and being I'm part of those two associations, I've written different articles of stuff about this, about converting, you know, an individual's property and disposing them without due process, that they can get caught up in conversation [sic].
DeMarco further explained that a number of his customers provide towing services for municipalities, and described how his service fits into that kind of operation:
Well, I do it for the towing companies that service municipalities because certain municipalities, with all of the police work they have to do, they don't really have the expedient time as I do. This is my full time job, so when I get hired by different towers that work for municipalities I send the letters out in their name and it just says that they're the authorized representative towing company of certain municipalities, say, you know, Performance Towing authorized a tower for Point Pleasant Beach Police Department and then the body of the letter basically says 'We towed this vehicle at the public agency's request' on such and such a date, and that they're going to dispose of the vehicle within the time allowed by law, it's usually 20 to 30 days.
At the time of his testimony, DeMarco had more than 900 customers. He identified several other companies providing a similar service in New Jersey. These companies refer to themselves as motor vehicle title services.
Since beginning his business in 1994, DeMarco dealt on a regular basis with the DMV and its successor, the MVC, in obtaining the identifying information we have described. In 1997, the Legislature enacted the New Jersey Drivers' Privacy Protection Act (DPPA), now codified at N.J.S.A. 39:2-3.3 to - 3.7. See L. 2007, c. 188, eff. August 5, 1997. The DPPA, modeled after a similar federal law enacted in 1994, see N.J.S.A. 39:2-3.4d, e, regulates the disclosure of "personal information" related to motor vehicles, and "motor vehicle record[s]." N.J.S.A. 39:2-3.4a.
Implicated in this case are aspects of "personal information," which is defined in the DPPA as "information that identifies an individual, including an individual's photograph; social security number; driver identification number; name; address other than the five-digit zip code; telephone number; and medical or disability information, but does not include information on vehicular accidents, driving violations, and driver's status." N.J.S.A. 39:2-3.3. More particularly, and very importantly, the only aspects of "personal information" involved in this dispute are the names and addresses of vehicle owners and lien holders.
The DPPA prescribes what can be characterized as a basic procedure by which such information can be requested. This is done by submitting a written request on prescribed forms, setting forth various items of information including the reason for the request. N.J.S.A. 39:2-3.4b. Alternatively, the MVC is authorized to "permit a person to complete and submit for approval to the chief administrator or the chief administrator's designee, on a case by case basis, a written application form for participation in a public information program on an ongoing basis." Ibid. Under this alternative method, persons allowed by the MVC to participate in the program are granted ongoing access to the MVC's computerized database and can obtain the desired information online without the need for submitting a separate written request form for each request. With the online system, a requestor can obtain same-day information, whereas with the written requests, the information is not forthcoming for many weeks. It is appellant's access to the online database that is at the heart of the dispute in this case.
The DPPA lists twelve categories of purposes for which personal information may be disclosed. N.J.S.A. 39:2-3.4c(1) to (12). One of the categories is "[f]or use in providing notice to the owners of towed or impounded vehicles." N.J.S.A. 39:2-3.4c(7).
On February 24, 2005, appellant completed an MVC "APPLICATION FOR ON LINE ACCESS TO MOTOR VEHICLE RECORDS." He described the nature of his business activity as follows: "Attached are the process I do, all three Title Service and Notice of Towed or Impounded Vehicles. I procure all documentation for Towing, Repair, & Body Shops to dispose of Abandoned Vehicles." Appellant identified his intended use of the information as follows: "My company is hired to send notices to all parties of interest[,] i[.]e. Owners & Lien-holders of an abandoned, towed or [i]mpounded vehicle. I do not resell any information[,] just sen[d] certified letters of abandonment per MVC requirements." The type of access requested was for "registration inquiry" and "title inquiry."
The MVC approved appellant's application. The parties entered into the Agreement, utilizing a standard MVC form. Appellant signed the Agreement on March 14, 2005. The Chief Administrator of the MVC, a Deputy Attorney General, and the MVC Director of Operations Support signed it on April 15, 2005.
Among the preambles in the Agreement was a statement that the provision of the requested information to appellant through the on-line database program "is consistent with the laws of the State and with the COMMISSION's policy to balance the needs of the business community with the privacy needs of the public when providing information from the database." Paragraph A.8 of the Agreement expressly provided that appellant was "not entitled to receive, and the COMMISSION will not provide, social security numbers, insurance information and medical information that may be contained in the database." Paragraph B.2 provided that "[w]hile it is understood that the electronic records provided by the COMMISSION will contain the names and addresses of individuals, [appellant] shall hold such information in confidence and shall use it only in accordance with the terms of this Agreement." Thus, it is clear that appellant would only have access to names and addresses of vehicle owners and lien holders, and no other personal information in the possession of the MVC.
On April 18, 2005, James B. Petersack, the MVC's manager for information update and retrieval, transmitted to appellant a copy of the fully-executed Agreement. However, two months later, on June 24, 2005, Petersack again wrote to appellant, this time advising that his online access was terminated effective July 1, 2005. Petersack did not allege any violations or improprieties by appellant. He said that "[i]n light of recently documented security breaches involving several data collection industry databases, the MVC has embarked upon a review of all On-Line customer accounts [and is] examining our procedures and redefining our business processes to insure strict compliance with the [DPPA]."
Petersack's letter continued by noting that appellant's specified intended use of the motor vehicle information was "[f]or use in providing notice to the owners of towed or impounded vehicles." He then stated the reason for termination: "Be advised that only motor vehicle dealers, attorneys and towing companies (acting on their own behalf) may acquire information pursuant to this provision." Because appellant did not fall into one of those three categories, the MVC invoked its right to terminate the Agreement "in its sole discretion upon 30 days notice."*fn1
On June 30, 2005, DeMarco wrote to the MVC objecting to its cancellation notice. He noted that he is the "assigned representative" of the repair and towing facilities that were his customers and that he had complied in all respects with the Agreement and with all applicable laws pertaining to the information he was receiving. He asserted that others similarly situated to his company were allowed to continue to participate and accused the MVC of improperly singling him out for disparate treatment. He threatened legal action. In a separate letter to the MVC on July 8, 2005, DeMarco requested an administrative hearing.
On July 22, 2005, the MVC advised DeMarco that if he wanted to pursue an administrative hearing, he should set forth all disputed issues of material fact and all legal arguments so it could be determined whether a hearing was warranted. On August 4, 2005, counsel for appellant wrote a six-page single-spaced letter to Petersack detailing the factual and legal disputes involved. Counsel argued at length that the MVC's newly-expressed restriction on those who could gain access to information through the online service for use in providing notice to owners of towed or impounded vehicles pursuant to N.J.S.A. 39:2-3.4c(7) was contrary to the statute, constituted an unlawful restriction on the statutory provision, and was unenforceable. At the very least, he asserted that rulemaking would be necessary.
Counsel further argued that appellant was of the belief that other similarly-situated companies in New Jersey were not being precluded on the same basis. Counsel inquired whether the other companies that are in the same business as [appellant] in New Jersey, [were] also cancelled as on-line subscribers to the MVC website, or do they still have access to drivers records via the MVC website? As part of the fact finding aspect of the administrative hearing, I would like the production of the names of all other businesses and individuals who had their access to the MVC website cancelled pursuant to your "review of all on-line customer accounts," occurring in or about June of 2005.
Counsel continued that determining who else was denied such access was a highly relevant factual inquiry, because a State agency must uniformly apply its rules and regulations. It cannot selectively enforce its rules and regulations against certain businesses and individuals, while waiving them as to others. This is exactly what Mr. DeMarco alleges, . . . .
After a delay of nearly two years, on March 12, 2007, the MVC granted appellant's request for a hearing, and on May 25, 2007 transferred the case to the OAL.*fn2 A hearing was held on January 3, 2008 before Administrative Law Judge (ALJ) Jeff S. Masin. The MVC did not attend the hearing and suggested that the issue should be decided on the papers. It relied solely upon Petersack's June 24, 2005 letter to appellant canceling the Agreement because appellant was not a motor vehicle dealer, attorney or towing company (acting on its own behalf).
ALJ Masin engaged in extensive colloquy with appellant's counsel and received factual testimony form DeMarco. The only issue presented was the propriety of the MVC's apparently-restrictive interpretation of the statutory language, and whether that interpretation was sustainable or required, at the least, rulemaking.
Throughout this time, including all of the events leading up to the hearing and the actual holding of the hearing, the MVC had never mentioned anything about DeMarco having a criminal record.
Out of an abundance of caution, ALJ Masin wrote a letter on February 15, 2008 to the MVC requesting that it submit the statutory or regulatory authority upon which it relied for its interpretation of the statute by limiting online access under N.J.S.A. 39:2-3.4c(7) to only motor vehicle dealers, attorneys and towing companies (acting on their own behalf). He also invited comment on whether rulemaking was necessary under the Administrative Procedure Act (APA), N.J.S.A. 52:14B-1 to -15, as interpreted in the seminal case of Metromedia, Inc. v. Director, Division of Taxation, 97 N.J. 313 (1984).
The MVC responded, setting forth its arguments as to why its interpretation was consistent with the statutory provisions of the DPPA as a whole and arguing that rulemaking was not necessary. In its submission, the MVC also did something else. For the first time, it advised the ALJ that DeMarco had a criminal record, consisting of a 2002 conviction for two counts of fourth-degree forgery, for which he was sentenced to two years probation. The MVC argued that this provided an alternate basis for denying appellant access to the online database.
The ALJ issued his Initial Decision on April 7, 2008. He conducted an extensive Metromedia analysis and concluded that, in the absence of formal rulemaking, the MVC's restrictive interpretation was not sustainable. He accordingly reversed the MVC's action in terminating the Agreement.
With respect to DeMarco's criminal record, the ALJ noted that not only did Petersack's June 24, 2005 termination letter fail to assert a criminal record as a basis for cancellation of the agreement, but that the MVC had never mentioned it throughout the administrative proceedings until after the ALJ requested that the MVC submit its response to the appellant's Metromedia argument. In his Initial Decision, ALJ Masin commented that had [he] decided the case as submitted by the agency, which chose to appear at the original hearing 'on the papers' . . . , [he] would not have known about the alleged criminal record, much less that despite a lack of any reference to it as a grounds for denial of on-line access in Petersack's letter, the MVC believed this to be a reason for denying access. So the appearance of the [criminal] record as a disqualifying reason comes a bit late and in an unusual form.
In his ultimate disposition, after setting forth his reversal based on Metromedia, the ALJ continued that if the MVC intends to deny access based upon the existence of [DeMarco's criminal] record, then it must provide proper notice to Mr. DeMarco and Cooperative of its factual and legal basis for such action, so that they may address those matters if they choose.
On October 9, 2008, the MVC issued its Final Decision. It rejected the Initial Decision. Making its own Metromedia analysis, the MVC concluded that ample support existed in the DPPA from which it was clearly and obviously inferable that the restrictive interpretation it announced in Petersack's letter was within the MVC's discretion and thus authorized by the statute, without the need for rulemaking. We need not discuss the merits of the applicability of the APA in this regard, because, as we will soon relate, the MVC subsequently abandoned this position and agreed with ALJ Masin's Metromedia analysis and conclusion.
At the very end of its seventeen-page Final Decision, the MVC included two sentences, stating that even if ALJ Masin was correct in requiring rulemaking, the MVC would nevertheless cancel the Agreement because of DeMarco's criminal record.
After appellant filed its appeal with this court, the MVC moved for a remand to reevaluate its position. We granted the motion by order of October 6, 2009, and we retained jurisdiction.
On October 20, 2009, the MVC wrote to appellant's counsel, stating that the MVC was reexamining its position with respect to the need for rulemaking and also examining the possibility of termination based upon DeMarco's criminal record. The letter included a copy of DeMarco's judgment of conviction for the two forgery counts, and stated:
If your client disputes the existence and/or nature of this criminal record, the MVC will provide him and Cooperative with proper notice of the factual and legal basis for any administrative action based upon the same, to which he may respond as appropriate, including requesting an opportunity for an administrative hearing on this particular issue. If your client does not dispute his criminal record, the MVC will proceed immediately to a supplemental Final Decision . . . .
Appellant's counsel responded on November 9, 2009. He stated that DeMarco did not dispute the existence of the criminal record, but expressed a lack of understanding as to what was meant by disputing the "nature of his criminal record." In the four-page single-spaced letter, counsel argued that, notwithstanding the existence of this criminal record, appellant sought an administrative hearing to challenge whether any rule or other standard invoked by the MVC had been applied to him correctly and has been applied consistently and uniformly to other online database users.
Counsel further argued that an administrative hearing would clear up other misconceptions appearing in the record. He pointed, for example, to MVC's representations in its briefs to the ALJ indicating that appellant had access to highly confidential information, including social security numbers and medical information. This was not accurate, and, indeed, appellant's agreement with the MVC expressly limited his access to names and addresses.
Counsel also questioned how and why at the eleventh hour in the prior administrative phase of the proceedings, the MVC came to obtain DeMarco's criminal record, "even though such an investigation had no relevance to pending issues before the Administrative Court." Appellant sought to challenge in an administrative hearing, the propriety of the MVC's conduct initiating an investigation into his criminal record and argued that no such investigation was made pertaining to others similarly situated. Notably, MVC's application form for access to the online database does not inquire whether the applicant has any criminal record, nor does it suggest that a criminal record check will be conducted.
The MVC rejected appellant's request for a further AOL hearing. As far as the MVC was concerned, there was no factual dispute as to the existence of DeMarco's criminal conviction, and there were therefore no material facts in dispute that required resolution at a hearing.
On November 13, 2009, the MVC issued its Final Decision On Remand. It now withdrew its prior Metromedia position and agreed with ALJ Masin that it will be necessary to promulgate rules establishing such additional limitations [i.e., limiting access to only motor vehicle dealers, attorneys and towing companies (acting on their own behalf)] in accordance with the [APA]. The Commission intends to do so as soon as possible. Therefore, the Commission now accepts the ALJ's initial recommendation in this regard.
To our knowledge, based upon our own research, the MVC has not published any proposed rule in this regard.
In its Final Decision, the MVC then proceeded to terminate the Agreement based on DeMarco's criminal conviction. It stated that there was no need for a further administrative hearing regarding DeMarco's record because there was no dispute as to its existence and because appellant's attorney was given "an opportunity to address the circumstances related to, or provide additional information with respect to" the forgery convictions but responded by saying he did not understand this aspect of the MVC's request. Thus, there were no material facts in dispute in the MVC's view.
The MVC reasoned that forgery constitutes a crime of dishonesty that seriously called into question Demarco's suitability to continue to have online access to personal information in the MVC's database. Therefore, the Chief Administrator of the MVC exercised her discretion and invoked the termination provision in the Agreement.
The Final Decision expressed the basis for this exercise of discretion as follows:
Upon further consideration on remand of this matter, the Commission has determined that DeMarco's criminal record compels termination of the Agreement. In so finding, the Commission has concluded that it can discern no rational basis to distinguish between applicants with criminal records seeking access to its database records and Commission employees or job candidates that have or would have access to the Commission's database as part of their employment but who are terminated or disqualified from employment because they have criminal records.
Pursuant to N.J.S.A. 39:2A-32a, "the Commission shall require the fingerprinting of all p[ro]spective employees, employees of the commission, and employees of the agents of the commission, for purposes of determining employment eligibility in any title or capacity that is either directly or indirectly involved in the processing . . . of driving records . . . and of all independent contractors and their employees who work on a motor vehicle premises or have access to motor vehicle records or documents." N.J.S.A. 39:2A-32c requires in relevant part that "[c]riminal offenses which shall disqualify an individual from employment include, but are not limited to, any crime or offense, whether committed in New Jersey or in another jurisdiction, which in New Jersey would constitute . . . forgery . . . .
It would make little sense for the Commission to terminate or disqualify employees or prospective employees from employment with the Commission based upon a criminal record indicating a conviction for forgery, but allow those same disqualified employees or prospective employees to establish and/or maintain an online account with the Commission to gain access to driving records to obtain personal information. Similarly, in this case, the Commission concludes that it cannot allow Mr. DeMarco, an external customer of the Commission with a conviction for forgery, to continue to have access to personal information in the Commission's database. While it is true that the DPPA does not require the fingerprinting and criminal background history checks of applicants seeking to participate in online public information programs, such access is nevertheless governed by the terms of the Limited Online Access Program Agreement, which specifically provides that the "Agreement may be terminated by the COMMISSION in its sole discretion upon 30 days notice to the PROGRAM PARTICIPANT." The Commission has determined that it is a reasonable exercise of its discretion reserved under this provision of the Agreement to terminate online access in those matters where the Commission obtains information that an individual has a criminal record involving any crime of dishonesty. If those with criminal convictions are precluded from employment with the Commission as a means to ensure the security and integrity of New Jersey citizens' personal information maintained within the Commission's database from internal threat or misuse, the Commission must employ similar measures to ensure against any potential external threat or misuse and terminate the access of any individual found to have engaged in criminal activity.
It is in this posture that the case is now before us.
The scope of appellate review of final decisions of administrative agencies is guided by well-settled principles. We will not upset the ultimate determination of an agency unless shown that it was arbitrary, capricious, or unreasonable, or that it violated legislative policies expressed or implied in the act governing the agency, or unless the findings on which the decision is based are not supported by the evidence. Campbell v. Dept. of Civil Serv., 39 N.J. 556, 562 (1963). Although courts grant substantial deference to administrative agencies in implementing and administering statutes within their purview and in making discretionary determinations, courts are not rubber stamps for agency action and must engage in a conscientious assessment of agency action. In re Lalama, 343 N.J. Super. 560, 565 (App. Div. 2001).
In its lengthy brief, appellant has set forth ten point headings of argument, describing various ways in which he contends the MVC acted arbitrarily and capriciously, and contending that rulemaking is a necessary prerequisite to precluding access to the online database because of a criminal record. In this opinion, we have set forth considerable detail of the events leading up to the Final Decision on Remand. We could have, for example, omitted or reduced to a short footnote the Metromedia issue with respect to the MVC's restrictive statutory interpretation. Indeed, although that issue was for several years the only issue in the case, the MVC has ultimately conceded the incorrectness of its position, and now it is not an issue at all. However, we deem the protracted course of events between these parties relevant to the issue of appellant's assertion of disparate unfavorable treatment and arbitrary and capricious agency action.
As further evidence of this theme, appellant points out that the MVC now contends in its appellate brief that appellant is not being deprived of any information, but is merely being required to obtain it under the basic method by submitting a written request for each search. Appellant argues that this is further evidence of arbitrariness because it is fatally inconsistent to suggest that DeMarco is not trustworthy because of his prior criminal record to receive the information, yet he can continue to receive it through a different method. Appellant claims that by requiring him to expend weeks to obtain each search, while his competitors can obtain it the same day, he is being forced into an untenable uncompetitive position and will be put out of business.
The record needs to be developed in order to address appellant's allegations of unfair disparate treatment and his contention that rulemaking is necessary regarding criminal records in this context. This record can be developed at a further AOL hearing, in which both parties can present evidence bearing on the subject, make their arguments, and receive an initial decision from an ALJ.
Appellant's assertion of arbitrary and capricious treatment is supported at this point largely by unrefuted allegations, but with very little competent evidence. It would be helpful to know, for example, whether other online users are regularly subjected to criminal record checks, and, if not, why such a check was made of DeMarco. If, as suggested by the MVC, its criminal record check of DeMarco was part of a broad reassessment of its policies and procedures to protect the confidentiality of personal information, it would seem that a rule of general applicability would be appropriate. It would also seem that this was a change from prior practice and intended to be a policy of broad application.
In its final rationale for terminating the Agreement because of DeMarco's criminal record, the MVC relied upon a provision in Title 39 that is not part of the DPPA. Referring to a provision in Chapter 2A of Title 39, which deals with the make-up and operation of the MVC, the MVC pointed to N.J.S.A. 39:2A-32a, which requires fingerprinting and criminal record checks of all MVC employees. The MVC then noted that, under N.J.S.A. 39:2A-32c, individuals convicted of certain enumerated crimes, including forgery, are ineligible for employment. It therefore reasoned that the same stringent requirements should apply to external persons or entities in determining whether they should have access to personal information in the MVC database.
This reasoning is flawed for several reasons. First, MVC employees have access to all personal information of drivers and vehicle owners, including such things as social security numbers, health and disability information, insurance information, and the like. Appellant's access was limited to only the most basic information, i.e., names and addresses. Thus, the very valid concerns for identity theft or other fraudulent conduct are simply not the same when comparing internal and external access.
Second, the MVC failed to reference another subsection of N.J.S.A. 39:2A-32, which provides that, notwithstanding the general disqualification provision in subsection c, an individual shall not be disqualified from employment with the MVC based on criminal history if the individual can demonstrate his or her rehabilitation. N.J.S.A. 39:2A-32f. That subsection includes eight enumerated factors to be considered in that regard. Ibid. On the contrary, in its rationale in this case, the MVC selectively relied upon only the general exclusion, but failed to consider the full statutory scheme, which provides for exceptions. Among the factors to be considered, for example, are the nature and seriousness of the offense, the offense circumstances, the date of the offense, whether the offense was an isolated or a repeated incident, and any subsequent evidence of the individual's rehabilitation. Ibid.
Finally, the MVC has failed to explain why, for example, individuals employed at car dealerships can have access to the online database without a criminal record check. This suggests that the asserted MVC policy may be underinclusive or incomplete.
We decline to extend our usual deference to the agency's discretionary decision based on such flawed reasoning. We are thus satisfied that appellant has made a prima facie showing of arbitrary and capricious action in the termination of the Agreement. The MVC's refusal to submit this issue to the OAL for a full exploration of the issue was error. Appellant is entitled to a hearing. In addition to assessing whether the MVC reasonably exercised its discretion in terminating the Agreement, the scope of the hearing shall include consideration of the need for rulemaking with respect to disqualification from access to the online database based on a criminal record.
The MVC's November 13, 2009 Final Decision is vacated, and the matter is remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.