Donovan Contracting of St. Cloud, Inc. v. Minnesota Dept. of Transp., CX-90-2498

• Citation: 469 N.W.2d 718
• Decision Date: 14 May 1991
• Docket Number: No. CX-90-2498,CX-90-2498
• Parties: 30 Wage & Hour Cas. (BNA) 852 DONOVAN CONTRACTING OF ST. CLOUD, INC., Respondent, L & D Trucking Woman Business Enterprise, Inc., Respondent, v. MINNESOTA DEPT. OF TRANSPORTATION, et al., Appellant.
• Court: Court of Appeals of Minnesota

Page 718

469 N.W.2d 718

30 Wage & Hour Cas. (BNA) 852

DONOVAN CONTRACTING OF ST. CLOUD, INC., Respondent L & D Trucking Woman Business Enterprise, Inc., Respondent, v. MINNESOTA DEPT. OF TRANSPORTATION, et al., Appellant.

No. CX-90-2498.

Court of Appeals of Minnesota.

May 14, 1991.

Review Denied Aug. 2, 1991.

Syllabus by the Court

1. Under the Minnesota Equal Access to Justice Act, a litigant is entitled to attorney fees and expenses where the government's litigating position is not "substantially justified."

2. A governmental attempt to impose an interpretative rule that is promulgated without following the rule-making procedure set forth in the Administrative Procedure Act is not a substantially justified litigating position.

Michael H. Daub, Minneapolis, for respondent.

Hubert H. Humphrey, III, Atty. Gen., Scott R. Strand, Gilbert S. Buffington, Asst. Attys. Gen., St. Paul, for appellant.

Considered and decided by AMUNDSON, P.J., and HUSPENI and RANDALL, JJ.

OPINION

HUSPENI, Judge.

Appellant challenges the trial court's award of attorney fees and expenses under the Minnesota Equal Access to Justice Act (MEAJA). Minn.Stat. Secs. 3.761-.765 (1990). We affirm.

FACTS

The facts addressing the merits of the temporary injunction phase of this litigation are thoroughly summarized in SA-AG, Inc. v. Minnesota Dep't of Transp., 447 N.W.2d 1, 2-3 (Minn.App.1989). Briefly, respondent contractors challenged the state's unilateral promulgation of General Addendum A that purported to interpret the Minnesota Prevailing Wage Statute. The trial court enjoined enforcement of the addendum provision if and until the state engaged in formal rule-making. This court affirmed. Id.

Following the affirmance, the contractors moved for attorney fees and expenses pursuant to the MEAJA. In August 1990, the trial court granted the motion, awarding $18,290 in attorney fees and $1,242.46 in costs. In the memorandum attached to the order, the trial court explained:

Significantly, [respondents] in previous dealings, were exempted from compliance by MN DOT's [Minnesota Department of Transportation's] then interpretation of Minn.Stat. Sec. 177.44, subd. 2 * * *

[Respondents] have established that they fit within the statutorily enumerated categories which entitle them to the relief they request. [Respondents] have further argued that [appellants] were not substantially justified in their position. [Appellants] have countered * * *: 1) that a reasonable basis existed in truth for the facts alleged; 2) that a reasonable basis existed in law for the legal theory propounded, and; 3) that the facts and law give rise to substantially justified position. Here, there was no legal basis for [appellants'] position since [appellants] materially changed a rule contrary to the Minnesota Administrative Procedures Act, Minn.Stat. Sec. 14.01 et. seq. See SA-AG Inc. v. Minnesota Department of Transportation, 447 N.W.2d 1 (Minn.App.1989). That action was unreasonable and unjustified.

State agencies must act lawfully and within their legislatively mandated powers before state statutes and regulations can be construed to lawfully encroach upon the proprietary interests of third parties. Accordingly, the Court finds that [appellants] were not substantially justified in defending the "amended" interpretation of Minn.Stat. Sec. 177.44 subd. 2 and shall award, pursuant to Minn.Stat. Sec. 3.762(a), fees and other expenses incurred in the above litigation.

Appellant challenges the trial court's award.

ISSUE

Did the trial court err by awarding attorney fees and expenses under the Minnesota Equal Access to Justice Act?

ANALYSIS

Minnesota courts have not yet decided the appropriate standard of review for awards of attorney fees under the MEAJA. The legislature enacted the MEAJA in 1986, modeling the act on the federal Equal Access to Justice Act (EAJA) 28 U.S.C. Sec. 2412 (1988). See In re Haymes, 444 N.W.2d 257, 258 (Minn.1989). Ordinarily, in interpreting a state statute modeled on a federal enactment, federal cases that interpret the federal statute are instructive. See Anderson v. Commissioner of Taxation, 253 Minn. 528, 540, 93 N.W.2d 523, 532 (1958).

In Pierce v. Underwood, 487 U.S. 552, 560-61, 108 S.Ct. 2541, 2547-48, 101 L.Ed.2d 490 (1988), the United States Supreme Court held that an abuse of discretion standard of review should be applied to EAJA appeals. The court reasoned in part We think that the question whether the Government's litigating position has been "substantially justified" is precisely [the] multifarious and novel question, little susceptible, for the time being at least, of useful generalization, and likely to profit from the experience that an abuse-of-discretion rule will permit to develop.

Id. at 562, 108 S.Ct. at 2548. The Pierce court concluded that deferential treatment of the trial court's decision would "implement [the court's] view that a 'request for attorney's fees should not result in a second major litigation.' " Id. at 563, 108 S.Ct. at 2549 (quoting Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S.Ct. 1933, 1941, 76 L.Ed.2d 40 (1983)). The Wisconsin Supreme Court, faced with this precise issue, followed Pierce and applied the abuse of discretion standard to appeals under Wisconsin's version of the EAJA. Sheely v. Wisconsin Dep't of Health & Social Serv., 150 Wis.2d 320, 442 N.W.2d 1, 9 (1989). We find Pierce and Sheely persuasive and accordingly hold that an abuse of discretion standard is appropriate in reviewing MEAJA cases.

Appellant first contends that the trial court erred by giving the MEAJA an expansive interpretation and by implicitly ruling that this court's affirmance of the temporary injunction is dispositive in the fees phase of the litigation.

The MEAJA provides in relevant part:

If a prevailing party [ ¹] other than the state, in a civil action * * *, brought by or against the state, shows that the position of the state was not substantially justified, the court * * * shall award fees and other expenses to the party unless special circumstances make an award unjust.

Minn.Stat. Sec. 3.762(a). The act defines "substantially justified" to mean 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.

Minn.Stat. Sec. 3.761, subd. 8. As the MEAJA is a limited waiver of sovereign immunity, courts should strictly construe its language. See Ruckelshaus v. Sierra Club, 463 U.S. 680, 685, 103 S.Ct. 3274, 3278, 77 L.Ed.2d 938 (1983) (interpreting the EAJA).

While Minnesota courts have not yet interpreted the term "substantially justified," the United States Supreme Court has interpreted the words under the EAJA to mean " 'justified in substance or in the main'--that is, justified to a degree that could satisfy a reasonable person" rather than "justified to a high degree." Pierce, 487 U.S. at 565, 108 S.Ct. at 2550. "Substantially justified," however, "means * * * more than merely undeserving of sanctions for frivolousness." Id. at 566, 108 S.Ct. at 2550.

The MEAJA places the burden of proof on the party seeking fees, while the EAJA imposes upon the government the burden of proving that its actions were substantially justified. Compare Minn.Stat. Sec. 3.762(a) with 28 U.S.C. Sec. 2412(d)(1)(B). In enacting the EAJA, Congress rejected essentially automatic fee awards to prevailing parties, fearing that the awards "might have a chilling effect on reasonable government enforcement efforts." Houston Agr. Credit Corp. v. United States, 736 F.2d 233, 236 (5th Cir.1984) (citation omitted).

Appellant argues that the mere fact that respondents prevailed on the merits is an insufficient basis upon which to determine that the state's position was not substantially justified. We agree. Minn.R. 1400.8401, subp. 3(A)(2)(c) (1989) specifically provides:

No presumption arises that the agency's position was not substantially justified simply because the agency did not prevail.

See Gava v. United States, 699 F.2d 1367, 1371 (Fed.Cir.1983) (fact that government lost case does not establish that its position was not substantially justified). Thus, although the court's decision in SA-AG is instructive, it is not dispositive. Rather, this court must examine the basis for the arguments raised by the state "based on the totality of the circumstances before and during the litigation." Minn.Stat. Sec. 3.761, subd. 8.

In examining the basis for arguments raised by the state, we must address Minnesota's prevailing wage law. ² Minn.Stat. Secs. 177.41-.44 (1988). The portion of the wage statute applicable to highway construction contracts provides:

A laborer * * * employed by a contractor, subcontractor, agent, or other person doing or contracting to do all or part of the work under a contract * * * to which the state is a party, for the construction or maintenance of a highway, * * * must be paid at least the prevailing wage rate in the same or most similar trade or occupation in the area.

Minn.Stat. Sec. 177.44, subd. 1. The statute further provides:

Applicability. This section does not apply to wage rates and hours of employment of laborers * * * engaged in the processing or manufacture of materials or products, or to the delivery of materials or products by or for commercial establishments which have a fixed place of business from which they regularly supply the processed or manufactured materials or products. This section applies to laborers * * * who deliver mineral aggregate such as sand, gravel, or stone which is incorporated into the work under the contract by depositing the material substantially in place, directly or through spreaders, from the transporting vehicle.

Minn.Stat. Sec. 177.44, subd. 2 (emphasis added). Appellant argues that the interpretation of the term "substantially in place" promulgated in Addendum A was justified. The operative language of the addendum states:

The State Department of...