*1 201 Moreover, that, the record granting shows addition to $1,000 PBJ to of Appellee, imposed District Court a fine ($650 of was “suspended”). which Comm’r Motor Vehi- of Lee, (1969), cles v. Md. 44 255 A.2d this made it Court ... imposition “clear that the a fine or pecuniary penalty of payable may to the State done only be if [trial court] there is a ‘conviction’which necessarily requires finding a of guilt.” Id. at A.2d at 47. We that TA therefore hold 16-812(a)(l)(i), § requires “disqualify” that the Administration Appellee driving “from a commercial motor vehicle for a period of 1 year” because-as the term “conviction” defined in the applicable state and law-Appellee federal has been § “convicted” of violation of TA 21-902. REVERSED;
JUDGMENT CASE REMANDED TO THE CIRCUIT COURT THAT THE WITH DIRECTIONS CIRCUIT COURT ENTER A JUDGMENT AFFIRMING THE THE ACTION OF MOTOR VEHICLE ADMINIS- TRATION; COURT, IN COSTS AND THE THIS IN CIR- COURT, CUIT BE TO PAID BY APPELLEE.
DEPARTMENT OF HEALTH & MENTAL NURSING HOME APPEAL BOARD. Sept.Term,
No. 32 2008.
Court of Appeals Maryland.
April 8, 2010. probation conditions "discharge” § obtains CP under 6- 220(g). *3 (Diane Ober, Kaler, Festino L. Sollins Schmitt Howard MD), Baltimore, brief, Shriver, for Petitioner. on Grimes & Gansler, Davis, Atty. F. (Douglas Asst. Gen. Atty. Mark J. MD), Baltimore, brief, Respondent. Maryland, Gen. C.J., HARRELL, BELL, ARGUED BEFORE ADKINS, BARBERA, BATTAGLIA, GREENE, JOHN (Retired, JJ. specially assigned), C. ELDRIDGE *4 BARBERA, Judge. whether, Maryland
In the Code of this case we decide under (“COMAR”) 10.09.10.10,1 provider that a Medicaid Regulations swap agreement an interest rate payments pursuant made 10, noted, are to Title all references to COMAR 1. Unless otherwise regulations governing the Chapter Subtitle which contains federally Hygiene’s approved reim- Department of Health and Mental nursing plan for facilities. bursement can claim reimbursement of those payments as mortgage interest.
The petitioner, (“Crofton”), Crofton Convalescent Center a nursing facility certified to provide medical care through the Maryland (“Medicaid”). Medical Program Assistance Crofton entered that, into a financing arrangement through the use of an interest rate swap agreement, exchanged the variable interest rate on Crofton’s a fixed rate. Crofton then submitted the according made swap agreement (“swap payments”) mortgage inter- est for reimbursement from respondent Depart- (“DHMH”). ment of Health DHMH, and Mental Hygiene however, disallowed Crofton’s claim that paid under its swap agreement was a expense reimbursable under CO- MAR. appealed
Crofton DHMH’s decision to Nursing Home (“the Appeal Board”), Board which appeals hears from provid- ers participating Maryland’s Medicaid program, which ultimately affirmed DHMH’s decision. Crofton then peti- judicial tioned for review in the Circuit Court for Baltimore City, which reversed the Board’s decision. appeal, On panel divided held, the Court Special Appeals in unreported opinion, that the swap payments not were reim- bursable. that,
Crofton argues because the financing arrangement that included the swap agreement was incidental to refinanc- ing Crofton’s mortgage, the Court of Special Appeals erred when it determined that the swap payments were not mort- gage payments. For follow, the reasons that we hold the Board applied the proper definition of mortgage interest and that Crofton’s swap payments do not qualify as mortgage interest under that definition. therefore We affirm judgment of the Court of Special Appeals.
I. provides nursing services, other medical part, through Maryland’s (“Med- Medical Assistance Program
206 by funded ieaid”), partially program is a state which Center, Inc. v. Nursing Dep’t Liberty government. federal 941, 433, 438, A.2d 624 330 Md. Hygiene, Mental Health and in the (1993). participate [federal] a state elects 943 “When by approval for it and submits prepares program, medicaid ... a state Financing Administration Health Care the federal of medical assistance provision for the plan medicaid v. Mill- Medicaid Jackson Act[.]” the federal complies with (2002). 1034, “If the 580, stone, 575, A.2d 1037 Md. 801 qualifies then the state plan, the state approves agency federal will government the federal whereby funding, for federal the cost of the medicaid to 50% of up the state reimburse 1037. at 801 A.2d at Id. program.” by DHMH. is administered program Maryland’s Medicaid and state Pursuant to federal A.2d at 1037. Id. at nursing reimburses law, program Maryland Medicaid care, including of medical costs patient-related homes for care. See necessary patient on loans Act, §§ 1396 et 42 U.S.C.A. Security Title XIX of Social (2009 (2008); Md.Code (2006); §§ 430-456 42 C.F.R. seq. Article; the Health 15-103, §§ 15-105 of General Repl.Vol.), statutes Medicaid Maryland et The seq. 10.09.10 regulations of rules and with the promulgation DHMH charge 15-103, §§ See providers. the reimbursement govern status as Article. Crofton’s the Health General 15-105 of it to State reimburse entitles Maryland provider Medicaid DHMH. ments, are issued which partici- to a provider reimbursement DHMH denies When considers the Board Program, Medicaid Maryland’s pating arises out of present case appeal. provider’s reimburse the that DHMH request of Crofton’s Board’s denial its refinancing subsequent made Crofton mortgage.
This Case was million on Crofton’s the term $4.2 loan. To on the payment a balloon bringing due expiring, to refi- sought making payment, the balloon avoid nance mortgage through a fixed rate loan. Crofton con- *6 bids, (“the sidered several including a bid from M & T Bank Bank”) for a loan with a 6.55% fixed Seeking interest rate.2 rate, an even lower Crofton entered negotiations with the Bank, produced which then a financing package that consisted of a million term loan with an interest rate of $4.2 LIBOR3 $500,000 plus percent, one a term loan at an interest rate of plus LIBOR one a percent, “swap agreement” trading the variable interest rate on the two term loans for a fixed interest rate of 5.5% based amount,” on a million “notional both of $4.7 quoted which terms we next explain. basic, vanilla,”
A “plain swap agreement “is a contract between two ... parties, exchange to or ‘swap’ cash flows at intervals, specified by calculated reference to a particular rate or Ward, index.” See S. Lawrence Bryan Polk & M. A Guide to the “Regulatory No Man’s Land” Over-The-Counter of (2007). 397, Interest Rate 124 Swaps, Banking L.J. 399 The commonly employed swaps] “[m]ost rate [interest are fixed/floating swaps rate which the counterparty pays first intervals, designated the second at specific a amount of inter- est based on a fixed interest multiplied” by agreed rate principal Somer, amount called the “notional” amount. Stuart A Survey & Legal Regulatory Issues Relevant to Interest of (1992). 4 Swaps,
Rate
DePaul Bus. L.J.
387
Concurrent-
ly, the second counterparty pays the first counterparty based
floating
rate,
LIBOR,
on a
such as
applied to the
notional amount.
Id. The notional amount is used
to
solely
calculate
the interest
exchanged
is not
between
parties.
Thrifty Oil Co. v. Bank America Nat’l Trust
of
Ass’n,
(9th Cir.2002)
and Sav.
310 F.3d
(adopting
(S.D.Cal.2000)),
Interest The master Id. at 1192. agreement. and a master tion by agreement prepared a standard form is often (“ISDA”). Association Swaps International and Derivatives swap case, the Bank memorialized In Crofton and Id. this by separate agreement accompanied master an ISDA Pursuant to amortization schedule.4 confirmation and swap amount 'amortizing' rate is a whose notional "An 4. Co., Thrifty during Oil specified intervals its term.” declines at refinance its agreed to Crofton financing package, plus rate of LIBOR variable interest a term loan with a with the Bank rate with the variable one and then percent period, relevant time During the a fixed rate of 5.5%. 5.5%, and thus however, rates were below the variable interest pay swap agreement required was under Crofton rate plus percent If the LIBOR one the Bank. difference to 5.5%, paid have the variable Crofton would had been above amounts, have reimbursed and the Bank would rate loan difference, inter- effectively bringing Crofton’s for the Crofton interest rate. down to the 5.5% est back treated the accounting system, Crofton Under Crofton’s which are payments, swap payments re- 10.09.10.10.C. Crofton costs under COMAR reimbursable providers reimburse for which DHMH should ports costs (“allowed DHMH reviews costs”), year. DHMH each fiscal disallowing costs that are the costs reports adjusts regulations. laws and applicable under the not reimbursable LLP, Gunderson, to review hired Clifton DHMH adjustments. to recommend report 2002 cost Crofton’s review, determined that Crof- Clifton Gunderson Based on its for reimbursement. eligible were not ton’s the costs. DHMH disallowed Accordingly, Litigation Board, to the which referred the decision appealed Hearings for a to the Office of Administrative appeal *8 an Administrative Law evidentiary hearing before contested (“ALJ”).5 findings his recommended The ALJ issued Judge subject swap agreement was to an Crofton’s F.3d at 1193 n. 5. monthly at the same rate as the amortization schedule that declined principal owed on Crofton’s two term loans. total balance may provider challenging elect the manner 5. A a DHMH decision appeal. 10.01.09.03D. A considers the COMAR which the Board solely appeal provider may request Board consider the based that the materials; materials and an informal oral based on written on written evidentiary hearing. presented a full argument; at or based on evidence argue appeal evidentiary provider an at a full chooses to Id. When law, pay- of fact and conclusions of that the interest finding grounds ment should have been reimbursed on the that the part were of an integrated mortgage transac- tion and interest are payments allowable costs. The based, ALJ’s decision in part, following findings was on the fact:
10. A separate agreement, swap agreement, interest was into intermediary. entered with a fiscal The swap agreement required payments would convert the float- ing rate term into a fixed 5.5% interest rate. Mortgage paid by 15. Medicaid providers is reim- bursable Medicaid.
17. The part above referenced notes are of a capital total financing includes linked mortgage interest interest. 18. Generally Accepted Under Accounting Principles (“GAAP”), all of the above referenced are bank treated as interest. Board, DHMH filed exceptions with the which then held a hearing parties at which both presented arguments.6 oral
The Board accepted findings ALJ’s except above- mentioned four findings fact.7 The Board determined:
Fact 10. The parties to the loan entered into a separate agreement called an rate agreement, (swap hearing, may designate agency hearing, the Board to conduct but the Board is the ultimate administrative decision maker. See 10.01.09.06, that, (providing COMAR 10.01.09.07 when Board does hearing, hearing not conduct the officer should make recommenda- Board, decision). tions to the which issues the final exceptions findings, 6. If are made to the ALJ’s the Board will hold a hearing exceptions on the including and make the final decision find- 10.01.09.06, ings of fact and conclusions of law. 10.01.09.07. accepted background findings 7. The Board the ALJ’s factual that Crof- nursing facility part ton is a program; of the Medicaid sought mortgage, to refinance its debt with a fixed rate and the Bank and, issue, mortgage; during period offered it a variable rate at variable interest rate was below and therefore 5.5% Crofton was re- quired swap payments. to make *9 the interest Under swap agreement) interest or agreement inter- monthly exchanged parties the two swap agreement, floating or i.e., its variable exchanged est payments, 1 for a fixed interest plus of LIBOR interest rate mortgage 5.5%. rate of providers paid by Medicaid Mortgage
Fact 15. Medicaid, ceilings to certain subject reimbursable exceptions. mortgage 4.2 million dollar T Bank treats the
Fact 17. M & $500,000 agree- note as one mortgage note and the second inter- at the variable monthly payment one requiring ment sepa- as a rate. It treats the est payment. rate, requiring separate independent agreement, Principles Accounting Generally Accepted Fact 18. Under are treated (GAAP), payments referenced interest above However, reimburse- interest. under Medicaid mortgage as rules, and federal controlling, ment is not state GAAP regulations are. concluded that making findings,
After these the Board were not reim- payments swap agreement under the The Board reasoned as follows. bursable.
First, swap agreement the nature of a Board evaluated under it did not meet the payments and determined that conclusion, reaching interest. definition Maryland’s program applies the Board noted that Medicaid interest, definition of which is the federal Medicare “the for the use of borrowed funds. Interest cost incurred the cost incurred for funds bor- current indebtedness is 413.153(b)(1). 42 C.F.R. Because Crofton’s rowed!.]” amount, notional not on paid were interest on a the Board money mortgage agreement, borrowed under a qualify mortgage did not determined that the ad- Then, expressly does not noting interest. Board, on the COMAR swap payments, dress based law, see applicable Board to federal provision that directs the *10 10.09.10.29, concluded that the federal Provider Re- (“PRM”) provision addressing imbursement Manual in- swap 202.2, § terest PRM applied.8 swap payments Under and, therefore, prohibited are the Board affirmed the disallow- swap payments. ance of the petition judicial
Crofton filed a review in the Circuit Court for Baltimore City. Circuit Court reversed the decision, Board’s that the finding mortgage refinanced and the subsequent swap interest rate parts were two of an integrated effectively transaction that converted the swap payments into payments. The court there- fore found that the swap payments were costs for which Crofton was entitled to reimbursement.
DHMH
to the
appealed
Special
Court of
That
Appeals.
court first addressed the applicable standard of review of
administrative agency
rejected
decisions and
DHMH’s conten-
tion that
the court should review an agency decision for
Instead,
“substantial evidence.”
the court applied the stan-
Care,
dard
by
articulated
this Court in Adventist Health
Inc.
Comm’n,
Maryland
103,
v.
Health Care
392 Md.
1. Should securing transaction mortgage financing integrated to an be swap agreement that includes a property real commercial nature integrated to the regard without treated *11 transaction? Nat’l Trust & Sav. Bank Am. Thrifty
2. Does
Oil Co. v.
Cir.2002)
(9th
law
Ass’n,
Maryland
establish
II. in whether, of a regardless provider’s determine To agreements, and loan “integrate” tent its for reimburse mortgage treats of the term scope examine the ment we must purposes, it in COMAR. “mortgage appears interest” as that the definition argues law, a mort which defines Maryland common by is controlled follows: gage as is property by mortgage
A
is secured
when:
loan
mortgagee,
to the
by
mortgagor
or
conveyed
assigned
subject
conveyance, but
legal
of an absolute
form like that
conveyance condition
which the
to a
or
proviso
upon pay-
void,
reconveyed,
is to be
or the estate
become
secured, with
sum
mortgagee
principal
ment to
interest,
certain;
on day
and upon nonperformance of this
condition, the mortgagee’s conditional estate becomes abso-
law,
lute at
and he may
possession
take
thereof[.]
Pence,
Norwest Bank
363, 369,
Minnesota v.
132 Md.App.
(2000)
A.2d
(quoting Equitable Trust Co. v. Imbesi
249, 253-54,
(1980)).
287 Md.
DHMH counters that COMAR does not explicitly refer to swap payments or paid pursuant agree- to a swap moreover, ment. DHMH argues, that without evidence that *12 the agency interest, intended the term mortgage as referenced provides 9. COMAR 10.09.10.10C "[t]he that final Medical Assistance per capital diem investor-operated reimbursement in and non- investor-operated (includ- [mjortgage facilities shall include ... interest).” 10.09.10.10C(3). ing bond provides COMAR "Capital 10.09.10.10A that the cost center includes 10. 10.09.10.10.A(3). ... interest[.]” provides "refinancing existing COMAR 10.09.10.101 of debt is 11. permitted as the only basis for reimbursement calculations to the extent outstanding principal remaining balance existing on the debt existing when ... [t]he debt has ballooned in accordance with 10.09.10.101(1). scheduled date reflected in the debt instrument[.]”
215 cannot COMAR swap payments, include to regulations, in the contends, DHMH swap payments. encompass construed to be accord- interpreted should be instead, 10.09.10.29, which by COMAR required to the PRM ing regulation specific of a language “Except when provides: reimburse- provide Department an intent indicates re- without Program recipients services ment for covered State financial participation, of federal availability gard applicable conformity with interpreted shall be regulations 10.09.10.29. regulations.” statutes and federal a con regulation is interpretation of agency’s An 121, Care, 896 392 Md. at Health of law. Adventist clusion Resources, 385 Md. 331; Natural Dep’t at Kushell v. A.2d (2005). reviewing when 563, 576, 186, Yet even 870 A.2d 193 conclusions, respect must appellate an court legal agency’s an Care, 392 Adventist Health in its field. expertise the agency’s Kushell, 576, A.2d 331; at 870 121, 385 Md. 896 A.2d at Md. at ap interpretation agency’s administrative at 193. “[A]n should agency administers of the statute which plication courts.” reviewing weight by considerable ordinarily given be 572, Noland, 556, 873 A.2d 386 Md. Aviation v. Maryland (2005) (internal omit and citations 1145, quotation marks 1154 Care, 120, Md. at 896 A.2d ted); Health 392 see also Adventist (“Judicial of an administrative of the decision at 330 review nar quite is proceeding quasi-judicial rendered agency “ row.”). owed to an Likewise, deal of deference is great ‘a ” regulation.’ interpretation its own agency’s administrative Care, 119-20, A.2d at 330 at 896 392 Md. Adventist Health 274, 288, King, Auth. 369 Md. Transp. v. (quoting Maryland (2002)). deference, ‘it 1246, “Despite 1254 799 A.2d agen to determine whether our always prerogative within ” Care, Health are correct.’ Adventist conclusions of law cy’s Kushell, 385 Md. at (quoting at 331 at 896 A.2d 392 Md. 193). whether Accordingly, we determine 870 A.2d at with erroneous or inconsistent “plainly are Board’s conclusions 1254 288-89, A.2d at at 799 King, 369 Md. regulation.” Noland, (internal omitted); and citations marks quotation (“[A] court reviewing n. A.2d at 1156 at 574 n. Md. *13 216
must if determine the administrative decision is premised upon (internal an erroneous conclusion of law.” quotation omitted)). marks and citations
Although
keep
we
in mind the
weight
considerable
afforded an agency’s interpretation of its regulations,
may
we
not abdicate our responsibility to examine independently the
regulations upon which the Board
relied
deciding Crofton’s
“
appeal, to ‘determine if the administrative decision is prem
”
ised
upon
Noland,
erroneous conclusion of law.’
386 Md.
3,
at 574 n.
An of COMAR 10.09.10.10A examination (DHMH) in its entirety, compels of Title 10 within the context explicitly are excluded the conclusion definition Title Specifically, interest. from of 10.09.10.29, COMAR directs “Interpretive Regulation,” 10’s DHMH’s intent us, in of evidence of the express the absence regard availability to the feder- reimburse costs “without to “in regulations to State participation,” interpret al financial regulations.” applicable federal statutes conformity with & 10.09.10.29; Dep’t see also Health Mental COMAR Inc., Centre, Nursing Md.App. Hygiene v. Riverview (1995) (“Where does not 657 A.2d COMAR otherwise, of reimburse- principles federal Medicare specify ment, Act, in Medicaid Provider Reimbursement contained control”). (PRM), regulations
Manual
and Medicare
COMAR
10.09.10.10
no
contains
indication of the
intent
DHMH’s
reimburse
“without
regard
availability
costs
of federal
therefore,
financial participation”;
as directed
COMAR
10.09.10.29, must interpret
we
the term
“mortgage interest”
conformity
the applicable
authority.
with
federal
10.09.10.07C(5),
turn,
specifically directs us to the Medicare
Id.
regulations
guidance.12
(“Following
PRM for
of the provider’s
year,
close
fiscal
or
Department
its
designee shall determine the final per diem rates for that
year.
fiscal
final
Appropriate
payment adjust-
settlement and
ments shall be made
according
the Medicare Provider
*15
Manual,
15-1,
Reimbursement
HCFA Publication
and this
Center,
Liberty
see also
Nursing
chapter.”);
ual ... unless specified by [“PRM”] otherwise chapter.” this (citations omitted)); Centre, Riverview Nursing Md.App. 104 at 598 n. A.2d 657 at 374 n. 3 (explaining that the PRM upon Medicare reimbursement regulations “elaborated 413”). in 42 found Part C.F.R.
Both the C.F.R. and the PRM define interest cost as “the incurred for the use of borrowed funds.” 42 C.F.R. 413.153(b); § § PRM Only necessary interest, 202.1. howev- er, qualifies an 413.153(a); § allowable cost. 42 C.F.R. § PRM 202.2. necessary Interest is if it a is “incurred on loan need, is made satisfy that to a financial a purpose related [f]or care, patient [i]ncurred a loan that is reduced 413.153(b)(2); investment § income.” C.F.R. PRM 202.2. “The burden of a proof show there is financial for need the borrowing provider.” ... rests with the § PRM 202.2A. 10.09.10.08B(1) provides 12. COMAR also that allowable costs for cov- "according principles ered services are determined to the established Act, Security seq., § under Title of the XVIII Social 42 U.S.C. et Manual, and contained in the Medicare Provider Reimbursement HCFA 15-1, specified by chapter[J” Publication unless otherwise this however, that explicitly provides, “[interest Section 202.2A is swap agreement an interest rate incurred under expense because payment purposes recognized not Medicare agreement under does not incurred such expense need of the a financial satisfy from a loan made result § 202.2A. provider.” following § includes the
To this 202.2A point, illustrate example: a million at variable
Hospital A has bonds $10 patient issued for a 2%. The bonds were prime plus rate of is allowable ex- purpose care related fixed rate prefers The hospital under Medicare. pense awith bank. agreement into a interest rate and enters note is million. The $10 amount the bank a fixed rate of pay will stipulates hospital rate of pay hospital bank variable 12% and the will 2%. prime plus is no at 10% and there year, prime
For first remains hospital. and the For of funds the bank exchange between hospital pays to 8%. The year, prime drops second $200,000 NOT reim- in interest. This interest the bank prime the third year, bursable under Medicare. For $200,000. the hospital to 12%. The bank pays rate increases income for Medicare This is NOT considered investment *16 no on the impact The transaction has reimbursement. the of interest associated with allowability expense the bonds. interest mortgage this does not address
Although example instructive because it example especially the specifically, allowable swap payments substituted otherwise addresses payments. interest that, distinguishes by arguing swap payments
Crofton its agreement, separate A’s which was from Hospital swap unlike bonds, piece swap agreement inseparable the Crofton’s was package the financing package, of an and because integrated the mortgage property, secured Crofton’s refinances mortgage payments. interest swap payments constituted the argues swap payments Crofton further that must be interest “Bank construed as because the Notes, and Crofton intended the Loan and Security Agree- ment, Swap Agreement Interest and Deed of Trust function transaction, singular, as a non-severable not a inde- separate, pendent, agreement,” Maryland stand alone and contract law requires courts to construe contracts in the conformance with Moreover, that parties’ argues Maryland pub- intent. Crofton lic the policy supports treating swap agreement and the related loan one integrated transaction because Crofton swap agreement entered into the an effort to more operate efficiently and to lower fixed Crofton’s costs.
Conversely, agrees DHMH with the finding Board’s swap agreement the was only related Crofton’s loans be- the swap cause enabled Crofton to “exchange interest rates without the modifying terms agreement” loan and fact that in 2002 paid “[t]he interest under and swap both loan does agreements not make the paid swap agreement under the reim- agrees DHMH further bursable[.]” "withthe Board’s determi- only nation that allows reimbursement of interest expenses to refinance existing incurred debt or to obtain a Therefore, new loan. DHMH argues that the Board properly referred to the PRM to determine whether Crofton’s swap payments were allowable costs. are not persuaded
We that Crofton’s intent to integrate swap mortgage agreements overcomes PRM’s clear swap payments, directive that even when incurred in place are expenses, allowable interest not reimbursable Crofton, payments. A” “Hospital Similar into its entered agreement to secure upon a fixed interest rate on bonds which, but swap agreement, for the the provider would have payments. made allowable interest though hypo- Even swap agreement thetical supplants bonds’ variable interest rate, explains the PRM are not bond not thus are reimbursable. The PRM’s analysis Hospital focuses neither intent nor A’s *17 agreement’s effect-replacing variable bond interest rate
221 intent and Consequently, fixed to treat Crofton’s a rate. with in this case of transactions as determinative timing PRM, and we decline Crofton’s with would be inconsistent to do so. invitation ex- governing rules reimbursement of its promulgating elected, in of express the absence DHMH has
penses,
specific expense,
to reimburse a
indication of its intent
to the
by resort
C.F.R.
questions
reimbursement
decide
DHMH
10.09.10.29. This
is author-
PRM.
COMAR
See
15-103,
§§
of the Health General
to do.
15-105
ized
See
Care,
A.2d at
Article;
392 Md. at
Adventist Health
authority
agencies
administrative
(recognizing the
of
330
“
in order to
regulations
rules or
legislative-type
‘promulgate
often, of
regulations
or
will
statute. Such rules
implement [a]
discretionary policy determina-
necessity, embody significant
Res.,
”)
v.
Natural
335 Md.
Dep’t
Christ
(quoting
tions.’
of
(1994)).
34, 42
to that
owe deference
A.2d
We
Liberty
authority.
discretionary exercise
DHMH’s
Cf.
438-39,
Center,
Md. at
We said agreements; consequently, interpretation our of CO- must with the and the PRM. MAR be consistent C.F.R. swap pay- clear of the difference between PRM’s delineation allowable expenses compels ments otherwise under “mortgage conclusion that the term interest” swap payments does not encompass regardless provider’s payments intent to substitute those for otherwise reimbursa- ble interest See COMAR 10.09.10.29. expenses.
Accordingly, correctly hold that Board relied on the we payments were not PRM determine Crofton’s mortgage under COMAR. reimbursable as that, governs interpre- because the PRM further hold We case, are provider’s tation of COMAR this under CO- not reimbursable *18 10.09.10.10, MAR of a regardless nursing facility’s care intent a and integrate swap agreement a mortgage refinancing into a single transaction.
III. that the ruling governs interpretation Our PRM our of the COMAR 10.09.10.10 obviates need to address the second question presents, Crofton which invokes the correctness of application Thrifty analysis. the Board’s Oil to the We the judgment Special therefore affirm the Court of Appeals ground the sole that the Board referred to properly the PRM to determine that are not reimbursable interest under COMIAR. OF THE
JUDGMENT COURT OF SPECIAL APPEALS AFFIRMED. BE PAID COSTS TO BY PETITIONER. J.,
ADKINS, opinion files joined by dissents and HARRELL, J. ADKINS,
Dissenting Opinion by Judge, HARRELL, which J., joins.
I the respectfully majority’s dissent from holding pay- pursuant are, ments made to a interest rate swap agreement definition, not the “mortgage interest” under Code of (“COMAR”) Maryland Regulations In my 10.09.10.10. view ignores this the holding fundamental nature of transaction Center, (“Crofton”) between Crofton Convalescent Inc. (“First National”). First Bank of Maryland National Examining facts of the transaction reveals that parties a route to complicated simple took reach a result. Crofton sought fixed-rate loan from First National. After initial negotiations, First National offered Crofton a 6.55% loan, fixed-rate which accepted by was not Crofton. Subse- quently, First National a more proposed complicated, two-step First, according transaction. to a varia- paid Second, ble exchanged rate. First National and Crofton rate, difference between the rate and the 5.5% fixed variable The variable role. which was substance, subject to they were form; only existed the 5.5% swap payment, via adjustment, immediate level. Loan Board, parties’ dismantled like the majority, conclusion to reach its in order Agreement, Security from the transaction separate were because loan, not reimbursable and therefore were so, ignored it doing interest.” “mortgage not
they were *19 and borrower. intent of the lender undisputed and clear swap that the reasoning to the Board’s majority defers The be- simply loan from the separate is arrangement sepa- two Crofton make requested that First National cause one for the variable-rate swap, for the and one payments, rate made accommodation bookkeeping This loan. ruling the Board’s basis for is an insufficient
the lender loan integrated of an part were not the existing the refinancing purpose for the agreement made say agreements written parties’ the clear mortgage loan when otherwise. arrange- up sets the Agreement, which
The Master explicitly the states: parties, ment between on the fact that entered into reliance All Transactions are single all Confirmations form Agreement this Master would parties ... and parties between agreement Transactions. any not otherwise enter into or Agreement as “one defined in the Master “Transactions” is this governed by ... that are or will be more transactions ... and the includes the schedule which Agreement, Master exchanged ... be- evidence confirming other documents and Corre- confirming those Transactions.” parties tween “The says: Security Agreement the Loan spondingly, Master into an ISDA the Bank have entered Borrowers and (which ... herein called hereof is dated the date Agreement $4,200,000 Term Note for the ‘Swap Agreement’).” provi- “pursuant that it is issued proves indebtedness sions of’ the Agreement. Loan The Term Note for the $500,000 provision. contains the same
Equally important is the undisputed fact that Crofton sought from the loan, bank a fixed 5.5% turned down the loan, bank’s offer for a 6% and deferred to the proposal bank’s that this more deal complicated would accomplish what Crof- ton sought the first place—a 5.5% loan for capital purposes. Yet the Board concluded as follows:
The ALJ found that the swap agreement was an agreement notes, linked to the above referenced for the [i.e. million $4.7 loan], dollar to ensure that the interest rate was 5.5%. But is exactly what a swap interest rate agreement supposed to do. It allows one of parties to swap the uncertainties or floating variable interest rate for the certainty of a fixed interest rate. Nor is the fact that the interest rate swap agreement includes a notional principal amount [footnote that is the omitted] same as the amount unusual, loan controlling, or change the character of agreement. Most, all, if not swap agreements refer to (i.e. amount that is principal amount of a loan swap agreement’s notional ... principal.) The stated “notional,” amount of principal is because an is a separate, independent, stand alone agree- *20 ment [footnote that modify omitted] does not or exchange the principal short, amount owed on the loan. the swap agreement interest in question, all like interest rate swap agreements, did produce not a new loan or any additional for principal either of the parties to the agree- ment. The swap agreement simply allowed the parties to exchange interest rates modifying without the terms of the mortgage agreement. loan
The Board’s rationale is circular and mischaracterizes this loan transaction. The Board’s thinking goes like this: most using transactions swap agreements loans; involve no actual therefore the Crofton-First National transaction was not a mortgage loan because it included an interest agree- ment. logic This falls apart upon close perusal: classification of the transaction as a mortgage loan does not on depend rate, or is is at a set payable the amount of whether that mort- says is What COMAR by a formula. determined have the Board should So is reimbursable. gage inter- were swap payments whether considered involving swap payments est, most transactions not whether Instead, sweeping the Board made actual loans. involved the undis- ignored swap agreements, about generalization Notes, and Master Loan Agreement, fact puted existing a refinance of an constituted Agreement facility. its operation loan entered into in as the question, at the transaction looking Rather than did, the Board relied on several Judge Administrative Law which indicate that swap agreements, definitions of internet amount is never principal transaction the typical swap using pay- popularity or exchanged.1 possibility no role play securities should ments as investments actually the bank loaned consideration of whether Board’s and whether to a loan money pursuant to Crofton agreement. integral part were an of that no evidence suggestion, there is Contrary Respondent’s swap agreement gamble into the that Crofton entered found as a fact Judge rates. The Administrative Law market that would “swap agreement required a fixed 5.5% floating rate term into convert pay intent that Crofton 5.5% parties’ rate.” The loan is undeniable. capital interest on 10.09.10.10(C) expenses of capital lists five classes “(1) (2) taxes; Property Property which are reimbursable: (4) (3) interest); insurance; (including bond Mortgage interest (5) rental; office costs.” capital capital Net value Central reimburse- provide complex detailed and regulations "While See, Glossary, http://www. InvestorWords.com-Investing 1. e.g., investorwords.com, 12, 2010); (last Investopedia.com, March visited (describing swap agreements http://www.investopedia.com as: "Tradi- *21 security change maturi- tionally, exchange for another to of one (stocks bonds), (bonds), investment ty quality or or because of issues objectives changed. Recently, swaps grown to include have have 12, (last 2010). currency swaps swaps.”) visited March and interest rate procedures formulas,
ment
and
they
provide
do not
further
regarding
details
capital
reimbursable
expenses generally or
interest in
particular.2
majority
As the
acknowledges, “we may not abdicate our
responsibility
examine independently
regulations
upon
which the Board relied in deciding
appeal[.]”
Crofton’s
Ma-
jority Op.,
at
supra,
view,
Judge joins HARRELL has authorized me to state that he in this dissenting opinion.