THE 1996 FLORIDA ADMINISTRATIVE PROCEDURE ACT'S ATTORNEY'S FEES REFORMS: CREATING INNOVATIVE SOLUTIONS OR NEW PROBLEMS?

ELIZABETH C. WILLIAMSON[*]
Copyright © 1997 Florida State University Law Review

I. INTRODUCTION
II. SETTING THE STAGE: REVIEW OF RECENT APA REFORM EFFORTS
A. Stirrings for APA Reform
B. The Governor's Review Commission
C. The Reforming APA Legislation
III. THE AVAILABLE AVENUES FOR OBTAINING ATTORNEY'S FEES AFTER THE 1996 REGULAR SESSION
A. Overview of General Attorney's Fees Provisions in the New APA
B. The Effect of the FEAJA on the New Mix of Available Administrative Attorney's Fees
C. Comparison of the FEAJA and Rule Challenge Attorney's Fees Provisions
IV. OVERVIEW OF FEE-SHIFTING MECHANISMS AND THEIR EMERGENCE IN AMERICAN JURISPRUDENCE
V. A COST/BENEFIT ANALYSIS OF THE 1996 ATTORNEY'S FEES CHANGES
A. Potential Benefits of the 1996 Attorney's Fees Changes
1. Cutting Red Tape
2. Simplifying the APA
3. Monitoring Agency Action
4. Creating a More Level Playing Field
5. Citizen Participation
B. Potential Costs of the 1996 Attorney's Fees Changes
1. Financial Costs
2. Overcrowded Court Dockets
3. Higher Litigation Costs
4. Overdeterrence of Agency RegulationóCutting Too Much Red Tape?
a. Problems with Attorney's Fees for Proposed Rules
b. The Necessity of Utilizing Attorney's Fees to Deter Agency Rulemaking
c. Risks of Phantom Government
VI. A PROPOSAL FOR ATTORNEY'S FEES IN THE APA: MAXIMIZING BENEFITS, REDUCING COSTS
VII. CONCLUSION

I. INTRODUCTION

In his 1995 inaugural address, Florida Governor Lawton Chiles proclaimed a war on red tape, urging legislators to streamline government rules and take power away from bureaucrats.[1] In 1996, the Florida Legislature responded by amending the Administrative Procedure Act (APA).[2] Originally adopted in 1974,[3] the APA establishes a framework that instructs state agencies how to promulgate and administer rules.[4] Because the APA governs agency action ranging from environmental regulation to insurance rulemaking to overseeing professional conduct, its revision will have far reaching effects.

In reforming the APA, the Legislature used a powerful tool to tweak the administrative system: attorney's fees. The 1996 revisions authorize awards of attorney's fees in rule challenge proceedings and reorganize existing attorney's fees provisions.[5] Attorney's fees provisions help redistribute resources from government to private parties, subtly altering litigation patterns.[6] In the past, however, the effects of attorney's fees provisions have produced results different than expected.[7] Thus, legislators should carefully craft attorney's fees provisions through narrowly tailored statutes designed to achieve their specific goals while minimizing companion costs.

The 1996 changes in Florida's attorney's fees provisions offer several substantial benefits to the administrative process, such as eliminating needless agency rules, simplifying the APA, monitoring agencies, and redistributing resources between public and private parties.[8] However, the Legislature failed to minimize the damaging effects associated with the new changes, including overcrowded court dockets, increased litigation expenses, overdeterrence of agency actions, and higher financial costs for agencies and the regulated public.[9] The 1996 attorney's fees provisions can be modified to minimize these effects while still accomplishing the goals of Governor Chiles and the Legislature. Other states can learn from Florida's use of attorney's fees as they attempt to shape private litigation patterns and agency action.

This Comment examines changes in the 1996 attorney's fees provisions from a cost/benefit perspective. Part II reviews recent legislative efforts to reform the APA and the major forces behind the 1996 revisions. Part III summarizes the available ways to collect attorney's fees in administrative proceedings after the 1996 changes. Part IV briefly describes the emergence of fee-shifting statutes in the United States and examines various types of fee-shifting mechanisms. Part V presents a detailed cost/benefit analysis of the 1996 attorney's fees provisions. Finally, Part VI proposes several changes to the new attorney's fees provisions. These changes are aimed at minimizing costs while still accomplishing the Legislature's goals.

II. SETTING THE STAGE: REVIEW OF RECENT APA REFORM EFFORTS

Like all administrative procedure acts, the Florida APA aims to prevent unlawful agency action and make agency decisionmaking "fair and open."[10] However, Florida's system has been recently criticized for its lack of control over agencies[11] and its overly complex regulations.[12]

A. Stirrings for APA Reform

In 1994, in response to this criticism, both the Florida House of Representatives and the Florida Senate proposed bills containing major APA revisions.[13] Although both bills died at the close of the 1994 Regular Session,[14] legislators candidly agreed that APA reform was needed. The only dispute between the House and Senate was over how much reform was necessary.[15]

During his 1995 inaugural address, Governor Chiles announced plans to end government overregulation through APA reform.[16] After his address, the Governor urged agency chiefs to seek out and repeal red-tape rules. Answering the Governor's call with particular enthusiasm, Florida Secretary of Transportation Ben G. Watts commented, "We compiled a list of rules and, lo and behold, out of 760 rules we found 330 to repeal."[17] Other agencies, such as the Department of Environmental Protection (DEP), also answered the Governor's call to streamline regulation. Nevin Smith, DEP's executive services director, commented that such a move would be positive because it would lead to "less mechanistic and legalistic" rules.[18] Thus, a "bureaucracy-busting" attitude that affected legislators' attitudes toward APA reform was prevalent before the 1995 Regular Session.[19]

Midway through the 1995 session, Governor Chiles called for a complete repeal of the APA, stating that the administrative process has become "too complicated for the average resident to participate [in] without hiring a lawyer."[20] However, complete abolition of the APA was controversial because many legislators agreed that the APA provided citizens an avenue of relief from bureaucratic agency decisions.[21]

In 1995, the Legislature passed a major APA reform bill.[22] However, the Governor vetoed the bill, claiming it did not simplify the administrative process enough.[23] After the veto, Governor Chiles ordered executive agencies to continue cutting unnecessary rules and established a commission to review the act and suggest reforms and simplifications.[24]

B. The Governor's Review Commission

The Governor established a fifteen-member Governor's Administrative Procedure Act Review Commission (Review Commission) to make suggestions for reforming and simplifying the APA.[25] The Review Commission played a major role in formulating the legislative proposal that ultimately passed the Legislature and won the Governor's signature in 1996.

The Review Commission focused on three basic areas of reform: (1) simplifying the APA; (2) increasing flexibility in the application of administrative rules; and (3) increasing agency accountability to the Legislature and the public.[26] To give the administrative process flexibility and to dispel perceptions of the system's rigidity, the Review Commission recommended a new variance and waiver provision.[27] The Review Commission also proposed rules to force agencies to become more accountable to the Legislature and the general public.[28] For example, the Review Commission recommended that staff analyses of bills highlight sections of proposed legislation that would require agency rulemaking.[29] Agency input would be invited and included in the staff analyses.[30]

One of the major themes that the Review Commission sounded was creating a "more level playing field" for persons who challenge agency rules.[31] To facilitate this goal, the Review Commission proposed abolishing the presumption of validity that attached to proposed agency rules.[32] The Review Commission thought a presumption of validity should attach to a rule only after an agency proposal met the APA's procedural requirements.[33]

In addition, the Review Commission proposed changing the provisions for attorney's fees.[34] The Review Commission supported an award of attorney's fees and costs whenever an agency rule is overturned.[35] However, the Review Commission recommended allowing the agency to avoid paying the prevailing party's attorney's fees if the agency proves that its actions were "substantially justified."[36] The Review Commission decided that recovery of attorney's fees should be limited to $15,000 per action.[37]

C. The Reforming APA Legislation

At the beginning of the 1996 session, Senators Charles Williams[38] and Rick Dantzler[39] introduced Senate Bill 2290 to amend chapter 120, Florida Statutes.[40] The bill was combined with Senate Bill 2288, passed the Legislature, and was signed into law by Governor Chiles on May 1, 1996.[41] The legislation addresses various issues, including legislative oversight, rulemaking authority, new procedural requirements in rulemaking, and, of course, attorney's fees.[42]

III. THE AVAILABLE AVENUES FOR OBTAINING ATTORNEY'S FEES AFTER THE 1996 REGULAR SESSION

Chapter 96-159, Florida Laws, makes several significant changes in the available ways to procure attorney's fees and court costs. Most significantly, the new law makes attorney's fees and costs available in rule challenge proceedings.[43] The legislation retains all previously enacted chapter 120 attorney's fees provisions that were aimed at deterring litigation initiated for improper purposes.[44] The law contributes to overall APA simplification by combining in section 120.595, Florida Statutes, the once-scattered attorney's fees provisions. Additionally, the Legislature kept attorney's fees provisions in the Florida Equal Access to Justice Act (FEAJA),[45] allowing small businesses to retain an additional avenue for recouping APA litigation costs.

A. Overview of General Attorney's Fees Provisions in the New APA

The most significant change in the APA attorney's fees scheme is the addition of attorney's fees provisions for rule challenge proceedings.[46] The revised APA makes attorney's fees and costs available to challengers of both proposed and existing rules.[47] Rule challengers may collect attorney's fees from an agency if a rule is found to be invalid, unless the agency demonstrates that its actions were substantially justified or other special circumstances exist that make the award unjust.[48] All awards of attorney's fees are limited to $15,000 per rule challenge proceeding.[49]

The new law retains the provision in former section 120.57(1)(b)(5), Florida Statutes, that awarded attorney's fees when an action was commenced by any party for an improper purpose.[50] The law also retains the provision in former section 120.59, Florida Statutes, that provided factors for administrative law judges to consider when determining whether an action was commenced for an improper purpose.[51] Additionally, the revised APA provides for reasonable attorney's fees and costs for both appellate and administrative proceedings if the agency improperly ignored or modified findings of fact within a recommended order.[52] Attorney's fees also are awarded if a court determines that an "appeal was frivolous, meritless, or an abuse of the appellate process, or that the agency action which precipitated the appeal was a gross abuse of the agency's discretion."[53]

Secondarily, the bill consolidates all attorney's fees provisions in a new location, section 120.595, Florida Statutes.[54] Thus, the bill provides for a more readable and understandable APA.[55]

B. The Effect of the FEAJA on the New Mix of Available Administrative Attorney's Fees

In 1980, the Congress passed the Equal Access to Justice Act (EAJA), which requires the United States and its agencies to pay private parties' attorney's fees and litigation costs in certain circumstances.[56] Twenty-nine states quickly followed suit, enacting state EAJAs in the following decade.[57] Florida passed the Florida Equal Access to Justice Act (FEAJA) in 1984.[58] The FEAJA offers an additional avenue for parties to obtain attorney's fees and costs in administrative proceedings against state agencies. When it enacted the FEAJA, the Legislature intended to help private parties defending against state action. The Legislature recognized that

because of the greater resources of the state, the standard for an award of attorney's fees and costs against the state should be different from the standard for an award against a private litigant. The purpose of [the FEAJA] is to diminish the deterrent effect of seeking review of, or defending against, governmental action by providing in certain situations an award of attorney's fees and costs against the state.[59]
Although not a part of the APA, the FEAJA has broad effects upon administrative litigation and provides an alternative route for some parties to obtain litigation costs and attorney's fees. Thus, the FEAJA is an important component of Florida's available attorney's fees statutes.

Like the EAJA, the FEAJA contains a provision that establishes an award of attorney's fees and costs to small business parties that prevail "in any adjudicatory proceeding or administrative proceeding pursuant to chapter 120 initiated by a state agency."[60] The private litigant has the initial burden of proving by a preponderance of evidence that he or she qualifies as a small business party[61] and prevailed in the previous proceeding.[62] If this burden is satisfied, then the agency must prove that there were special circumstances warranting agency action or that the action was substantially justified.[63] To take advantage of the FEAJA, an attorney must file an application on behalf of his or her client within sixty days after prevailing in the proceeding.[64] The agency must respond to the application within twenty days, stating why the attorney's fees and costs sought by the prevailing party are unreasonable or explaining why the agency's actions were substantially justified.[65] The FEAJA limits the award of both litigation fees and costs to $15,000 per action.[66]

C. Comparison of the FEAJA and Rule Challenge Attorney's Fees Provisions

The 1996 Legislature left the FEAJA virtually unchanged.[67] Under the FEAJA, prevailing small businesses have an avenue for the award of attorney's fees and court costs in proceedings initiated by the state. In contrast, the revised APA makes attorney's fees available in a rule challenge proceeding to any nonagency party if an administrative law judge declares an existing or proposed rule invalid.[68] Thus, the rule challenge attorney's fees provisions have a broader scope of eligibility than the FEAJA.

The FEAJA and the rule challenge provisions also have different fee caps. The FEAJA limits both attorney's fees and litigation costs to $15,000 per action.[69] This limitation has been criticized as inadequate to compensate a litigant for court costs and attorney's fees.[70] The limitation also allows agencies a "free appeal" where the business party has reached the $15,000 ceiling for costs and attorney's fees.[71] The rule challenge provisions have a $15,000 cap on attorney's fees exclusive of litigation costs.[72] Thus, the rule challenge provisions have a much higher total attorney's fees award potential than the FEAJA.

IV. OVERVIEW OF FEE-SHIFTING MECHANISMS AND THEIR EMERGENCE IN AMERICAN JURISPRUDENCE

Federal courts have traditionally adhered to the "American Rule," which dictates that parties pay their own attorney's fees and litigation costs, regardless of who wins the litigation.[73] However, lawmakers have begun to create exceptions to the general rule. Recognizing the powerful potential effects of reallocating attorney's fees, lawmakers have used fee-shifting provisions to effectuate specific goals in special litigation situations.[74] For example, the 1996 attorney's fees changes were created to carry out the goals outlined by Governor Chiles and the Review Commission.[75]

Two major types of exceptions to the American Rule exist: two-way fee-shifting mechanisms and one-way fee-shifting mechanisms.[76] Two-way fee-shifting mechanisms, used by the British, require the loser to pay the prevailing party's litigation costs and thus treat most defendants and plaintiffs equally.[77] More common in the United States is the one-way fee-shifting mechanism. The one-way fee shift, which is generally pro-plaintiff, allows a prevailing plaintiff to collect attorney's fees from the defendant, but does not allow a prevailing defendant to collect from the plaintiff.[78] Variations of these basic types of fee-shifting mechanisms also exist. For example, a two-way shift may require defendants to meet a higher standard of proof to recover than is required of plaintiffs.[79]

The choice of a fee-shifting mechanism depends largely upon the intended effects of the fee shift because one-way and two-way mechanisms have quite different impacts upon litigation.[80] Legislators may consider a two-way fee shift to provide indemnification to the winner of litigation.[81] Legislators may invoke a one-way shift to create a stronger manipulative effect upon an area of litigation, perhaps using the fee shift as an economic incentive.[82] In addition, legislators should contemplate the impact of the fee-shifting mechanism upon procedural practices and judicial staffing for the specific area of substantive law affected by the fee shift.[83]

V. A COST/BENEFIT ANALYSIS OF THE 1996 ATTORNEY'S FEES CHANGES

The rule challenge attorney's fees provisions are one-way fee-shifting mechanism because they award attorney's fees only to prevailing challengers of agency rules and not to prevailing agencies.[84] The FEAJA also is a one-way fee-shifting mechanism because it applies exclusively to small businesses and cannot be utilized by the opposing agency.[85] To predict the costs and benefits of the rule challenge attorney's fees provisions, this Comment will analyze the effects common to one-way fee-shifting mechanisms, primarily the FEAJA, which was enacted for many of the same reasons as the rule challenge provisions.[86]

A. Potential Benefits of the 1996 Attorney's Fees Changes

Governor Chiles, the Review Commission, and the 1996 Legislature contemplated specific goals when they called for APA reform. These goals included less red tape, a more simplified APA, greater citizen participation, increased agency monitoring, and equalization of resources between public and private parties.[87] The Review Commission and the 1996 Legislature crafted the attorney's fees changes with these goals in mind. Thus, this analysis begins by considering whether the 1996 changes will accomplish these goals.

1. Cutting Red Tape

Awarding attorney's fees for successful rule challenges is likely to have an anti-rulemaking effect because it creates an incentive to challenge agency rules.[88] Individuals gain an incentive to litigate when they can obtain enough relief to compensate them for their efforts and their risk.[89] The rule challenge attorney's fees provisions will encourage parties to challenge agency rules because additional attorney's fees and costs will enhance damage awards, making litigation more attractive.[90] Because parties can now obtain reimbursement for their litigation costs, the rule challenge attorney's fees provisions will induce suits where minimal, if any, monetary damages were previously recoverable.[91] Additionally, agencies may be more cautious in their rulemaking efforts, which will result in fewer agency rule proposals and, consequently, fewer agency rules.[92] The rule challenge attorney's fees provisions will thus be effective in contributing to cutting red tape, thereby satisfying at least one of the goals envisioned by the Governor.

2. Simplifying the APA

The 1996 attorney's fees changes relocated virtually all general attorney's fees provisions to one section in the APA.[93] Combining attorney's fees provisions and placing them in section 120.595, Florida Statutes, makes the APA more logical and organized and thus easier to understand.[94] However, the 1996 Legislature could have made the simplification process more complete by also including the FEAJA in section 120.595. Unlike all of the other general attorney's fees provisions that affect administrative proceedings, the FEAJA is not contained in section 120.595, but rather in section 57.111, Florida Statutes. An absolute simplification of attorney's fees provisions in the APA must include the FEAJA in section 120.595 because the FEAJA concerns attorney's fees and pertains exclusively to the APA.[95]

3. Monitoring Agency Action

One-way fee-shifting provisions are frequently enacted for monitoring purposes.[96] The rule challenge attorney's fees provisions offer two ways to increase monitoring of state agencies. First, the increased litigation sparked by the availability of additional attorney's fees might bring more potentially wrongful agency actions to the attention of oversight committees.[97] By encouraging litigation,[98] the rule challenge attorney's fees provisions will provide a consistent flow of information about the pitfalls of agency rulemaking.[99] Legislators and agency officials can take note of the most frequently litigated provisions that courts struggle to interpret or apply. With this knowledge, they can better judge which agency enabling statutes require reform. Thus, the rule challenge attorney's fees provisions will potentially further agency oversight by highlighting those statutes that demand reform.[100]

Second, the increased litigation resulting from the rule challenge attorney's fees provisions will give judges the opportunity to examine the validity of a greater number of agency rules. Heightened judicial review of agency rules will ensure that agencies act consistently with their delegated authority.[101] Aware of this enhanced oversight, agencies will be less likely to exceed their delegated authority when formulating rules and will be encouraged to create rules that are practical and intelligible.[102] Accordingly, the rule challenge attorney's fees provisions likely will satisfy the Review Commission's goal of increased agency monitoring, thereby benefiting the entire administrative process.

4. Creating a More Level Playing Field

The 1996 Legislature strove to create a more level playing field for the public by adding the rule challenge attorney's fees provisions. Similarly, one-way fee-shifting mechanisms, such as the FEAJA and the EAJA, have often been enacted to eliminate the imbalance of resources between the private sector and state agencies.[103] One-way fee-shifting statutes, however, have had unpredictable redistributive effects.[104] The specific features of a fee-shifting statute greatly influence its effectiveness in redistributing resources.[105]

The design of the rule challenge attorney's fees provisions is relatively simple: a determination that an existing or proposed agency rule is invalid results in a judgment or order for attorney's fees and costs unless the agency can prove its actions were substantially justified.[106] Though simple, the rule challenge attorney's fees provisions likely will have a powerful redistributive effect because the successful challengers of agency rules automatically receive attorney's fees and costs without having to jump through additional hoops.[107]

The agency has the burden of proving that its actions were substantially justified.[108] The substantial justification standard of recovery has helped prevent private parties from successfully recovering under one-way fee-shifting statutes, thereby limiting the redistributive effects of the statute.[109] Because the rule challenge attorney's fees provisions place this burden on agencies, the effects that the substantial justification standard will have on the success rate of private parties under section 120.595 will be minimized.[110] Additional dilution of the standard's effects will occur because Florida courts have been generous in awarding attorney's fees under the FEAJA,[111] which also contains a substantial justification standard.[112] Accordingly, the inclusion of a substantial justification standard in section 120.595 will have a minimal impact upon the redistributive effects of the statute. Secondarily, the $15,000 cap on attorney's fees also may limit the redistributive effects of the rule challenge attorney's fees provisions, but to a much lesser extent than the substantial justification standard.[113]

Regardless of the $15,000 cap and the substantial justification standard, the rule challenge attorney's fees provisions will help level the playing field between the public and state agencies. Now, private parties can challenge dysfunctional agency rules when previously such a challenge would not have been financially advantageous.[114]

5. Citizen Participation

One of the original purposes of the APA was to give citizens a voice in the rulemaking process.[115] Additionally, public participation in rulemaking contributes to the legitimacy of agency rules and enhances their authority.[116]

The rule challenge attorney's fees provisions will increase citizen participation in agency rulemaking by providing private parties with a monetary incentive to challenge proposed agency rules. Thus, the number of citizens involved in the rulemaking process will increase, which will improve the quality of agency proposals and enhance the rule development process.[117]

B. Potential Costs of the 1996 Attorney's Fees Changes

Generally, the 1996 attorney's fees changes will accomplish the goals they were created to achieve. However, the benefits associated with the changes should be weighed against their potential costs. These potential costs include greater financial burdens, overcrowded court dockets, overdeterrence of agency action, and increased litigation costs.

1. Financial Costs

The rule challenge attorney's fees provisions will have a negative impact upon agency budgets because of awards of attorney's fees and litigation costs. Consequently, agencies might be forced to pass the increased costs on to the public by raising agency and license fees.[118] Thus, the public will eventually shoulder the costs inherent in giving the less well-off the means to challenge agency rules.[119] Other state legislatures considering whether to implement attorney's fees provisions also must consider whether the financial costs borne by the public will be offset by the resulting benefits.

The $15,000 cap on rule challenge attorney's fees will help limit the costs that agencies pay to litigants. However, unlike the FEAJA, litigation costs are not included in the cap, allowing agencies' costs to increase exponentially.[120] The cap on attorney's fees provoked varying opinions from members of the Review Commission. While Commissioner Wade Hopping felt that the $15,000 figure was too low, Commissioner Linda Shelley noted that the Legislature does not appropriate money for agencies to spend on attorney's fees and that $15,000 in such circumstances amounts to a lot of money.[121] A review of other states' one-way fee-shifting statutes reveals that most impose a per-hour cap, generally $75 per hour for attorney services.[122] The FEAJA's $15,000 cap is one of the highest of any state that uses a total amount cap.[123] Thus, the $15,000 fee cap on rule challenge attorney's fees allows a potentially large fee award to be assessed against state agencies, imposing a sizable financial burden that will eventually be passed on to the regulated public.

Critics claim that the old APA did not have sufficient organizational problems to warrant simplification.[124] They maintain that there have been no organizational problems cited by courts or commentators in recent history.[125] Instead, the APA's cosmetic changes may force the state to incur substantial costs stemming from lost productivity because state workers will need to be retrained.[126] Thus, the potential uncertainty and confusion that may result in part from reorganization of attorney's fees provisions also carries financial costs.[127]

2. Overcrowded Court Dockets

Legislation often reflects both an anti-government ideology supporting deregulation of the marketplace and a feeling that society is burdened by too much litigation.[128] Many Americans harbor both attitudes as well, but the two can easily conflict. The rule challenge attorney's fees provisions respond to Governor Chiles' deregulation sentiments by employing the courts to weed out dysfunctional agency rules. However, using the courts to streamline agency regulation will increase litigation and place higher demands upon the judicial system.

Although litigation has increased across the country in recent years,[129] courts remain prisoners to the time constraints of judges. The influx of cases challenging agency rules will further crowd the already burgeoning dockets of Florida courts and slow the overall pace of litigation in the state.[130]

3. Higher Litigation Costs

One-way fee-shifting statutes increase the number of issues that parties must litigate and therefore increase attorney's fees and court costs.[131] The simplicity of the 1996 attorney's fees changes will mitigate this effect, but increased litigation costs are inevitable. The rule challenge attorney's fees provisions will automatically increase the litigation expenses of an agency when a rule is challenged in court. The agency must expend its legal resources to prove that its rulemaking was substantially justified.[132] However, even though the substantial justification standard adds to agency litigation costs, the standard presumably deters future parties from seeking attorney's fees where the parties concede that the agency action was justified. Accordingly, the substantial justification standard also may save agencies money by deterring fee claims.[133] However, the substantial justification standard will impose higher costs upon Florida courts because of the time spent hearing attorney's fees issues.[134]

Furthermore, one-way fee-shifting statutes increase litigation costs by decreasing settlement incentives. Logically, the more issues that parties must dispute, the lesser the probability of agreement.[135] Liability for attorney's fees and litigation costs give parties new issues to resolve, thus decreasing the chances for settlement. Although simple in design, the rule challenge attorney's fees provisions will still make settlement less likely, thereby increasing litigation expenses.[136] These increased expenses will eventually flow to the public, the ultimate financier of the judicial system and agency operations.[137]

4. Overdeterrence of Agency RegulationóCutting Too Much Red Tape?

Although the 1996 attorney's fees changes were created in part to reduce red tape by deterring promulgation of invalid agency rules,[138] overdeterrence is a potential risk.[139] While to some extent the substantial justification standard guards against overdeterrence, it is still a viable risk because of the overall design of the rule challenge attorney's fees provisions.

a. Problems with Attorney's Fees for Proposed Rules

Section 120.595, Florida Statutes, allows a judgment to be rendered against an agency for attorney's fees if a proposed or existing rule is declared invalid.[140] A proposed rule is an agency's first official step in rulemaking, signaling the beginning of the rule development process.[141] After an agency publishes a notice of rule development, the APA provides many opportunities for public input on the proposal through hearings and workshops.[142] Each invitation for public commentary contributes to the lengthy and arduous rule development process.[143]

Because of the tentative nature of proposed rules, the imposition of attorney's fees when proposed rules are invalidated could have a drastic impact upon agency rulemaking.[144] Agencies will likely reduce the number of rules they propose for fear of the high litigation costs that accompany successful rule challenges. Agencies will find themselves in a defensive stance, always making sure that they have undeniable and substantial justifications for placing their proposals into the rule development process.[145] Putting agencies in such a precarious position will hinder the rule development process by making agencies hesitant to put proposals on the public negotiating table.

b. The Necessity of Utilizing Attorney's Fees to Deter Agency Rulemaking

A primary reason for assessing attorney's fees when proposed rules are found invalid stems from Governor Chiles' call to cut red tape. However, the APA already facilitates this goal by giving affected parties input in the rulemaking process.[146] Critical commentary by affected parties should winnow out useless proposed rules and tailor those that remain in such a way as to achieve maximum effectiveness, thereby allowing only necessary proposals to survive the rule development process and become permanent rules.[147] Thus, the rule development process already streamlines proposals, which supports Governor Chiles' goal. Adding awards of attorney's fees to further deter agency rulemaking is unnecessary.

Governor Chiles has never supported his claim that rulemaking is overly burdensome and expensive for state agencies. However, in 1995, in response to Chiles' anti-regulation sentiment, Florida agencies for the first time in history repealed more rules than they adopted.[148] The need for attorney's fees provisions to further deter rulemaking is questionable because the provisions are designed to address a problemórunaway agency rulemakingóthat may not even exist. Additionally, people ignore the definite benefits of written rules for both the public and agencies. Rules are not always the enemy. Rather, the costs of eliminating rules may be the true hidden specter.[149]

c. Risks of Phantom Government

The "ossification" of rulemaking carries the risk of reverting to the phantom regulation prevalent in pre-APA days.[150] Former Senator Dempsey Barron[151] used the term "phantom government" to describe the time before the APA when "rules were kept in bureaucrats' desk drawers and only agency insiders knew them" and the public discovered them the hard way, by breaking them.[152] Elimination of agency rules will not quell regulation because agencies would revert to making rules in the form of unwritten agency policies.[153] Such policies will not have the public input of policies that result from the APA rule development process and will be difficult for citizens to challenge.[154]

VI. A PROPOSAL FOR ATTORNEY'S FEES IN THE APA: MAXIMIZING BENEFITS, REDUCING COSTS

The 1996 attorney's fees changes assure some true benefits, yet definite costs are present. Although some costs are inevitable, further modification of attorney's fees provisions could more effectively minimize costs and maximize benefits. Most important, eliminating certain elements from the rule challenge attorney's fees provisions would reduce financial costs dramatically, while not significantly affecting the positive goals of those provisions.

Section 120.595(2), Florida Statutes, which awards attorney's fees to challengers of defective proposed rules, greatly increases the potential for agencies to incur significant costs. Eliminating this provision would avert overdeterrence of agency rulemaking, thereby allaying concerns that Florida will revert back to the "phantom government" era. The overall financial costs of the 1996 attorney's fees changes also would decrease with the elimination of section 120.595(2). Additionally, eliminating this section would remove one of the litigation incentives, which would in turn reduce overcrowded court dockets.[155]

Another cost-reduction measure involves changing the cap on attorney's fees, which is currently set at $15,000 per action, excluding costs.[156] Because a blanket cap fails to affect the rates that attorneys bill per hour, it exerts less control over litigation bills. The rule challenge attorney's fees provisions should instead contain a reasonableness requirement fashioned to guard against excessive billing charges. A bright-line, per-hour fee standard would more effectively control attorneys' litigation charges. Furthermore, a bright-line standard would avoid the complex issues raised when calculating "reasonable" attorney's fees[157] and increase certainty for rule challengers seeking attorney's fees.[158]

Many states use a cap of $75 per hour in their EAJAs.[159] A $100-per-hour fee with statutorily provided cost-of-living increases would provide a better incentive for persons to challenge rules. Although a $100-per-hour cap probably would not cover all of the prevailing party's attorney's fees, agencies would still pay a substantial portion, thereby helping to equalize the playing field for private parties while minimizing agency expenses.

The substantial justification standard should be retained in the rule challenge attorney's fees provisions because the standard provides a valuable safe harbor for agencies and deters unnecessary attorney's fees litigation. The steep costs related to the substantial justification standard could be reduced by describing the standard more explicitly in section 120.595. Currently, section 120.595 provides that "[a]n agency's actions are 'substantially justified' if there was a reasonable basis in law and fact at the time the actions were taken by the agency."[160] This definition of the standard mimics the federal EAJA's definition of "substantially justified,"[161] and the federal EAJA has undoubtedly contributed to an increase in litigation.[162] Thus, duplication of the federal EAJA will produce the same litigious result, costing Florida agencies and the public valuable resources. A major source of litigation will be determining what is a "reasonable basis in law and fact," a determination the courts will make at the public's expense.[163] Additionally, courts have considerable leeway when determining what is reasonable, which may lead to undesirable inconsistencies among Florida's district courts of appeal.[164]

To mitigate substantial justification litigation, the Legislature should add a more precise definition of "substantial justification" to section 120.52, the APA's definition section. A better description of the substantial justification standard would furnish courts, litigants, and agencies with the additional guidance needed to lessen the amount of litigation, thereby cutting financial costs for all.

Simplifying the previously scattered attorney's fees provisions by compiling them in one section has made the provisions more accessible and is a notable improvement. All that is missing from a complete simplification of the APA attorney's fees provisions is the FEAJA, which should be moved into section 120.595. Currently, the FEAJA is the only major attorney's fees provision solely applicable to administrative proceedings that is not contained in section 120.595.[165] The addition of the FEAJA to section 120.595 would complete the reorganization of APA attorney's fees provisions and would contribute to a new, more understandable APA.

Awarding attorney's fees for successful challenges to existing rules will serve a valuable function by encouraging parties to challenge poorly drafted administrative rules that have a negative impact upon the public. The rule development process affords agencies a large window of opportunity to contemplate the effects of proposed rules. Because existing rules have already gone through the rule development process, agencies should take more responsibility for them.[166] If attorney's fees were awarded only to challengers of defective existing rules and not proposed rules, agencies could freely submit their proposals to the public while retaining the opportunity to examine the proposals more closely during the developmental process. Such a scheme would encourage agencies to explore creative ideas, but would ensure that they employ only the most useful ideas as permanent rules.

The remaining attorney's fees provisions guard against litigation initiated for an improper purpose or frivolous litigation in administrative proceedings and appeals.[167] These fee-shifting provisions punish unjustified or undesirable behavior and serve an important deterrent function by discouraging misconduct in administrative litigation.[168] Thus, these sections should be maintained to deter bad faith litigation.

VII. CONCLUSION

The 1996 attorney's fees changes will achieve a number of positive goals. However, many of the attendant costs have potentially unfavorable effects. Several amendments to the new attorney's fees scheme would mitigate these costs without reducing the overall effectiveness of section 120.595. First and most important, the Legislature should repeal section 120.595(2), which awards attorney's fees to successful challengers of proposed rules. Second, the cap on attorney's fees should be changed from an overall fee cap to a per-hour fee cap. Third, the substantial justification standard should be more precisely defined. Finally, the FEAJA should be incorporated in section 120.595 for simplification purposes. Retaining the attorney's fees provisions for existing rules and frivolous litigation will yield worthy benefits and will not incur significant costs. If these proposals are realized, the APA attorney's fees provisions can achieve the goals for which they were created.

Many of the costs and benefits resulting from implementation of the 1996 attorney's fees changes apply to any effort to control agency actions and litigation patterns through attorney's fees. Thus, other states contemplating APA reform should weigh these costs and benefits when formulating attorney's fees provisions for their own APAs. After all, the best regulatory schemes result from many trials and failures, each contributing to a more perfect administrative scheme.