Rincover v. State, Dept. of Finance, Securities Bureau

• Decision Date: 02 April 1999
• Docket Number: No. 24195,24195
• Citation: 1999 WL 179503,132 Idaho 547,976 P.2d 473
• Court: Idaho Supreme Court
• Parties: Wanda Jane RINCOVER, Petitioner-Appellant, v. STATE of Idaho, DEPARTMENT OF FINANCE, SECURITIES BUREAU, Respondent. Boise, November 1998 Term

Page 473

976 P.2d 473

132 Idaho 547

Wanda Jane RINCOVER, Petitioner-Appellant, v. STATE of Idaho, DEPARTMENT OF FINANCE, SECURITIES BUREAU, Respondent.

No. 24195.

Supreme Court of Idaho,

Boise, November 1998 Term.

April 2, 1999.

Bauer & French, Boise, for appellant. Randal J. French argued.

Hon. Alan G. Lance, Attorney General; Brett T. DeLange, Deputy Attorney General, Boise, for respondent. Brett T. DeLange argued.

WALTERS, Justice.

This is an appeal from an order of the district court rejecting a claim for attorney fees under Idaho Code (I.C.) § 12-117(1). ¹ The order was entered following the remand in an earlier proceeding, Rincover v. State, Dep't of Finance, 129 Idaho 442, 926 P.2d 626 (1996), involving the review of an administrative action by the Idaho Department of Finance in denying an application for a license to sell securities. We uphold the district court's order on the ground that the record in the administrative proceeding shows the Department did not act without a reasonable basis in fact or law in denying the application for the license.

I. BACKGROUND

After being registered to sell securities in Idaho for the seven previous years, Wanda Jane Rincover's application in 1991 for a securities sales license was denied by the Idaho Department of Finance. This denial shortly followed the denial of a securities sales license to Wanda's husband, Larry Rincover. The Department rejected Wanda's license application for several reasons, including her inability to meet obligations as they came due (as evidenced by the existence of a federal tax lien which had not been disclosed on her application) and because she had engaged in a dishonest and unethical practice by obtaining a loan in excess of $30,000 from a securities client. Wanda filed an amended application acknowledging the tax lien and representing that an agreement had been reached with the IRS for payment of the taxes, and she requested a hearing over the rejection of her application.

The hearing officer found that Wanda was insolvent, had engaged in dishonest and unethical conduct by borrowing the money from a securities client and lacked the requisite knowledge of the securities business, all in violation of I.C. § 30-1413. The Department adopted the hearing officer's findings and denied Wanda a license. Wanda requested review by the district court of the denial of her application. The district court reversed the Department's decision, holding that the tax lien did not render Wanda insolvent, that the loan from her client did not constitute unethical and dishonest conduct, and that Wanda had not been shown to lack required knowledge of the securities business. The district court remanded the proceeding to the Department for further action and subsequently denied Wanda's request for an award of attorney fees under I.C. § 12-117(1).

When Wanda appealed from the order denying her request for attorney fees, this Court held that the district court appeared not to have used the correct standard for evaluating an award of attorney fees pursuant to I.C. § 12-117(1) and remanded the case so that the district court could properly focus on "the overall action of the agency, not just preliminary matters," and "on the eventual denial" of a license to Wanda. 129 Idaho at 444, 926 P.2d at 628. The district court again reviewed Wanda's request for the award under I.C. § 12-117(1). The district court ruled that the Department did not act "without a reasonable basis in fact or law" in the licensure proceeding and, therefore, Wanda was not entitled to an award of attorney fees under I.C. § 12-117(1). Wanda brings this appeal from that order, contending that the district court's ruling is incorrect.

II. STANDARD OF REVIEW

This Court has issued several opinions on appellate review of decisions by the district courts applying I.C. § 12-117(1) since the statute was adopted in 1984. These opinions, unfortunately, have not consistently applied the same standard of review, but have diverged greatly and have caused concern in the present case as to the nature or extent of our review of the district court's decision to deny Wanda's request for an award of attorney fees. The divergent cases fall into three categories: (1) those that apply an abuse of discretion standard, e.g., Roe v. Harris, 128 Idaho 569, 917 P.2d 403 (1996); Musser v. Higginson, 125 Idaho 392, 871 P.2d 809 (1994); (2) those that apply a clearly erroneous or substantial, competent evidence standard, e.g., Idaho Dep't of Law Enforcement v. Kluss, 125 Idaho 682, 873 P.2d 1336 (1994); and (3) those that apply a de novo or free review standard, e. g., In re SRBA Case Nos. 39576, 91-00002 (State v. Hagerman Water Right Owners), 130 Idaho 718, 947 P.2d 391 (1997); In re Russet Valley Produce, Inc., 127 Idaho 654, 904 P.2d 566 (1995); Central Paving Co. v. Idaho Tax Comm'n, 126 Idaho 174, 879 P.2d 1107 (1994); In re Permit No. 36-7200 (Rim View Trout Co. v. Higginson), 121 Idaho 819, 828 P.2d 848 (1992); Moosman v. Idaho Horse Racing Comm'n, 117 Idaho 949, 793 P.2d 181 (1990). See also, Cox v. Dep't of Insurance, 121 Idaho 143, 823 P.2d 177 (Ct.App.1991)

We conclude that the standard of free review is the preferable rule and should be applied in this case. We reach this conclusion as follows.

The provisions of I.C. § 12-117 essential to this case are that "[i]n any administrative ... proceeding involving as adverse parties a state agency ... and a person, the court shall award the person reasonable attorney's fees ... if the court finds in favor of the person and also finds that the state agency ... acted without a reasonable basis in fact or law." In Bogner v. State Dep't of Revenue and Taxation, 107 Idaho 854, 693 P.2d 1056 (1984), the Court addressed I.C. § 12-117 while reviewing an award of attorney fees under I.C. § 12-121. Although the Court discussed I.C. § 12-117, the Court did not apply that statute to Bogner's case because the statute had been enacted subsequent to the judgment under review and had not been utilized by the district court below in making the award. Nonetheless, the Court observed that the purpose of I.C. § 12-117 was two-fold: "(1) to serve as a deterrent to groundless or arbitrary agency action; and (2) to provide a remedy for persons who have borne unfair and unjustified financial burdens defending against groundless charges or attempting to correct mistakes agencies never should ha[ve] made." 107 Idaho at 859, 693 P.2d at 1061, citing in accord, Van Gordon v. Oregon State Board of Dental Examiners, 63 Or.App. 561, 666 P.2d 276, 280 (1983). See also, McCoy v. Dep't of Health and Welfare, 127 Idaho 792, 797, 907 P.2d 110, 115 (1995).

When the Court applied I.C. § 12-121 to Bogner's case, the Court said:

While we find no evidence in the record that the Tax Commission was dilatory and unprepared, we do agree with the district court, however, that the Tax Commission has defended this case without foundation and unreasonably in misreading and misinterpreting I.C. §§ 63-3002 and 63-3022 to its advantage. These statutes are clear and unambiguous.

107 Idaho at 858, 693 P.2d at 1060. The Court noted that its interpretation of I.C. § 12-121 was supported by the recently enacted § 12-117, stating that the two-fold purpose exhibited by I.C. § 12-117 relating to deterrence of groundless and arbitrary agency action and providing a remedy for persons who have suffered unfair or unjustified financial burdens in attempting to correct agency mistakes at the administrative stage were fulfilled by the Court's interpretation of I.C. § 12-121. 107 Idaho at 859, 693 P.2d at 1061.

This Court has further noted that I.C. § 12-117 is not a discretionary statute; but it provides that the court shall award attorney fees where the state agency did not act with a reasonable basis in fact or law in a proceeding involving a person who prevails in the action. Idaho Dep't of Law Enforcement v. Kluss, 125 Idaho at 685, 873 P.2d at 1338. Although the statute uses the word "finds" to describe the court's determinations of whether the person prevailed in the action (viz.,"if the court finds in favor of the person") and whether the activity of the other party fell within the conjunctive proscription (viz., "and also finds that the state agency ... acted without a reasonable basis in fact or law"), these two predicate determinations for an award are not of the same nature as factual findings or declarations resolving disputed issues of fact in the traditional sense. They are more in the nature of legal conclusions, since the first one depends upon successfully achieving some form of favorable relief that properly can be granted by the court to the "person," and the other depends upon the assessment of the conduct of the other party to decide if that party's activities can be characterized as having been unreasonably premised or undertaken upon either a set of facts or under relevant legal principles applicable to the situation in which the parties were engaged.

There is another, quite compelling justification for this Court's decision to conduct free review of the application of I.C. § 12-117. It is simply that this Court has the...