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North Carolina law now gives prevailing parties challenging State agency actions an opportunity to recover attorney and witness fees in many administrative cases. On July 16, the Governor signed into law the Regulatory Reform Act of 2012 (Senate Bill 810), which fine tunes changes made by the General Assembly last session as part of its effort to modify our State’s regulatory framework. One significant change included in this year’s Regulatory Reform Act is the new power granted to Administrative Law Judges (ALJs) to assess attorneys’ and witnesses’ fees against State agencies involved in contested cases. This change applies to contested cases involving decisions or actions of agencies under Article 3 of our State’s Administrative Procedure Act (APA). The General Assembly opted not to apply this change to cases involving decisions of professional and occupational licensing boards under Article 3A of the APA.

Previously, ALJs were authorized to assess attorneys’ or witness’ fees only in personnel cases involving public employees subject to the State Personnel Act, where the ALJ found discrimination or harassment, or ordered reinstatement or back pay. This older provision relating to public personnel cases remains as it was, but the law has been expanded to make this remedy available in all Article 3 cases.

Persons who prevail in contested cases challenging State agency actions may now obtain an order from the presiding ALJ requiring the agency to reimburse the petitioners for their reasonable attorneys’ and/or witnesses’ fees provided they meet the statutory conditions for such an award. The new potential for an assessment of attorneys’ and witness’ fees is limited to situations where the ALJ finds that the State agency (1) substantially prejudiced the petitioner’s rights, and (2) acted arbitrarily or capriciously. Thus, in order to be eligible, a prevailing petitioner first must be able to show that the challenged agency action or decision substantially and adversely impacted the petitioner’s legal rights somehow. Most petitioners who win their cases would likely have little difficulty in meeting this prerequisite. In addition, there must be evidence to support a finding by the ALJ of arbitrary or capricious agency action – a standard which can be difficult to meet. North Carolina courts have long held that administrative agencies can be reversed as arbitrary and capricious only if they have acted patently in bad faith or without fair and careful consideration. The question of whether an agency has acted arbitrarily or capriciously hinges on the specific circumstances of each case and how the ALJ views the facts at hand. Many judges are reluctant to make a finding of arbitrary or capricious agency action except in the most egregious circumstances where the evidence of this type of action is especially strong or compelling. This traditionally high bar will likely also apply to efforts to obtain an assessment of attorneys’ and witness’ fees under the new provision.

In any event, if an agency does cross this line and a petitioner wins his case challenging the agency’s action, then the petitioner will now have an opportunity to recoup a significant component of the expenses it incurred in the case. This new facet to contested cases might make State agencies think twice before taking enforcement actions that could be viewed as questionable or making decisions which require them to step out on the risk curve in terms of a novel or unusual legal analysis or policy stance.

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