How You Can Win in Court Against the Government But Still Lose

Collecting 'costs and fees' as part of a judgment against the state is difficult

Imagine that your family or business suffers a loss due to some error or misdeed by a state agency. You go to the risk and expense of suing the agency, win the case, and the judge orders the state to pay not just the damages, but also the legal costs and fees you incurred.

At that point you can, as the winning plaintiff collect a check and move on, right? Not quite, at least when it comes to collecting the “costs and fees” part of the judgment. Under current law, the state makes you jump through one more hoop: As the winning plaintiff, you must also establish that the position argued by the state was “frivolous.”

Some Michigan lawmakers think that’s one hoop too many for people to jump through, so they have sponsored legislation to remove it. Two of the bills, Senate Bills 189 and 190, have been the subject of hearings in the Senate Elections and Government Reform Committee.

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“These bills are to make sure government agencies and departments are made accountable – not the individual person who has been wrongly charged when the department or agency loses in court,” said Sen. Tom Casperson, R-Escanaba, the sponsor of SB 189. “It would be like when the Treasury department says an individual is guilty of not paying enough taxes and the individual’s accountant says, ‘they’re nuts,’ and then the court agrees. With that sort of situation, the individual should not be stuck with court costs. The department or agency should be.”

The bills move in the direction of the “loser pays” concept favored by tort law reformers as a method of curbing frivolous or abusive lawsuits.

Casperson explained, “What these bills would do is make sure departments like Treasury or DEQ (Department of Environmental Quality) have some skin in the game by saying they’ll have to pay the legal costs when it turns out that their charges had no merit. The individual should have zero cost accountability when the state is the one that has been in the wrong.”

The bills also respond to the extensive administrative law powers wielded by state agencies under complex tax and regulatory regimes. In those situations, a plaintiff must enter an administrative law process in the executive branch rather than go before a judge who belongs to an independent judiciary. (Losing plaintiffs can challenge administrative law rulings in an independent court. In in all but extreme situations, however, the courts defer to the agency.)

Charlie Owens, state director of the National Federation of Independent Business, says that the presiding officer in these hearings — the individual who decides whether or not the executive branch agency’s position was frivolous — is someone who works for the executive branch.

“This legislation would curb the current approach by state departments and agencies of telling a citizen or business owner that if they don’t like the deal a state agency proposes to resolve an issue, they can ‘take it to court.’” Owens said. “Agencies use this tactic in place of good-faith negotiation because they know that taxpayers and business owners will have to settle because they do not have the financial ability to fight the state, which has an almost unlimited supply of taxpayer dollars to spend in court.”

SB 190, sponsored by Sen. David Robertson, R-Grand Blanc, deals with challenges to administrative law rulings, while Casperson’s bill applies to proceedings in regular courts.

"It’s about leveling the playing field between the citizens and the bureaucrats," Robertson said. “Frankly, we know it would cost the departments some money and we knew they wouldn’t like it. It is meant to be a shot across the bow of those bureaucrats who say to citizens, "If you don’t like it, sue us.'"

The legislation would also revise the size of those costs-and-fees judgments. First, it would eliminate a $75 per hour cap on attorney fees that can be recouped. Current law also bans fee-and-cost awards if the winning plaintiff is an individual whose net worth exceeds $500,000. Businesses with a net worth of $3 million and up or that employ more than 250 people are also currently ineligible for those awards. SB 189 would repeal those restrictions.

“While it may seem to the general public that business owners with this kind of net worth should be able to pay their own court costs, every business owner knows that ‘net worth’ does not translate into cash in the bank for fighting an unfair rule dispute with a state agency that has unlimited legal resources,” Owens said.

He continued, “The change in the law made by Senate Bills 189 and 190 would encourage state agencies and departments to work with permit applicants, property owners, taxpayers and business owners to resolve issues rather than have department staff present constituents with an ultimatum — to do what the department wants or else take their case to court and incur steep costs — even if they prevail.”

Wanda Stokes is a department deputy director at the Department of Licensing and Regulatory Affairs. “We have some concerns that the legislation may result in unintended consequences that could affect the Michigan Administrative Hearing System and impact half of the 100,000 cases it adjudicates annually,” she said. “We will continue to work closely with the bill sponsors to develop solutions that address the issues raised in this legislative package."