I'd appreciate it if future talk back to the GM appeared here, not as OOC asides in the IC thread. Especially rules calls. Especially over choices of appropriate skill choices or uses. If it is critical and could require redoing a round to sort... maybe...
So, given fair warning, walking into a lair with a known enemy your characters wouldn't be actively searching? That was my justification. Is passive perception the "right" choice? Maybe. I see your point Mal, I just made a judgment.
Especially since the dragon spent the surprise round getting closer to you which I've realized was tactically unsound.
I debated whether or not to do passive perception or not. Am I certain I made the right call? No. I could have rp'ed the cavern entry, and given more active feedback. Would it be a better in the future to devote more time to room entrances? This is exactly the type of shakedown I wanted Kobold Hall to figure out.
Ultimately, my incorrect by RAW decision stands, but it wll not serve as precedence.