Can a Maryland small business recover its attorneys' fees if a state agency sues it or files a complaint against it without a good reason?

Plain-English summary

The Secretary of Licensing and Regulation asked the Attorney General to interpret Maryland's brand-new Small Businesses Litigation Expenses Act, passed in 1983 as an amendment to the state Administrative Procedure Act. The Act let a small business that wins an administrative or court proceeding brought against it by a state agency recover reasonable litigation expenses, including attorneys' fees, if the agency was "without substantial justification" in bringing the case or acted "in bad faith." The opinion answered six specific questions: the term "small business" excludes nonprofits (because the Act is tied to the APA's definition of "business" as a for-profit entity) but includes sole proprietorships; the Act applies only to proceedings a state agency initiates against a small business, not the reverse; the Act's substantive standard should be applied using the federal Equal Access to Justice Act and Maryland Rule 604b as boundary lines, since the Act's wording did not track either precisely; the small business, not the agency, bears the burden of proving the standard is met; and even when that standard is met, a court or agency retains discretion to reduce or deny the fee award.

Currency note

This opinion was issued in 1983. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could a nonprofit organization recover fees under Maryland's Small Businesses Litigation Expenses Act?
No, according to this 1983 opinion. Because the Act was codified within the Administrative Procedure Act subtitle that defines "business" as an entity "conducted for profit," the Attorney General concluded nonprofit entities did not qualify as "small businesses" under the Act, even if they otherwise met the size criteria.

Did a sole proprietor running a small business qualify for fee recovery under the Act?
Yes. The opinion found no basis in the statutory definition to treat sole proprietorships differently from partnerships or corporations; any business form was covered as long as it met the Act's other criteria (fewer than 50 employees at the time the agency issued its complaint).

Who had to prove the state agency lacked substantial justification, the business or the agency?
The small business did. The opinion contrasted the Act's wording, which allowed an award only "if" the agency's lack of justification was shown, with the federal Equal Access to Justice Act's wording, which required an award "unless" the agency proved it was justified, and concluded the Maryland Act put the burden on the business seeking fees.

Was a small business automatically entitled to fees if it proved the agency acted without substantial justification or in bad faith?
No. The opinion read the Act's permissive "may be awarded" language, unlike the EAJA's and Rule 604b's mandatory "shall," to mean that a court or agency retained discretion to reduce or deny an otherwise qualifying fee award in appropriate circumstances.

Background and statutory framework

At its 1983 Regular Session, the Maryland General Assembly added the Small Businesses Litigation Expenses Act to the Administrative Procedure Act, codified at Article 41, §255A of the Maryland Code, applicable to civil cases or administrative complaints filed after July 1, 1983 (Chapter 305, Laws of Maryland 1983). The Act authorized a fee award "[i]n any administrative adjudicatory proceeding or civil action resulting from a complaint issued by an agency against a small business ... if (1) [t]he small business prevails in that action; and (2) [e]ither the agency was without substantial justification in initiating the complaint or the agency brought the action in bad faith." Article 41, §255A(b). "Reasonable litigation expenses" were capped at $10,000 and defined to include court costs, administrative proceeding expenses, attorney's fees, and witness fees. Article 41, §255A(a)(3).

The opinion worked through the Act's relationship to two existing sources of law: the federal Equal Access to Justice Act (EAJA), adopted by Congress in 1980, which the Maryland Chamber of Commerce (a driving force behind the Act's passage) testified the state Act was "modeled after," and Maryland Rule 604b, an existing court rule using nearly identical wording ("in bad faith," "without substantial justification," or "for purposes of delay"). Because the General Assembly's drafting diverged from both in different ways, some tracking the EAJA and other language tracking Rule 604b, the opinion concluded that neither could serve as the Act's exclusive interpretive source. It proposed a practical two-step test: first check whether a fee award would be warranted under the more lenient EAJA "substantially justified" standard, and if not, check whether the more stringent Rule 604b standard (which case law limited to frivolous or vindictive proceedings) was also met, treating the two standards as boundary lines within which a decisionmaker should exercise judgment. On burden of proof, the opinion distinguished the EAJA's "unless...substantially justified" phrasing (which puts the burden on the agency) from the Act's "if...without substantial justification" phrasing (which the opinion read as putting the burden on the small business), consistent with the general Maryland administrative-law rule that the burden of proof rests on the party asserting the affirmative of an issue. Finally, on discretion to deny fees, the opinion found that the Act's permissive "may" language, contrasted with the EAJA's and Rule 604b's mandatory "shall," gave both courts and agencies discretion to reduce or deny an award even where the substantive criteria were met, limited to special circumstances comparable to the EAJA's "unjust" safety valve.

Citations

Statutes:

• Article 41, §255A (Small Businesses Litigation Expenses Act), including subsections (a)(2) (definition of "small business"), (a)(3) (definition of "reasonable litigation expenses"), (a)(4) (exclusion for certain sub-statewide agencies), (b) (criteria for fee awards), (e) (reduction for dilatory conduct), and (f) (appeal procedure)
• Article 41, §244(a) and (b) (APA definitions of "agency" and "business")
• Article 32A, §12G (parallel fee-shifting provision favoring the State)
• Chapter 305, Laws of Maryland 1983 (session law enacting the Act)
• 5 U.S.C. §504(a)(l) (EAJA administrative fee-award standard)
• 28 U.S.C. §2412(d)(l)(A) and (d)(1)(C) (EAJA judicial fee-award standard and dilatory-conduct provision)
• 42 U.S.C. §1988 (Civil Rights Attorney's Fees Awards Act of 1976, distinguished as inapposite)
• Maryland Rule 604b (court rule authorizing fee-shifting for bad-faith or unjustified proceedings)
• §10-217 of the new State Government Article (later recodification, per the opinion's editor's note)

Cases:

• St. Joseph Hospital v. Quinn, 241 Md. 371, 377 (1966)
• Wood v. State, 290 Md. 579, 583-84 (1981)
• Tyler Business Services, Inc. v. NLRB, 695 F.2d 73, 75 (4th Cir. 1982)
• Alyeska Pipeline Co. v. Wilderness Society, 421 U.S. 240, 258-59 (1975)
• Schmidt v. Chambers, 265 Md. 9 (1972)
• Singer v. Steven Kokes, Inc., 39 Md. App. 180, 186 (1978)
• Dixon v. Process Corp., 46 Md. App. 198, 212 (1980)
• State v. Williams, 101 Md. 529, 534 (1905)
• Bernstein v. Real Estate Comm'n, 221 Md. 221, 231 (1959)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1983/Volume68_1983.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Administrative Law, Small Businesses Litigation Expenses Act, Attorneys' Fees, Applicability and Scope of Act, Burden of Proof, Standards Applicable, Meaning of "Small Business" and "Without Substantial Justification [or] in Bad Faith".

July 1, 1983

The Honorable John J. Corbley
Secretary of Licensing and Regulation

You have requested our opinion on several issues concerning the Small Businesses Litigation Expenses Act (the "Act"). Specifically, you pose the following questions concerning this statute:

"1. Does the term 'small business' apply to nonprofit entities, or is it limited to profit-making enterprises?

2. Does the term 'small business' apply to sole proprietorships?
3. Does the Act apply to actions brought by small businesses, or only to actions brought by a State agency against a small business?
4. Can you provide any guidance as to the meaning of the Act's substantive standard ('the agency was without substantial justification in initiating the complaint or the agency brought the action in bad faith')?
5. Does a small business that seeks fees under the Act have the burden of proving that the standard has been met, or does the agency have the burden of proving the converse?
6. Is the award of fees mandatory if the statutory standard is met, or does a court or agency have the discretion to decline to award fees?"

For the reasons given below, we have concluded as follows:

1. The term "small business" does not include nonprofit entities.
2. The term "small business" includes sole proprietorships that otherwise meet the Act's criteria.
3. The Act applies only to administrative contested cases or judicial proceedings brought by a State agency against a small business.
4. The Act's substantive standard should be applied consistently with comparable standards in existing law. That is, nearly all cases under the Act can be resolved by reference to the criteria for fee awards in the federal Equal Access to Justice Act and in Rule 604b of the Maryland Rules of Procedure: If an agency's basis for initiating a proceeding was sufficiently reasonable that a fee award would not be made under the comparable standard of the Equal Access to Justice Act, a fee award may not be made under the Maryland Act. On the other hand, if an agency's basis for initiating a proceeding was so deficient that a fee award would be made under the comparable standard of Maryland Rule 604b, a fee award may be made under the Act.
5. A small business that seeks fees under the Act has the burden of proving that the statutory prerequisite is met.
6. Either a court or an agency before which a fee request is pending may decline to award fees under appropriate circumstances, even if the statutory prerequisite is met.

I
The Small Businesses Litigation Expenses Act

At its 1983 Regular Session, the General Assembly amended the Maryland Administrative Procedure Act ("APA") by adding a new section permitting the award of reasonable litigation expenses, including attorneys' fees, to small businesses. Chapter 305, Laws of Maryland 1983. The Small Businesses Litigation Expenses Act, codified at Article 41, §255A of the Maryland Code, "shall apply only to civil cases or administrative complaints filed after July 1, 1983". Chapter 305, Section 2.

The title of the Act describes the Act as being: "FOR the purpose of permitting the award of certain expenses to small businesses in certain civil and administrative cases between small businesses and certain State agencies; providing for the source of funds for these awards; providing for the reduction or denial of awards under certain circumstances; defining certain terms; and generally relating to the award of certain expenses to small businesses in civil and administrative cases brought by certain State agencies."

In essence, the Act authorizes fee awards "[i]n any administrative adjudicatory proceeding or civil action resulting from a complaint issued by an agency against a small business . . . if (1) [t]he small business prevails in that action; and (2) [e]ither the agency was without substantial justification in initiating the complaint or the agency brought the action in bad faith". Article 41, §255A(b). Under Article 41, §255A(f)(2), a small business claiming fees in "an administrative adjudicatory proceeding" is required to file its claim with the agency. If its claim is denied, the small business may appeal "in accordance with the Administrative Procedure Act". Thus, a court would review an agency's denial of a fee award under the criteria set out in Article 41, §255A(f). Under §255A(f)(l), an agency may appeal a court's award of fees.

The term "reasonable litigation expenses" is defined as follows: "[T]hose expenses not in excess of $10,000 that the agency or court finds were reasonably incurred in opposing the agency action, including court costs, expenses incurred in administrative proceedings, attorney's fees, witness fees of all necessary witnesses, and other expenses reasonably incurred." Article 41, §255A(a)(3). Throughout this Opinion, we refer to "reasonable litigation expenses" simply as "fees".

II
The Federal Analogue

The Act appears to have largely the same policy objective as its federal counterpart and predecessor, the Equal Access to Justice Act (the "EAJA"), adopted by Congress in 1980. Pub. L. No. 96-481, 94 Stat. 2325. However, even though the basic purpose may have been the same, the General Assembly departed significantly from the EAJA's wording in several important respects, which we discuss below. Therefore, judicial or other interpretation of the EAJA cannot be applied uncritically to issues concerning the Act's construction. A Maryland statute patterned after that of another jurisdiction is generally "deemed to have been intended to have the meaning ascribed to [the foreign statute] by the courts of the originating [jurisdiction]". St. Joseph Hospital v. Quinn, 241 Md. 371, 377 (1966). However, this rule is not necessarily applicable when the General Assembly has departed from the plan or wording of the originating statute. Id. See Johnson v. Hall, 283 Md. 644, 653 n. 9 (1978) (effect of change in provision derived from uniform act). See also Wood v. State, 290 Md. 579, 583-84 (1981) (effect of provisions in State statute not same as effect of verbally identical federal counterpart).

The EAJA applies to both adversary adjudications under the federal Administrative Procedure Act and judicial proceedings to which the United States is a party. The basic provision with respect to adjudications involving small businesses is as follows: "An agency that conducts an adversary adjudication shall award, to a prevailing party other than the United States, fees and other expenses incurred by that party in connection with that proceeding, unless the adjudicative officer of the agency finds that the position of the agency as a party to the proceeding was substantially justified or that special circumstances make an award unjust." 5 U.S.C. §504(a)(l). For purposes of this provision, a "party" is a small business, as measured by several criteria set out in the statute. See 5 U.S.C. §504(b)(l)(B). Another provision directs a court to award fees to a prevailing small business "in any civil action (other than cases sounding in tort) brought by or against the United States . . . , unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust". 28 U.S.C. §2412(d)(l)(A).

According to the Administrative Conference of the United States, the agency responsible for monitoring implementation, the EAJA "is serving an important purpose ... by helping to recompense parties who have been forced to bear the expense of litigating against the government when the government's position is unreasonable". Statement of Loren A. Smith, Chairman of the Administrative Conference of the United States, Before the Subcomm. on Administrative Practice and Procedure of the Senate Comm. on the Judiciary, Concerning S. 919, Reauthorization of the Equal Access to Justice Act at 2 (April 14, 1983). However, "[t]he number and amount of awards under the [EAJA] have been relatively modest". Id. Indeed, during the EAJA's first year, only 103 applications for awards were filed in over 14,000 administrative proceedings potentially covered by the EAJA; and, by the end of that year, no award had actually been paid. Report of the Chairman of the Administrative Conference of the United States on Agency Activities under the Equal Access to Justice Act, October 1, 1981-September 30, 1982, at 4-5 (December 9, 1982) ("ACUS Annual Report").

III
Definition of "Small Business"

The Act defines a "small business" as follows: "'Small business' means an independently owned and operated business with less than 50 employees on the date that a complaint is issued by the agency. The employees of any corporation that owns 50 percent or more of the stock of the business against which the complaint is issued shall be counted for the purpose of determining the number of employees of the business." Article 41, §255A(a)(2). You asked whether this definition applies to nonprofit organizations and to sole proprietorships. We believe that it does not apply to nonprofit organizations but that it does apply to sole proprietorships.

A. Nonprofit Entities

As indicated above, the Act defines "small business" as "an independently owned and operated business" that meets certain criteria. The Act is codified as part of the subtitle of Article 41 that comprises the APA. "For the purpose of [the APA,] . . . '[b]usiness' means any trade, business, or professional entity or activity conducted for profit." Article 41, §244(b). Thus, the Act applies only to entities that are conducted for profit and that otherwise meet the criteria in the definition.

B. Sole Proprietorships

In our view, there is no basis in the statutory definition to distinguish between sole proprietorships and other forms in which a business is conducted. Any business, whether a sole proprietorship, partnership, or corporation, is covered by the Act if the criteria in Article 41, §255A(a)(2) are met. However, the proceeding in question must be directed at the business entity as such. That is, the Act does not apply to a proceeding that involves an individual who is engaged in a business but that does not directly concern that person's business activities. Such a proceeding is not "against a small business". Article 41, §255A(b). See also §255A(a)(2) ("the business against which the complaint is issued").

IV
Proceedings Covered by the Act

Article 41, §255A(b) specifies the kinds of proceedings in which fees might be awarded: "In any administrative adjudicatory proceeding or civil action resulting from a complaint issued by an agency against a small business pursuant to the administrative or regulatory functions of the agency, the small business may be awarded reasonable litigation expenses if: (1) The small business prevails in that action; and (2) Either the agency was without substantial justification in initiating the complaint or the agency brought the action in bad faith." Article 41, §255A(b).

Thus, the Act plainly applies to proceedings in which the agency is the initiator of the proceeding, either within the agency or in court. The term "agency" is defined for purposes of the APA in Article 41, §244(a). If a State entity other than an "agency" under the APA initiates a proceeding, the Act is inapplicable. The Act is also inapplicable to "an agency created by general law, which operates less than statewide". Article 41, §255A(a)(4).

V
The Substantive Standard

A. "Without Substantial Justification" or "In Bad Faith"

It is, of course, impossible to state in advance the exact circumstances that ought to give rise to a finding that an agency acted "without substantial justification" or "in bad faith". Such determinations can only be made in light of the particular evidence in each case. At best, only general decisional principles could be stated. There are two existing sources of law from which guidance might be drawn in applying the Act's substantive standard: the EAJA and Rule 604b of the Maryland Rules of Procedure.

1. The EAJA Standard

The EAJA generally requires that fees be awarded to a prevailing small business, unless the agency's adjudicative officer or the court "finds that the position of the agency [or, in court, "of the United States"] was substantially justified". 5 U.S.C. §504(a)(l); 28 U.S.C. §2412(d)(l)(A). The legislative history of the EAJA contains some clues as to the meaning of that term. The EAJA test is "essentially one of reasonableness". H. R. Rep. No. 1418, 96th Cong., 2d Sess. 10 (1980), reprinted in 1980 U.S. Code Cong. & Adm. News 4953, 4989.

In addition, the principles that will govern the applicability of the EAJA's substantive standard are already beginning to emerge from case law. For example, the Fourth Circuit has described the EAJA standard as "intended to be between an automatic award of fees to a successful party and an award of fees only when the government's position is arbitrary or frivolous". Tyler Business Services, Inc. v. NLRB, 695 F.2d 73, 75 (4th Cir. 1982). See also, e.g., Knights of the Ku Klux Klan v. East Baton Rouge Parish School Board, 679 F.2d 64, 68 (5th Cir. 1982); S & H Riggers & Erectors, Inc. v. OSHRC, 672 F.2d 426, 429-31 (5th Cir. 1982); Hornal v. Schweiker, 551 F.Supp. 612, 617-18 (M.D. Tenn. 1982); Bennett v. Schweiker, 543 F.Supp. 897, 898-99 (D.D.C. 1982). See generally Robertson and Fowler, Recovering Attorneys' Fees from the Government under the Equal Access to Justice Act, 56 Tul. L. Rev. 903, 928-34 (1982). The Administrative Conference summarized the first year of the agencies' implementation of this standard as follows: "In most of the proceedings in which the question of substantial justification was reached, the adjudicative officers have carefully analyzed the legal and factual issues to determine whether the government's position was reasonable in law and fact. Generally the cases in which a finding of substantial justification was made have turned on credibility issues or on the resolution of a legitimate question as to the applicability of the law to a particular set of facts. This contrasts with the two pending proceedings in which adjudicative officers have recommended awards because the government's position was not substantially justified. In [one] proceeding, the [Federal Aviation Administration] pursued an enforcement proceeding against a flight instructor for falsification of logs despite the fact that the complaining witness repeatedly told the agency that he had lied in his original statement. In [the other case], the administrative law judge held that the trial attorney should have known from the facts available to him before issuance of the complaint that no violation of the law had occurred." ACUS Annual Report at 6-7.

The Act's "without substantial justification" criterion in §255A(b) resembles the EAJA's "substantially justified" language. One could argue from this similarity, and from references to the EAJA in the Act's legislative history, that the EAJA ought to be the principal interpretive source for the Act's substantive standard. The Maryland Chamber of Commerce played a significant role in drafting and urging passage of the Act. The Chamber testified that the Act was "modeled after" the EAJA. Testimony of Charles Krautler, Vice President of Public Affairs for the Maryland Chamber of Commerce, Before the Senate Judicial Proceedings Comm. at 1 (Feb. 2, 1983).

However, the drafting of §255A(b) as a whole casts doubt on this interpretation. First, the two standards are in fact not identically phrased. Indeed, they are the converse of one another. Under the EAJA, the agency must show that it "was substantially justified". But, under the Act, the issue is whether the agency "was without substantial justification". Moreover, unlike its EAJA counterpart, §255A(b) contains alternative descriptions of the kind of agency action that may justify a fee award: "without substantial justification" or "in bad faith". If the General Assembly intended simply to transplant the EAJA standard into the Act, it is difficult to understand why it rephrased one criterion and why it set forth a second criterion, "in bad faith", that is not in the EAJA at all. The EAJA indirectly incorporates an "in bad faith" criterion in a provision unrelated to small business fee awards. Under 28 U.S.C. §2412(b), "the prevailing party in any civil action brought by or against the United States" may be awarded fees if the government "would be liable under the common law" for such fees. One common law exception to the rule that each party bears its own fees applies when a party has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons". Alyeska Pipeline Co. v. Wilderness Society, 421 U.S. 240, 258-59 (1975) (emphasis added). See Fitzgerald v. Hampton, 545 F.Supp. 53, 56-57 (D.D.C. 1982).

2. The Rule 604b Standard

The exact verbal counterpart of §255A(b) is not the EAJA, but rather Maryland Rule 604b. This rule provides that: "In an action or part of an action, if the court finds that any proceeding was had (1) in bad faith, (2) without substantial justification, or (3) for purposes of delay the court shall require the moving party to pay to the adverse party the amount of the costs thereof and the reasonable expenses incurred by the adverse party in opposing such proceeding, including reasonable attorneys' fees." See also Maryland Rule 406c 1 (motion for protective order concerning discovery made "without substantial justification" leads to fee award). Another verbal counterpart is a provision that requires the payment of fees to the State under some circumstances: "In an action or proceeding against [a public] officer or employee, if a judgment is rendered in favor of the officer or employee, and if the court finds that the action or proceeding was instituted in (1) bad faith or (2) without substantial justification, the court shall require the moving party to pay the state or the officer or employee, as the case may be, the amount of the cost thereof and the reasonable expenses incurred, including reasonable attorneys' fees." Article 32A, §12G. This provision has never been construed.

Although no reported decision contains a detailed discussion of the meaning of the terms "without substantial justification" or "in bad faith", cases involving Rule 604b indicate that it applies only to frivolous or vindictive suits. For example, in Schmidt v. Chambers, 265 Md. 9 (1972), the Court of Appeals affirmed the lower court's refusal to charge attorneys' fees against a party. The Court observed that fees might properly have been awarded "[i]f [the party] had been guilty of fraud, bad faith or had instituted frivolous litigation without justification". 265 Md. at 40. See also Shanks v. Williams, 53 Md. App. 670 (1983) (fees awarded where plaintiff relitigated issue that was res judicata); Brown v. Hardisty, 40 Md. App. 688 (1978) (fees awarded where plaintiff relitigated issue that was res judicata); Singer v. Steven Kokes, Inc., 39 Md. App. 180, 186 (1978) (fees awarded where plaintiffs' suit was for purposes of harassment and their arguments were "totally devoid of any merit"). Cf. Dixon v. Process Corp., 46 Md. App. 198, 212 (1980) (fees may not be awarded because party "had a right to have whatever legal rights he had, as doubtful as they may have been, determined in an appropriate forum"). In 62 Opinions of the Attorney General 418 (1977), this Office considered the meaning of the following provision: "Any person may file a complaint with the State Board of Ethics alleging a conflict of interest in violation of state law by an officer or employee of the executive branch of the State Government. Upon a finding that the allegation has substantial merit, the Board shall investigate it." Article 41, §14A(b) of the Maryland Code (subsequently repealed). The Opinion suggested that the "substantial merit" standard "should be construed to mean only that a complaint not be frivolous on its face". 62 Opinions of the Attorney General at 422.

Yet we acknowledge some uncertainty, despite the identity of wording, over whether the General Assembly really intended to incorporate the standard of Rule 604b rather than that of the EAJA. We can find no reference whatever to Rule 604b in the legislative history. Because Rule 604b is existing law, it might appear that the Act, at least as it applies to court cases, would be superfluous if it did no more than incorporate the standard of Rule 604b. Indeed, if read to incorporate the Rule's standard, the Act would actually be less protective of small businesses than Rule 604b: a fee award is mandatory under Rule 604b if the Rule's criteria are met, but a fee award is discretionary under the Act. See Part VI below. However, it may be that the General Assembly did not believe Rule 604b to be applicable to the State. "[C]osts cannot properly be awarded against the State in civil actions in the absence of a statute giving express authority to render such a judgment". State v. Williams, 101 Md. 529, 534 (1905). See Adkins, Code Revision in Maryland: The Courts and Judicial Proceedings Article, 34 Md. L. Rev. 7, 40 (1974) (Courts Article has not generally changed common law rule). Cf. §7-104(a) of the Courts Article. See generally 20 Am.Jur.2d Costs §32 (1965). Thus, the General Assembly might have thought that the Act's applicability to court cases as well as to administrative adjudications was necessary to provide "express authority" for fee awards against the State. But, given the absence of any pertinent material in the legislative history, we can only speculate about the legislative intent in this regard.

3. Application

Thus, much as we would like to be able to identify a fully applicable body of precedent, we cannot confidently identify either the EAJA or Rule 604b as the definitive or exclusive source of guidance in applying the fee awards criteria of the Act. It is clear, however, that the large body of case law under the Civil Rights Attorney's Fees Awards Act of 1976, 42 U.S.C. §1988, is generally inapposite. This provision authorizes a federal court, "in its discretion, [to] allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs" in various civil rights actions. In enacting the EAJA, the Congress explicitly decided not to apply the standards developed under §1988 to the special problems of litigation between small businesses and the federal government. H. R. Rep. No. 96-1418, at 10. Similarly, we believe that §1988 case law cannot provide useful guidance in resolving issues under the Maryland Act.

Absent statutory clarification, we can only suggest that Rule 604b and the EAJA be treated as boundary lines. That is, a decisionmaker weighing a request for fees under the Act should, as a practical matter, turn first to the standard for awarding fees under the EAJA, as elaborated in its legislative history and case law. If the agency's basis for initiating the proceeding was sufficiently reasonable that no fee award would be made if the EAJA were itself directly applicable, then no fee award may be made under the Act. If, on the other hand, the agency's basis for initiating the proceeding was unreasonable, and thus a fee award would be made under the standard of the EAJA, the decisionmaker should then examine the agency's basis against the standard of Rule 604b. If the Rule's stringent test is satisfied, then an award under the Act may certainly be made.

Although these ground rules ought to resolve the vast majority of cases, there remains at least a theoretical possibility that a few cases will fall in between, i.e., where an agency's basis in initiating the proceeding was arguably "unreasonable" but not "frivolous". Should this rarity occur, we can only advise the decisionmaker to gauge whether the case comes closer to one line or the other and decide accordingly. Actual experience in implementing the Act and judicial construction of its substantive standard may allow us to refine these boundary lines in the future if, indeed, a few rare cases do seem to fall between them.

B. Burden of Proof

As noted in Part V A above, the EAJA and the Act describe the applicability of the substantive standard for fee awards differently. The EAJA requires a fee award to a prevailing small business, "unless . . . the position of the agency as a party to the proceeding was substantially justified". 5 U.S.C. §504(a)(l). See also 28 U.S.C. §2412(d)(l)(A). The Act, however, permits a fee award only if the State agency "was without substantial justification" or acted "in bad faith". Article 41, §255A(b)(2).

We think that this difference in wording signifies a difference in the allocation of the burden of proof. The EAJA language, "unless . . . the agency . . . was substantially justified", requires an affirmative showing of the agency's justification to avert an otherwise mandatory award; it thus strongly implies that the agency bears the burden of making this showing. The legislative history of the EAJA confirms that the burden of proof is the agency's. See H. R. Rep. No. 96-1434, 96th Cong., 2d Sess. 22 (1980). See also 46 Fed. Reg. 32904, 32912 (June 25, 1981) (ACUS Model Rule §0.105(a)).

The phrasing of the Maryland Act is in marked contrast. Instead of requiring an award to be made "unless" the agency makes an affirmative showing of substantial justification, the Act allows an award to be made only "if" the absence of agency justification is shown. In our view, the Act's formulation clearly implies that the burden of proof is on the party that seeks fees. The Act thus accords with the general rule in Maryland: "[A]s it is in court proceedings, . . . the burden of proof is generally on the party asserting the affirmative of an issue before an administrative body." Bernstein v. Real Estate Comm'n, 221 Md. 221, 231 (1959). We do not suggest that the prevailing small business must somehow canvass every possible agency justification and negate each. If the prevailing small business can demonstrate, through the evidence actually introduced at the hearing or trial, that the agency's case was wholly unsupported at its initiation, it will have carried its burden prima facie. At that point, the agency would be obliged to offer rebuttal as to its justification in initiating the proceeding.

VI
Discretion to Deny Fee Awards

The Act contains two provisions that bear on the issue of whether a court or agency has the authority to reduce or deny a fee award to a prevailing small business, even if the agency has been found to have acted without substantial justification or in bad faith. Both grant such authority, albeit in different ways.

The Act specifies one particular circumstance under which fees need not be awarded: "The court may reduce the amount of the reasonable litigation expenses to be awarded under this section, or deny an award, to the extent that the small business engaged in conduct during the course of the proceeding which unduly and unreasonably protracted the final resolution of the matter in controversy." Article 41, §255A(e). This language is drawn, nearly verbatim, from the portion of the EAJA that applies to judicial proceedings. See 28 U.S.C. §2412(d)(1)(C).

But, unlike the EAJA [cf. 5 U.S.C. §504(a)(3)], the Act contains no comparable provision applicable to fee award decisions by agencies. Thus, although we can see no reason for the distinction, the Act seems to suggest that only courts, but not agencies, may reduce or deny fee awards specifically because of the dilatory tactics of a small business. In light of the Act's more basic, broader grant of discretion to both courts and agencies, §255A(c) is somewhat anomalous, apparently engrafted into the Act from the EAJA without the necessary clarification. It can be read in several ways: (i) as a restriction on the discretion of agencies, by implying that they may not exercise their broader discretion for this reason; (ii) as an example of the circumstances under which both agencies and courts may exercise their broader discretion to deny fee awards; or (iii) as a specific example of when courts, at least, should exercise their broader discretion. The General Assembly may wish to clarify its intention with regard to this provision.

The question, then, is whether courts have authority to reduce or deny an award under any other circumstances and whether agencies have discretion to reduce or deny an award under any circumstances at all. We believe that they both have such discretion. The very provision that specifies the criteria for awards, §255A(b), itself contains language granting courts and agencies discretion: "In any administrative adjudicatory proceeding or civil action resulting from a complaint issued by an agency against a small business . . . , the small business may be awarded reasonable litigation expenses if [the statutory criteria are met]." The use of the permissive term "may" plainly suggests that such expenses need not inevitably be awarded simply because the substantive criteria are met. By contrast, the EAJA uses the mandatory term "shall" in its provisions on fee awards. See 5 U.S.C. §504(a)(l); 28 U.S.C. §2412(d)(l)(A). Rule 604b also uses the mandatory term "shall". Our conclusion in this regard is strengthened by another difference in phrasing between the Act and the EAJA. Section 255A(e) of the Act, concerning the dilatory tactics of a small business, begins: "The court may reduce the amount of the reasonable litigation expenses to be awarded under this section, or deny an award". Section 2412(d)(1)(C) of the EAJA begins: "The court, in its discretion, may reduce the amount to be awarded pursuant to this subsection, or deny an award". Presumably, in §255A(e), the General Assembly omitted the phrase "in its discretion" as redundant, given its use of the permissive term "may". We understand the term "may" as used in §255A(b), to denote the same discretion.

Of course, this discretion should not be exercised in so expansive or wholesale a fashion as to frustrate the purposes of the Act. In our view, a court or agency should reduce or deny a fee award to an otherwise qualified small business only in special circumstances. Under the EAJA, fees need not be awarded if "special circumstances make an award unjust". See 5 U.S.C. §504(a)(l); 28 U.S.C. §2412(d)(l)(A). The legislative history describes its purpose as follows: "This 'safety valve' helps to insure that the Government is not deterred from advancing in good faith the novel but creditable extensions and interpretations of the law that often underlie vigorous enforcement efforts. It also gives the court discretion to deny awards where equitable considerations dictate an award should not be made." H.R. Rep. No. 96-1418, 96th Cong., 2d Sess. 11 (1980), reprinted in 1980 U.S. Code Cong. & Adm. News 4984, 4990. With respect to the Act, we believe that the discretion expressly vested in courts and agencies by the General Assembly is intended to permit fee award denials at least in comparable situations.

VII
Conclusion

In summary, it is our opinion that:

1. The term "small business" does not include nonprofit entities.
2. The term "small business" includes sole proprietorships that otherwise meet the Act's criteria.
3. The Act applies only to administrative contested cases or judicial proceedings brought by a State agency against a small business.
4. The Act's substantive standard should be applied consistently with comparable standards in existing law. That is, nearly all cases under the Act can be resolved by reference to the criteria for fee awards in the federal Equal Access to Justice Act and in Rule 604b of the Maryland Rules of Procedure: If an agency's basis for initiating a proceeding was sufficiently reasonable that a fee award would not be made under the comparable standard of the Equal Access to Justice Act, a fee award may not be made under the Maryland Act. On the other hand, if an agency's basis for initiating a proceeding was so deficient that a fee award would be made under the comparable standard of Maryland Rule 604b, a fee award may be made under the Act.
5. A small business that seeks fees under the Act has the burden of proving that the statutory prerequisite is met.
6. Either a court or an agency before which a fee request is pending may decline to award fees under appropriate circumstances, even if the statutory prerequisite is met.

Stephen H. Sachs, Attorney General
Jack Schwartz, Assistant Counsel, Opinions and Advice
Avery Aisenstark, Chief Counsel, Opinions and Advice

Editor's Note: The Small Businesses Litigation Expenses Act has since been recodified, without substantive change, as §10-217 of the new State Government Article.