                                             COURT OF APPEALS OF VIRGINIA


              Present: Chief Judge Felton, Judges Humphreys and Chafin
UNPUBLISHED


              Argued at Salem, Virginia


              COMMONWEALTH OF VIRGINIA,
               DEPARTMENT OF PROFESSIONAL AND
               OCCUPATIONAL REGULATION,
               BOARD FOR CONTRACTORS
                                                                             MEMORANDUM OPINION * BY
              v.     Record No. 0285-12-3                                CHIEF JUDGE WALTER S. FELTON, JR.
                                                                                 NOVEMBER 20, 2012
              KAREN MATHESIUS


                                 FROM THE CIRCUIT COURT OF WASHINGTON COUNTY
                                              Isaac St. C. Freeman, Judge

                               Steven P. Jack, Assistant Attorney General (Kenneth T.
                               Cuccinelli, II, Attorney General, on briefs), for appellant.

                               Daniel R. Bieger (Copeland & Bieger, on brief), for appellee.


                     In this administrative appeal, the Commonwealth of Virginia’s Board for Contractors

              (“Board”) challenges the final order of the Circuit Court of Washington County (“circuit court”)

              reversing the Board’s decision to deny Karen Mathesius’s claim under the Contractor Transaction

              Recovery Act, Code §§ 54.1-1118 through -1127. The Board contends the circuit court erred by

              considering evidence outside the agency record and by finding that the Board’s decision to deny

              payment to Mathesius was arbitrary and capricious.

                                                        I. BACKGROUND

                     In November 2006, Mathesius entered into a verbal agreement with contractor Eugenio

              Pecina to renovate her home. In 2007, Mathesius filed a complaint against Pecina in the circuit

              court, asserting breach of contract. On January 14, 2009, following a bench trial, the circuit court

                     *
                         Pursuant to Code § 17.1-413, this opinion is not designated for publication.
entered judgment in favor of Mathesius in the amount of $20,719.79. The circuit court found that

“the deficiency in the work performed by [Pecina] in this case arises [sic] above the level of a

breach of contract and meets the definition of improper or dishonest conduct as provided” in the

Contractor Transaction Recovery Act (the “Act”).1

       Nearly one year later, on January 7, 2010, Mathesius conducted debtor interrogatories to

determine whether Pecina owned any assets that could be sold or applied to satisfy her judgment

against him.2 Pecina testified that he did not own any property except for a 1984 Ford van that was

titled in his name. When asked by Mathesius whether the van “run[s],” Pecina testified that it

“starts.” Mathesius did not take any action to seize and sell Pecina’s van in satisfaction of her

judgment against him.

       By letter dated February 1, 2010, Mathesius submitted a claim to the Board for recovery

from the Contractor Transaction Recovery Fund (the “Fund”). On November 11, 2010, the Board




       1
         The Act provides a limited means for payment to a claimant on an unsatisfied judgment
against a licensed contractor who has engaged in “[i]mproper or dishonest conduct” in relation to
a contract for residential construction. Code § 54.1-1118. Such payment is made from a fund
administered by the Board, and is limited to “actual monetary loss,” along with attorney’s fees
and court costs, not to exceed a total of $20,000, regardless of the amount of the claimant’s
unsatisfied judgment. Code § 54.1-1123(A), (C).
       2
           The Act provides that:

                 No directive ordering payment from the [Contractor Transaction
                 Recovery] Fund shall be entered unless and until the claimant has
                 filed with the Director a verified claim containing the following
                 statements:
                     That the claimant has conducted debtor’s interrogatories to
                 determine whether the judgment debtor has any assets which may be
                 sold or applied in satisfaction of the judgment.

Code § 54.1-1120(A)(6)(a).

                                                 -2-
sent a notice of Informal Fact-Finding Conference3 to Mathesius and Pecina that provided, in

pertinent part:

                          Following the conclusion of the [Informal Fact-Finding]
                  Conference, the presiding officer will prepare a Summary of
                  Informal Fact-Finding Conference (“the Summary”) that will include
                  a recommendation that the claim be either approved or denied. The
                  Summary will be submitted to the Board for consideration at the next
                  available Board meeting.

                             *       *      *       *       *       *       *

                          You and any participants of the [Informal Fact-Finding]
                  Conference will be invited to attend the Board meeting at which the
                  Board will consider this case. Prior to the Board’s final decision, you
                  and the participants will be given the opportunity to make a limited
                  presentation to the Board. At that time, you may not introduce new
                  evidence but may state the reasons why you agree or disagree with
                  the Summary. The Board will make a final decision based upon the
                  Agency Record.

(Emphases added).

        On December 10, 2010, Pecina and Mathesius appeared and testified at the Informal

Fact-Finding Conference before Board designee Michael D. Redifer (“Redifer”). Pecina testified

that the 1984 Ford van to which he referred during debtor interrogatories on January 7, 2010 was

located at his residence. Mathesius indicated that she had not made any effort during the past eleven

months to seize and sell the van toward satisfying her judgment against Pecina.

        At the close of the Informal Fact-Finding Conference, Redifer informed the parties that he

would keep the record open until December 17, 2010 to allow them additional time to submit

evidence “[i]f there’s something that you can’t put your hands on right at this moment.” Redifer

specifically advised the parties that “[a]t Board meetings you cannot produce any new evidence. So



        3
         The VAPA provides, in pertinent part, that “[a]gencies shall ascertain the fact basis for
their decisions of cases through informal conference or consultation proceedings unless the
named party and the agency consent to waive such a conference or proceeding to go directly to a
formal hearing.” Code § 2.2-4019(A).
                                               -3-
that would mean during those seven days, that window that is open, . . . that is the only time that you

can give us anything extra.” (Emphases added).

        By letter dated March 29, 2011, Redifer sent the Informal Fact-Finding Conference

Summary (the “Summary”) to the Board, Mathesius, and Pecina. In the Summary, Redifer found,

inter alia, that Mathesius had failed to comply with Code § 54.1-1120(A)(6)(c), which provides, in

pertinent part, that: “No directive ordering payment from the Fund shall be entered unless and until

the claimant has filed . . . a verified claim” stating “[t]hat all legally available actions have been

taken for the sale, or application of the disclosed assets and the amount realized therefrom.”

Because Mathesius “failed to comply with this section of the statute,” Redifer “recommend[ed]

[Mathesius’s] recovery fund claim be denied.” The Summary informed the parties that the Board

would consider the matter on April 19, 2011, and that “[a]t the Board meeting, participants may

respond to the Summary only. Participants may not present any new information or bring any new

witnesses.” (Second emphasis added).

        By letter dated April 8, 2011, Mathesius advised the Board that she objected to the

Summary. She presented a letter to the Board from John Powers, owner of Blue Ridge Nissan in

Wytheville, Virginia, also dated April 8, 2011, that provided in pertinent part: “The 1984 Ford van

in question has no monetary value except as salvage or scrap metal.”

        On April 19, 2011, Mathesius appeared before the Board to respond to the Summary. She

asked the Board to permit her to introduce the April 8, 2011 letter from Blue Ridge Nissan

regarding the value of Pecina’s 1984 Ford van. The Board denied her request, but specifically gave

her “the option of requesting that the case be remanded back to an Informal Fact-Finding

Conference in order that the documentation be properly introduced.” The Board advised Mathesius

that if she did not exercise her option to participate in a second Informal Fact-Finding Conference, it

would “consider her case without the new documentation.” Mathesius chose not to request that her

                                                   -4-
case be remanded to a second Informal Fact-Finding Conference to permit her to present the April 8

letter regarding the value of Pecina’s 1984 Ford van. The Board thereafter unanimously voted to

adopt Redifer’s recommendations contained in the Informal Fact-Finding Conference Summary and

deny payment of Mathesius’s claim based on the record before it. On April 20, 2011, the Board

issued its final written opinion and order denying Mathesius’s claim for recovery from the Fund.

       Two months later, on June 22, 2011, Mathesius seized Pecina’s 1984 Ford van pursuant to a

writ of possession issued by the circuit court. She incurred a total expense of $405.78 to levy the

van. The next day, on June 23, 2011, Mathesius sold the van at auction for $325.

       On June 30, 2011, Mathesius appealed the decision of the Board to the circuit court. She

asserted that the Board erred by denying her claim against the Fund because she failed to present

evidence at the Informal Fact-Finding Conference as to the value of the 1984 Ford van. She

contended that the Board’s denial of her claim was arbitrary and capricious because the van had no

appreciable value. Finally, she contended the Board erred by “fail[ing] to consider the [letter] from

Blue Ridge Nissan dated April 8, 2011 opining that the 1984 Ford van ha[d] no monetary value

except as salvage or scrap metal.”

       In its letter ruling issued January 12, 2012, the circuit court found in favor of Mathesius and

remanded the matter to the Board. The circuit court stated:

               The record speaks for itself and it is clear to the [c]ourt that the
               Board placed all of its eggs in one basket, that being that the 1984
               Ford van was a valuable asset and [Mathesius] failed to pursue the
               asset and apply the proceeds of a sale of the asset to the judgment of
               Twenty Thousand Seven Hundred Nineteen Dollars and Seventy
               Cents ($20,719.70). There is a clear demonstration the van had a
               negative value and it is wrong-headed to think otherwise.
                       It appears to the [c]ourt that after a judgment was rendered
               against [Pecina], [Mathesius] complied as closely as possible with all
               the bureaucratic requirements of the Act to Recover From the Fund.
               The Board, on the other hand, has arbitrarily relied on her failure to




                                                 -5-
               pursue a valueless asset to prevent a recovery from the Fund, which
               is established to protect victims of contractors such as [Pecina].

(Emphases added).

       By final order dated February 3, 2012, the circuit court found that “the decision of the

Board denying recovery from the Fund was arbitrary and capricious.” The court remanded the

matter to the Board and ordered “that consideration shall be given to the letter submitted by John

Powers of Blue Ridge Nissan and the documentation submitted regarding levy and disposal of

the [1984 Ford] van.”

                                           II. ANALYSIS

       The Board contends that the circuit court erred by finding that its denial of Mathesius’s

claim was arbitrary and capricious because it failed to consider evidence that was not in the agency

record. The Board asserts that it properly considered the evidence in the agency record in denying

Mathesius’s recovery from the Fund.

       The Virginia Administrative Process Act (“VAPA”) authorizes judicial review of agency

decisions. See Code § 2.2-4027. “[U]nder the VAPA, the circuit court’s role in an appeal from an

agency decision is equivalent to an appellate court’s role in an appeal from a trial court.” School

Bd. of County of York v. Nicely, 12 Va. App. 1051, 1062, 408 S.E.2d 545, 551 (1991). “On appeal

of an administrative agency’s decision, ‘the party complaining of an agency action has the burden of

demonstrating an error of law subject to review.’” Volkswagen of Am., Inc. v. Quillian, 39

Va. App. 35, 49, 569 S.E.2d 744, 751 (2002) (quoting Hilliards v. Jackson, 28 Va. App. 475, 479,

506 S.E.2d 547, 549 (1998)), rev’d on other grounds sub nom. Volkswagen of Am., Inc. v. Smit,

266 Va. 444, 587 S.E.2d 526 (2003).

       “Errors of law fall into two categories: first, whether the agency . . . acted within the scope

of [its] authority, and second, whether the decision itself was supported by the evidence.”

Johnston-Willis, Ltd. v. Kenley, 6 Va. App. 231, 242, 369 S.E.2d 1, 7 (1988). “The reviewing court
                                                 -6-
may set the agency action aside, even if it is supported by substantial evidence, if the court’s review

discloses that the agency failed to comply with a substantive statutory directive.” Browning-Ferris

Indus. v. Residents Involved in Saving the Env’t, 254 Va. 278, 284, 492 S.E.2d 431, 434 (1997).

However, “[w]here the agency has the statutory authorization to make the kind of decision it did and

it did so within the statutory limits of its discretion and with the intent of the statute in mind, it has

not committed an error of law” by acting outside the scope of its authority. Johnston-Willis, Ltd., 6

Va. App. at 242, 369 S.E.2d at 7. Moreover, “‘[w]here . . . the issue concerns an agency decision

based on the proper application of its expert discretion, the reviewing court will not substitute its

own independent judgment for that of the agency but rather will reverse the agency decision only if

that decision was arbitrary and capricious.’” Loudoun Hosp. Ctr. v. Stroube, 50 Va. App. 478, 491,

650 S.E.2d 879, 886 (2007) (quoting Holtzman Oil Corp. v. Commonwealth, 32 Va. App. 532, 539,

529 S.E.2d 333, 337 (2000)).

        Judicial review of issues of fact is “limited to ascertaining whether there was substantial

evidence in the agency record upon which the agency as the trier of the facts could reasonably find

them to be as it did.” Code § 2.2-4027. “Cases subject to the standard of review outlined in

[VAPA] cannot be considered a trial de novo since the factual issues on appeal are controlled solely

by the agency record. The reviewing court is not free to take additional evidence, even at the

request of one of the parties.” Nicely, 12 Va. App. at 1062, 408 S.E.2d at 551 (emphasis added).

Rather, “[t]he scope of court review of a litigated issue under the [V]APA is limited to

determination whether there was substantial evidence in the agency record to support the

decision. The agency . . . should not be subjected to court review of matters it had no

opportunity to consider.” State Bd. of Health of Commonwealth v. Godfrey, 223 Va. 423, 433,

290 S.E.2d 875, 880 (1982) (citation omitted).




                                                   -7-
       Although, under VAPA, a circuit court in limited circumstances may consider additional

evidence to determine whether the agency decided a case arbitrarily or in bad faith, “such

evidence should be limited to that purporting to show that the agency denied the applicant a fair

and impartial review of [her] application in accordance with proper procedures.” Id. at 434, 290

S.E.2d at 880 (footnote omitted).

       Here, the additional evidence considered by the circuit court, that is, the letter from Blue

Ridge Nissan and Mathesius’s documentation related to the levy and sale of the 1984 Ford van,

did not purport to show that the Board denied Mathesius a fair review of her claim against the

Fund, or that the Board acted arbitrarily or capriciously in denying her claim. Indeed, the record

on appeal reflects that the Board, in accordance with VAPA, offered Mathesius the option to

remand her claim for a second Informal Fact-Finding Conference so she could properly

introduce the letter from Blue Ridge Nissan into evidence. However, rather than exercise that

option, Mathesius elected to proceed with the hearing before the Board with the knowledge that

the only evidence before it on which it could base its decision was (i) that Pecina owned a 1984

Ford van of unknown value, and (ii) that Mathesius had failed to take “all legally available

actions” to sell or apply Pecina’s “disclosed assets” to her judgment against him, as required by

Code § 54.1-1120(A)(6)(c). The record on appeal demonstrated that Mathesius declined the

invitation of the Board for another Informal Fact-Finding Conference to present evidence that the

1984 Ford van was valueless, even though she was aware that the Board could only consider the

evidence contained in the Summary to determine the amount of any recovery from the Fund.

       There was no indication in the record on appeal that the Board denied Mathesius a fair

and impartial review of her claim based on the evidence in the agency record, namely, the

testimony and evidence presented at the Informal Fact-Finding Conference. Accordingly, the

circuit court abused its discretion by considering the letter from Blue Ridge Nissan and

                                                -8-
Mathesius’s documentation related to the levy and sale of Pecina’s van, matters not presented at

the Informal Fact-Finding Conference nor contained in the agency record, in determining that the

Board’s decision to deny Mathesius’s recovery from the Fund was arbitrary and capricious.

       Under these circumstances, the circuit court abused its discretion by considering

additional evidence on appeal that was not contained in the agency record, by finding that the

Board’s decision to deny recovery from the Fund was arbitrary and capricious, and by reversing

the Board’s decision to deny Mathesius’s claim against the Fund. Accordingly, we reverse the

judgment of the circuit court and affirm the Board’s denial of her claim.

                                                                                        Reversed.




                                               -9-
