Attorney’s Fee Awards in Defense of Frivolous Regulatory Action

Beginning September 1, 2019 the Texas Administrative Procedure Act will allow licensees to recover attorneys’ fees and costs incurred in defending against frivolous regulatory actions. This new section, codified as Tex. Gov. Code § 2001.903 is below:

“Sec. 2001.903. RECOVERY OF ATTORNEY’S FEES AND COSTS IN CONTESTED CASES INVOLVING FRIVOLOUS REGULATORY ACTION. The administrative law judge in a contested case may award a person, in addition to all other costs allowed by law or rule, an amount not to exceed $1 million for reasonable attorney’s fees and costs incurred in defending against a frivolous regulatory action during the case if there is no judicial review of the decision in the case and: (1) the person prevail in the case; and (2) there is a final determination that the regulatory action was frivolous. “

This amendment interesting not only because it allows what is essentially a counterclaim during a contested case, but also because of the analysis included in the statement of intent at the legislature. According to the bill analysis, this was put forward because under the current law small business owners who face regulatory actions and administrative proceedings brought by a state agency are at a distinct disadvantage. State agencies have functionally unlimited resources and, thus, can take any action against a private citizen or business without recourse. This can run up legal fees and other costs that the citizen cannot afford, essentially creating a playing field clearly slanted in favor of the state agency. S.B. 27 attempts to create a more balanced situation wherein the state will be held accountable for bringing groundless claims.

The definition from Brainard v. State (12 S.W. 3d 6, 30 (Tex. 1999)) states that a claim is frivolous or unreasonable when “the totality of the tendered evidence fails to demonstrate any arguable basis for the claim.” The policy behind this law is to provide an aggrieved citizen with some remedy against a governmental agency for the misuse of its power.

In short, S.B. 27 gives Texans much-needed protections from and a recourse against frivolous regulatory actions. What remains to be seen is how often (and if) attorney’s fees are awarded under this new section of the Administrative Procedure Act.