AMENDMENTS TO A.R.S. § 12-910 REMOVE ALL DEFERENCE TO THE AGENCY’S RULING.
Under older versions of A.R.S. § 12-910, the decisions of administrative agencies received deference from the Court. That is to say, in any close question of fact or law, the Court was required to defer to the agency’s decision or interpretation.
The Court’s duty to defer to administrative agencies began to erode a few years ago. In 2018 the Legislature amended A.R.S. § 12-910 to remove the Court’s deference to government agencies on
legal issues:
“In a proceeding brought by or against the regulated party, the court shall decide all questions of law, including the interpretation of a constitutional or statutory provision or a rule adopted by an agency, without deference to any previous determination that may have been made on the question by the agency.”
This shift was important, but not startling. Allowing a judge, rather than a government agency, to decide how the law ultimately applies made sense.
More recently, pursuant to SB 1063, which became the law in September 2021, the Court’s deference to the administrative agency disappeared entirely, requiring the Court to decide factual issues for itself:
“In a proceeding brought by or against the regulated party, the court shall decide all questions of fact without deference to any previous determination that may have been made on the question by the agency.”
This is a seismic shift. And there is more.
NOW, ANY PARTY CAN DEMAND A TRIAL DE NOVO.
In a common example, an administrative dispute begins with a complaint by a member of the public against a state-licensed business. The regulatory agency that issued the license investigates the complaint and either dismisses it or imposes on the licensee a consequence – a fine, an order to cure the issue, and/or a license suspension or revocation.
If either party is dissatisfied with the agency’s finding, it can appeal that finding to a hearing before an administrative law judge. At the hearing, the parties present testimony, documentary evidence, and arguments, after which the judge issues a “recommended decision” and sends it back to the originating agency. The agency’s final determination generally reflects the judge’s recommended decision, although the agency can reject or modify the decision.
Under the previous version of A.R.S. § 12-910, the factual determinations coming out of that hearing were very hard to challenge. The amended A.R.S. § 12-910 seems to change that radically. It states that, in an appeal from a “final administrative decisions of agencies that regulate a profession or occupation pursuant to title 32 … the trial shall be de novo if trial de novo is demanded in the notice of appeal or motion of an appellee other than the agency.”
In this context, a “trial de novo” is a “new trial,” held in Superior Court, that disregards the findings of the administrative hearing. All testimony and other evidence is considered as if the administrative hearing had never been held.
This is a radical change; it seems to mean that, if either the complaining party or the licensee is unhappy with the agency’s final administrative decision in their case, it has the right to demand a new trial, which would be held in Superior Court.
THE EFFECTS ARE POTENTIALLY FAR-REACHING.
The real-world implications of this shift in the law are momentous.
First, the potential length and expense of an administrative dispute seem to have increased. Previously, the agency’s final administrative decision was, for practical purposes, normally the end of the dispute. A legal challenge usually to the state agency’s decision did not make sense, given the laws requiring deference to the agency and its determinations. But now, A.R.S. § 12-910 tells us that the agency’s decision cannot legally be the final word (i.e., no deference), and either party can have a trial de novo if it demands it. So the agency’s decision after a hearing is not necessarily the end of the dispute.
Second, licensees may now be incentivized to assert their own claims against the complaining party. Real-world administrative disputes often involve claims on both sides; for example, in a construction workmanship complaint, the homeowner may have a claim for work poorly performed or not performed at all, while the contractor may have a claim against the homeowner for non-payment.
Continuing with that example, at the administrative level, the contractor is not allowed to assert a claim for non-payment. There is no procedure for it, and, more fundamentally, the Arizona Registrar of Contractors has no jurisdiction over a homeowner. The complaint process is exclusively about the licensed contractor and its compliance with construction-related regulations.
However, under the newly amended A.R.S. § 12-910, a contractor in an administrative hearing is now incentivized to assert, in Superior Court, a claim against the homeowner for non-payment. If the administrative hearing against the contractor can easily lead to a new trial in front of a Superior Court judge, then why not assert the claim for non-payment against the homeowner (i.e., a lawsuit) and then consolidate the cases when the time is right?
In administrative disputes in general, such a strategy would be prudent for the licensee to consider, especially if it makes the complaining party think twice about filing a frivolous or questionable complaint (which they can file at no cost).
Third, attorney fee awards appear to be increasingly possible in conjunction with a trial de novo. The possibility of ultimately consolidating (a) an appeal from an agency decision with (b) a licensee’s claim against the complaining party raises another real-world issue, which is often the most critical issue in disputes: attorney fees.
In the administrative complaint process, neither party can receive an award of attorney fees, and traditionally no one gets their fees awarded in an appeal from an administrative decision either.
But if the licensee can consolidate its claim against the complaining party with an appeal from any agency decision, the case seems to be more truly one that is “arising out of contract” (the critical phrase in the statute governing attorney fees) in a way that triggers the availability of a fee award under A.R.S. § 12-341.01. Such a possibility makes the prospect of a drawn-out administrative dispute with a member of the public a little less bleak for licensed companies.
Finally, on the downside for licensees, more companies will likely need to hire a lawyer to represent them in an administrative complaint. The reason: Many licensed businesses are either a corporation or an LLC. Either form of legal entity can represent itself in a hearing before an administrative law judge, but it is not allowed to appear without an attorney in Superior Court, where any appeal or trial de novo would be held.
If the complaining party is an individual or couple, who is allowed to self-represent in either setting, they can force a contractor to hire legal counsel if the dispute continues into Superior Court. The attraction of the trial de novo to a complainant disappointed with an unfavorable administrative decision makes that possibility more likely than ever.
IN THIS NEW LEGAL LANDSCAPE, ANYONE INVOLVED IN AN ADMINISTRATIVE COMPLAINT SHOULD CONSULT WITH A KNOWLEDGEABLE ATTORNEY.
As this article is written, the latest revisions to A.R.S. § 12-910 are brand new. No one has yet subjected the revisions and their implications to litigation, which is where courts and practitioners work out the details that need to be decided.
But one thing is clear: Anyone facing an administrative complaint or thinking about filing one should be aware of this new statutory framework. There are great possibilities created by the changes, but also some potential pitfalls. Thus, it is more important than ever to consult with experienced, informed attorneys about how to handle the administrative complaint process prudently and strategically.
