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Attorney's Fees In Overly-Zealous State Actions
ATTORNEY'S FEES IN OVERLY-ZEALOUS STATE ACTIONS
Most of the work of state government benefits the public interest. Nobody wants an incompetent surgeon in the operation room, a dishonest lawyer probating their mother’s estate, or a thief as their banker. But sometimes government agencies get it wrong. They may be unbridled in their zeal and take actions not supported by the facts or the law. They may be biased, incompetent, or just plain stubborn, refusing to back down in the face of evidence. While the business may ultimately prevail in such a case, it often is left with significant attorney’s fees and defense costs.
An action by the state can have enormous adverse consequences. It can distract a business from their daily work. Competitors may capitalize on the action to attract clients. There may be adverse publicity. And defending such an action can be costly.
Such as the horse trainer charged with administering drugs to a horse that were later adjudged to be appropriate medicines. [1]
Or the manufacturer who was inappropriately charged a “use tax” by the Revenue Department for property used in the manufacture of industrial drying systems. [2]
Or the petroleum recycling company aggressively charged for minor violations which caused no harm to the environment. [3]
Or an excavator inappropriately charged with needing a National Pollution Discharge Elimination System (NPDES) permit even though it didn’t discharge anything into the waters of the state. [4]
Background. For the most part, the default rule for attorney’s fees in this country is called the “American Rule.” Under this rule, each party pays its own attorney’s fees in a lawsuit, regardless of the outcome, absent a specific law or contract to the contrary. This is different than the “English Rule” prevalent in some other countries, where the losing party pays the winning party’s attorney’s fees.
There is a law that can make state agencies pause and re-think their position before taking unwarranted actions. It is called the Equal Access to Justice Act.
The state Equal Access to Justice Act (“EAJA”) is modeled after a federal law by the same name. The federal EAJA was enacted by Congress in 1980. It requires the federal government to pay the attorney’s fees of parties that prevail in legal proceedings involving the federal government in certain situations.
Minnesota EAJA. Minnesota enacted a state-EAJA in 1986. The law applies to civil, not criminal, cases. It is found at section 15.472 of the Minnesota Statutes.
It states that if a prevailing private party in a civil or administrative “contested case” proceeding involving the state shows that the state’s position was not “substantially justified,” the judge may award attorney’s fees and other expenses.
When a small-or medium-sized business is targeted by a state agency but has done nothing wrong, reminding the agency of its financial obligations under the EAJA can sometimes help prompt it to revisit its decision. And if the state loses in an unjustified court action, the EAJA can help soften the financial blow to the business in defending the action.
There are a number of nuances to the law.
First, the law only applies to small and medium-sized businesses and organizations with not more than 500 employees and not more than $7 million in annual revenues. Businesses can include corporations, unincorporated businesses, associations, and organizations, and their partners, officers, or owners.
Second, the law only applies to individuals who prevail in a case involving the state if they are associated with a business or organization. For example, the courts have ruled that the law does not apply to an individual stopped for suspicion of drunk driving in an implied consent case involving the Minnesota Department of Public Safety.
Third, a party must show the state’s position was “not substantially justified” to recover attorney’s fees. The statutes define “substantially justified” as meaning that “the state’s position had a reasonable basis in law and fact, based on the totality of the circumstances before and during the litigation or contested case proceeding.”
Not many published Minnesota decisions have interpreted this standard, but the Minnesota courts have stated they follow federal law on this topic. The United States Supreme Court has found that the government’s position is “substantially justified” if it is “justified to a degree that could satisfy a reasonable person” or “more than merely undeserving of sanctions for frivolousness.”
Fourth, the statute does not apply to some types of cases. It does not apply to torts. It does not apply to a contested case to establish or fix a rate or to grant or renew a license.
Fee Petitions. A party who seeks an award of fees and other expenses must apply to the judge within 30 days of the final judgment in the action. Minn. Stat. § 15.472(a). The application must show that: (1) the party is a prevailing party and eligible to receive an award; (2) state the amount sought, including an itemized statement from an attorney or expert witness of the actual time expended and the rate at which the fees and expenses were computed; (3) allege that the position of the state was not substantially justified.
In addition to attorney’s fees, a party may petition for the recovery of expenses, including filing fees, subpoena fees and mileage, court reporter fees, expert witness fees, and other costs set forth in Minn. Stat. § 15.471, subd. 4.
A judge has discretion to deny a fee petition that meets the requirements of the EAJA if “special circumstances make an award unjust.” Id. at subpart (a). A court may also reduce or deny an award if a prevailing party unreasonably protracted the final resolution of the matter in controversy. Id. at subpart (c).
Most things the state does benefit the common good. Roads and highways. Schools. Universities. State parks. Protecting the public from unethical and illegal activity. But on those occasions where the state gets it very wrong, the EAJA can be a tool to help level the playing field and correct an injustice.
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Swanson Hatch, P.A. is a law firm founded by two former Minnesota Attorneys General: Mike Hatch and Lori Swanson, who consecutively served as Attorney General of the State of Minnesota for 20 years, from 1999 to 2019. Lori Swanson served as Attorney General from 2007 to 2019. Prior to that, she served as Solicitor General of the State of Minnesota and Deputy Attorney General. She was previously Chair of the Federal Reserve Board’s Consumer Advisory Council in Washington, D.C. She can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch served as Attorney General from 1999 to 2007. Prior to that, he served as Commissioner of the Minnesota Department of Commerce for seven years. He can be reached at mhatch@swansonhatch.com, or at 612-315-3037.
www.swansonhatch.com
431 South Seventh Street, Suite 2545
Minneapolis, MN 55415 612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
[1]Matter of Haynes, 444 NW 2d 257 (1989). [2]Commissioner of Revenue v. Dahmes Stainless, Inc. 884 NW2 648 (2016). [3]Pollution Control Agency v. Rollies Sales & Service, Douglas County, Civil file C2-95-296 (1998). [4]Shumann v. Pollution Control Agency, Olmsted County, Civil file C9-02-1632 (2004).
Most of the work of state government benefits the public interest. Nobody wants an incompetent surgeon in the operation room, a dishonest lawyer probating their mother’s estate, or a thief as their banker. But sometimes government agencies get it wrong. They may be unbridled in their zeal and take actions not supported by the facts or the law. They may be biased, incompetent, or just plain stubborn, refusing to back down in the face of evidence. While the business may ultimately prevail in such a case, it often is left with significant attorney’s fees and defense costs.
An action by the state can have enormous adverse consequences. It can distract a business from their daily work. Competitors may capitalize on the action to attract clients. There may be adverse publicity. And defending such an action can be costly.
Such as the horse trainer charged with administering drugs to a horse that were later adjudged to be appropriate medicines. [1]
Or the manufacturer who was inappropriately charged a “use tax” by the Revenue Department for property used in the manufacture of industrial drying systems. [2]
Or the petroleum recycling company aggressively charged for minor violations which caused no harm to the environment. [3]
Or an excavator inappropriately charged with needing a National Pollution Discharge Elimination System (NPDES) permit even though it didn’t discharge anything into the waters of the state. [4]
Background. For the most part, the default rule for attorney’s fees in this country is called the “American Rule.” Under this rule, each party pays its own attorney’s fees in a lawsuit, regardless of the outcome, absent a specific law or contract to the contrary. This is different than the “English Rule” prevalent in some other countries, where the losing party pays the winning party’s attorney’s fees.
There is a law that can make state agencies pause and re-think their position before taking unwarranted actions. It is called the Equal Access to Justice Act.
The state Equal Access to Justice Act (“EAJA”) is modeled after a federal law by the same name. The federal EAJA was enacted by Congress in 1980. It requires the federal government to pay the attorney’s fees of parties that prevail in legal proceedings involving the federal government in certain situations.
Minnesota EAJA. Minnesota enacted a state-EAJA in 1986. The law applies to civil, not criminal, cases. It is found at section 15.472 of the Minnesota Statutes.
It states that if a prevailing private party in a civil or administrative “contested case” proceeding involving the state shows that the state’s position was not “substantially justified,” the judge may award attorney’s fees and other expenses.
When a small-or medium-sized business is targeted by a state agency but has done nothing wrong, reminding the agency of its financial obligations under the EAJA can sometimes help prompt it to revisit its decision. And if the state loses in an unjustified court action, the EAJA can help soften the financial blow to the business in defending the action.
There are a number of nuances to the law.
First, the law only applies to small and medium-sized businesses and organizations with not more than 500 employees and not more than $7 million in annual revenues. Businesses can include corporations, unincorporated businesses, associations, and organizations, and their partners, officers, or owners.
Second, the law only applies to individuals who prevail in a case involving the state if they are associated with a business or organization. For example, the courts have ruled that the law does not apply to an individual stopped for suspicion of drunk driving in an implied consent case involving the Minnesota Department of Public Safety.
Third, a party must show the state’s position was “not substantially justified” to recover attorney’s fees. The statutes define “substantially justified” as meaning that “the state’s position had a reasonable basis in law and fact, based on the totality of the circumstances before and during the litigation or contested case proceeding.”
Not many published Minnesota decisions have interpreted this standard, but the Minnesota courts have stated they follow federal law on this topic. The United States Supreme Court has found that the government’s position is “substantially justified” if it is “justified to a degree that could satisfy a reasonable person” or “more than merely undeserving of sanctions for frivolousness.”
Fourth, the statute does not apply to some types of cases. It does not apply to torts. It does not apply to a contested case to establish or fix a rate or to grant or renew a license.
Fee Petitions. A party who seeks an award of fees and other expenses must apply to the judge within 30 days of the final judgment in the action. Minn. Stat. § 15.472(a). The application must show that: (1) the party is a prevailing party and eligible to receive an award; (2) state the amount sought, including an itemized statement from an attorney or expert witness of the actual time expended and the rate at which the fees and expenses were computed; (3) allege that the position of the state was not substantially justified.
In addition to attorney’s fees, a party may petition for the recovery of expenses, including filing fees, subpoena fees and mileage, court reporter fees, expert witness fees, and other costs set forth in Minn. Stat. § 15.471, subd. 4.
A judge has discretion to deny a fee petition that meets the requirements of the EAJA if “special circumstances make an award unjust.” Id. at subpart (a). A court may also reduce or deny an award if a prevailing party unreasonably protracted the final resolution of the matter in controversy. Id. at subpart (c).
Most things the state does benefit the common good. Roads and highways. Schools. Universities. State parks. Protecting the public from unethical and illegal activity. But on those occasions where the state gets it very wrong, the EAJA can be a tool to help level the playing field and correct an injustice.
Swanson Hatch, P.A. is a law firm founded by two former Minnesota Attorneys General: Mike Hatch and Lori Swanson, who consecutively served as Attorney General of the State of Minnesota for 20 years, from 1999 to 2019. Lori Swanson served as Attorney General from 2007 to 2019. Prior to that, she served as Solicitor General of the State of Minnesota and Deputy Attorney General. She was previously Chair of the Federal Reserve Board’s Consumer Advisory Council in Washington, D.C. She can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch served as Attorney General from 1999 to 2007. Prior to that, he served as Commissioner of the Minnesota Department of Commerce for seven years. He can be reached at mhatch@swansonhatch.com, or at 612-315-3037.
www.swansonhatch.com
431 South Seventh Street, Suite 2545
Minneapolis, MN 55415
612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
[1]Matter of Haynes, 444 NW 2d 257 (1989).
[2]Commissioner of Revenue v. Dahmes Stainless, Inc. 884 NW2 648 (2016).
[3]Pollution Control Agency v. Rollies Sales & Service, Douglas County, Civil file C2-95-296 (1998).
[4]Shumann v. Pollution Control Agency, Olmsted County, Civil file C9-02-1632 (2004).
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Swanson | Hatch, P.A.
431 S. 7th Street, Suite #2545
Minneapolis, MN 55415
612-315-3037
www.swansonhatch.com