Missouri Real Estate Appraisers Commission v. Mark A. Funk

SUPREME COURT OF MISSOURI
en banc
MISSOURI REAL ESTATE APPRAISERS )
COMMISSION, )
)
Respondent, )
)
vs. ) No. SC95255
)
MARK A. FUNK, )
)
Appellant. )
APPEAL FROM THE CIRCUIT COURT OF COLE COUNTY
HONORABLE JON BEETEM, JUDGE
Opinion issued June 28, 2016
The Missouri Real Estate Appraisers Commission (“Commission”) sought review
of the Administrative Hearing Commission’s (“AHC”) decision awarding attorney’s fees
to Mark Funk under section 536.087 1 for fees he incurred as the prevailing party in the
underlying civil action arising from the Commission’s denial of his application for
certification as a state-certified appraiser. The AHC awarded the fees based on its
determination that the Commission’s decision to appeal the AHC’s grant of appraiser
certification to Mr. Funk was not substantially justified because a court is required to
defer to the AHC’s factual and credibility findings. The circuit court correctly reversed
that decision, and its judgment is affirmed.
1
All statutory references are to RSMo 2000 unless otherwise stated.
A prevailing party in an agency proceeding normally must apply for attorney’s
fees from that agency within 30 days of its decision, and the fee request will be held in
abeyance until final disposition of the case where, as here, the case is appealed.
§ 536.087.3 and .4. Because Mr. Funk represented himself when he prevailed before the
AHC, he did not incur attorney’s fees at the agency level, however, and the requirement
to apply for attorney’s fees with the agency simply has no application. Instead, he should
have applied for fees with the court of appeals, which is the first forum in which he
prevailed while represented by an attorney. Because Mr. Funk wrongly submitted his
application to the AHC within 30 days of the final and unreviewable decision rendered by
the court of appeals, and only requested attorney’s fees from the court of appeals after
that request was rejected by the AHC and the deadline for seeking fees from the court of
appeals had expired, he failed to timely request attorney’s fees.
This Court need not consider whether an exception to the 30-day deadline should
be recognized in the unique circumstances just described, for, in any event, the
application for attorney’s fees should have been denied. The AHC erred in holding that
the right to attorney’s fees depends on whether the Commission’s decision to appeal the
AHC’s decision was substantially justified. This Court held in Greenbriar Hills Country
Club v. Director of Revenue, 47 S.W.3d 346, 354-58 (Mo. banc 2001), that under section
536.087.3, attorney’s fees will be awarded to the prevailing party upon timely application
unless the state’s position in denying relief based on the record in the initial agency
proceeding is shown to be substantially justified. Here, the record shows that the
Commission’s position in the original proceeding was reasonably based on fact and law
2
and was substantially justified. The AHC erred as to the law in considering evidence that
was not before the Commission when it made the decision to deny Mr. Funk’s
application and in considering whether the Commission should have appealed the AHC’s
decision. Those are not the issues that must be decided when determining substantial
justification.
I. FACTUAL AND PROCEDURAL HISTORY
This case has a lengthy and somewhat tortured procedural history. In January
2007, Mark Funk applied to the Missouri Real Estate Appraisers Commission for state
certification as a real estate appraiser pursuant to section 339.513. As a required part of
the application, Mr. Funk submitted a log. Among the materials in Mr. Funk’s log were
two appraisal reports that Mr. Funk had prepared during 2006.
At the Commission’s request, Mr. Funk met with it to discuss the reports. At that
meeting, Commission members questioned Mr. Funk about their concerns as to the
adequacy of his two 2006 appraisal reports. The members’ questions focused on whether
the reports contained adequate analyses of the leases; why neither report contained an
explanation of the reasoning for the capitalization rate used; and why both reports
determined the capitalization rate based on out-of-date data, failed to use proper units of
comparison, lacked information supporting the adjustments made, used inconsistent
rental amounts, and lacked other supporting data. Mr. Funk disclosed during the meeting
that he actually had based the capitalization rate used in one report on an undisclosed
lease of a side property rather than on the data included in the report.
In August 2007, the Commission notified Mr. Funk in writing that it denied his
3
application for state certification. The notice stated that based on his appearance before
the Commission, Mr. Funk had “not demonstrated a sufficient knowledge of appropriate
appraisal methods and techniques.” The notice also noted numerous deficiencies in
Mr. Funk’s 2006 appraisal reports:
[Mr. Funk] failed to correctly apply appraisal techniques that are necessary
to produce a credible appraisal … failed to adequately analyze, support or
develop [Mr. Funk’s] opinions of value. The report also did not include
sufficient information, explanation or analysis to support [Mr. Funk’s]
adjustments or subsequent value consideration. … For example, the
Warrensburg Report revealed that [Mr. Funk] failed to adequately or
properly complete, support or analyze the sales comparison and income
approaches included in the appraisal report. Additionally, [Mr. Funk] also
failed to adequately or properly analyze comparable sales data in the
appraisal report. [Mr. Funk] also failed to adequately or properly analyze
the current lease(s) and [his] determination of capitalization appears to be
incorrect. … The Warrensburg report also failed to include sufficient
information necessary to allow an intended user to understand the report
properly. … As a result of the foregoing, the Warrensburg Report was
potentially misleading … The Warrensburg report also failed to include
sufficient information necessary to allow an intended user to understand the
report properly.
The notice finally informed Mr. Funk that the errors and deficiencies in the reports
he submitted contained multiple violations of the Uniform Standards of Professional
Appraisal Practice (USPAP) and gave it cause to deny his application pursuant to
numerous statutes and regulations:
• Section 339.532.1, which gives the Commission the authority to “refuse to
issue or renew any certificate or license issued pursuant to
sections 339.500 to 339.549 for one or any combination of causes stated in
subsection 2 of this section[.]”
• Section 339.532.2, subdivisions (2), (5), (6), (7), (8), (9), (10), and (14),
which provides that issuance of a certificate can be refused for multiple
4
reasons the Commission found to be present. 2
• Section 339.535, which requires, “State-certified real estate appraisers …
shall comply with the Uniform Standards of Professional Appraisal Practice
….”
• Section 339.511.3, which provides, “Each applicant for licensure as a …
state-certified general real estate appraiser shall have demonstrated the
knowledge and competence necessary to perform appraisals of residential
and other real estate as the Commission may prescribe by rule ….”
• Rule 4 CSR § 245-3.010(1), which states, “The Commission shall pass
upon the granting of all certificates and licenses with due regard to the
paramount interest of the public as to the honesty, integrity, fair dealing,
and competency of applicants.” (Transferred to 20 CSR § 2245-3.010
effective Aug. 28, 2006).
In September 2007, Mr. Funk appealed the denial of his application to be certified
as an appraiser to the AHC and represented himself pro se during the AHC proceedings.
2
The Commission identified the following subdivisions of section 339.532.2 as causes
for the refusal to issue the certificate:
(2) Failing to meet the minimum qualifications for certification or licensure or renewal
established by sections 339.500 to 339.549;
(5) Incompetency, misconduct, gross negligence, dishonesty, fraud, or misrepresentation
in the performance of the functions or duties of any profession licensed or regulated by
sections 339.500 to 339.549;
(6) Violation of any of the standards for the development or communication of real estate
appraisals as provided in or pursuant to sections 339.500 to 339.549;
(7) Failure to comply with the Uniform Standards of Professional Appraisal Practice
promulgated by the appraisal standards board of the appraisal foundation;
(8) Failure or refusal without good cause to exercise reasonable diligence in developing
an appraisal, preparing an appraisal report, or communicating an appraisal;
(9) Negligence or incompetence in developing an appraisal, in preparing an appraisal
report, or in communicating an appraisal;
(10) Violating, assisting or enabling any person to willfully disregard any of the
provisions of sections 339.500 to 339.549 or the regulations of the Commission for the
administration and enforcement of the provisions of sections 339.500 to 339.549;
(14) Violation of any professional trust or confidence[.]
§ 339.532.2.
5
In May 2008, the AHC held a “denial hearing” at which the Commission presented
expert witness testimony concerning the errors in the 2006 appraisal reports. Among the
problems the expert identified were that Mr. Funk’s methods were not credible because
he used out-of-date data; provided no support for, and purposely withheld information
supporting, the capitalization rate that he used; failed to provide supporting data for his
adjustments; failed to use the customary unit of comparison; and made multiple
calculation or typographical errors. The Commission’s expert also testified that
Mr. Funk’s work violated several USPAP standards because, among other issues, he did
not correctly employ appraisal methods and techniques; committed substantial errors that
significantly affect an appraisal; rendered an appraisal in a careless or negligent manner
as demonstrated by the calculation of the contract rents and expenses; and made
typographical and calculation errors.
Mr. Funk submitted three additional appraisals he completed in 2007. Because
Mr. Funk made all three of the 2007 appraisals after he applied for certification, he did
not submit any of them to the Commission with his application or thereafter, and ipso
facto the Commission did not and could not have considered them in considering his
application for certification. Mr. Funk nonetheless argued to the AHC that, because the
2007 appraisals had been conducted more recently, they better represented his work and
should be considered by it in determining whether the Commission erred in rejecting his
application.
Counsel for the Commission did not object to the admission of the 2007 appraisal
reports or present expert testimony about them, apparently concluding that, because
6
Mr. Funk had failed to provide his work files for the 2007 appraisals to the Commission –
files that would contain the various background information describing the comparable
listings, sales or rentals considered, and the analysis, reasoning and calculations
supporting the reports – the Commission’s expert would not have the factual basis needed
to present an opinion concerning the competency of Mr. Funk’s work.
Mr. Funk also chose not to present expert testimony as to whether the 2007
appraisal reports complied with USPAP standards. The only evidence as to the 2007
reports’ adequacy was given in answer to a question asked of Mr. Funk by an AHC
commissioner as to whether Mr. Funk had prepared the 2007 appraisals in compliance
with USPAP standards and without committing negligence or gross negligence.
Mr. Funk answered that, although the reports were not in total compliance with
applicable standards, they were a better sample of his competency and he did not commit
negligence.
The AHC found for Mr. Funk and granted his application for certification as a
state-certified appraiser on November 5, 2008. In so holding, it did not reject the
Commission’s expert testimony or conclusions as to the inadequacy of the 2006 appraisal
reports. Rather, it said it decided to give greater weight to the 2007 appraisal reports,
which it found “were done competently and in substantial conformity with USPAP.”
Mr. Funk did not apply for attorney’s fees from the AHC because he had represented
himself.
In December 2008, pursuant to section 536.100, the Commission filed a petition
for judicial review of the AHC’s decision in the circuit court. At this point, Mr. Funk
7
hired counsel. The trial court reversed the AHC decision granting Mr. Funk state
certification, finding that the decision of the AHC was “arbitrary, unlawful, unreasonable
and not supported by substantial and competent evidence on the record as a whole.”
Mr. Funk did not apply for attorney’s fees because he was not the prevailing party.
In May 2009, Mr. Funk appealed the trial court’s judgment. On January 12, 2010,
the court of appeals issued an opinion holding that the trial court erred in substituting its
judgment as to Mr. Funk’s competency for that of the AHC. The appeals court issued its
mandate on February 3, 2010, reversing the judgment outright and ordering that the
Commission provide Mr. Funk with his certification. Mr. Funk did not at that time apply
for attorney’s fees from the court of appeals even though he had prevailed in that court,
and the court of appeals did not remand to the trial court or the AHC.
On February 16, 2010, less than two weeks after the court of appeals ruled in his
favor, Mr. Funk filed an application with the AHC for reasonable fees and expenses
under section 536.087. 3 The AHC initially rejected the application as beyond its
jurisdiction because the case had been appealed. But, as explained in further detail
below, after remand from the circuit court, the AHC granted Mr. Funk’s application for
3
Although Mr. Funk filed the application for attorney’s fees with the AHC under the
same case number given his initial administrative action, that case had not been remanded
to the AHC and was not pending before that body, but the AHC assigned a new case
number to the application for attorney’s fees and treated it as a separate case. Cf. Cooling
v. State Department of Social Services, 446 S.W.3d 283, 287 (Mo. App. 2014) (statute
“provides that the decision on a fee application is separate from the judgment or order
that determined the prevailing party. The Hernandez case likewise makes a distinction
between underlying case and the fee proceeding. Hernandez v. State Bd. of Registration
for Healing Arts, 936 S.W.2d 894 (Mo. App. W.D. 1997)”).
8
attorney’s fees in the amount of $17,055 and costs in the amount of $2,379.92 on
September 10, 2013. It ordered the fees on the basis that “the Commission was not
substantially justified in filing an appeal” because it should have known that the circuit
court or appellate court would defer to the AHC’s factual and credibility findings and so
the appeal had little chance of success.
The Commission sought judicial review in the circuit court, which reversed,
finding the Commission’s position was substantially justified. Mr. Funk appealed.
Following an opinion by in the court of appeals, this Court granted transfer. MO. CONST.
art. V., § 10.
II. STANDARD OF REVIEW
When a party appeals a circuit court’s judgment reviewing an agency decision,
“the appellate court does not review the circuit court’s decision, but rather the agency
decision, that is, the AHC’s findings and conclusions[.]” Bird v. Missouri Bd. of
Architects, Prof'l Engineers, Prof'l Land Surveyors & Landscape Architects, 259 S.W.3d
516, 520 (Mo. banc 2008). “The reviewing or appellate court’s determination on any
judicial review or appeal heard under this subsection shall be based solely on the record
made before the agency or court below.” § 536.087.7 .
The court may modify, reverse or reverse and remand the determination of
fees and other expenses if the court finds that the award or failure to make
an award of fees and other expenses, or the calculation of the amount of the
award, was arbitrary and capricious, was unreasonable, was unsupported
by competent and substantial evidence, or was made contrary to law or in
excess of the court’s or agency’s jurisdiction.
§ 536.087.7 (emphasis added).
9
III. THE AHC ERRED IN AWARDING ATTORNEY’S FEES
The issue on this appeal is a narrow one. The question whether Mr. Funk should
be a state-certified appraiser or whether the Commission erred in denying Mr. Funk’s
application for that certification has been determined already and is not before this Court.
The only issue on this appeal is whether the AHC erred in awarding Mr. Funk attorney’s
fees and expenses. To resolve this issue, this Court must determine whether Mr. Funk
properly and timely filed his request for attorney’s fees and whether the AHC properly
rejected the Commission’s claim that its position was substantially justified.
A. Mr. Funk should have filed his application for attorney’s fees in the
appellate court.
Section 536.087 provides that a prevailing party may seek attorney’s fees from the
agency or court before which the party prevailed:
3. A party seeking an award of fees and other expenses shall, within thirty
days of a final disposition in an agency proceeding or final judgment in a
civil action, submit to the court, agency or commission which rendered the
final disposition or judgment an application which shows that the party is a
prevailing party and is eligible to receive an award under this section. …
4. A prevailing party in an agency proceeding shall submit an application
for fees and expenses to the administrative body before which the party
prevailed. A prevailing party in a civil action on appeal from an agency
proceeding shall submit an application for fees and expenses to the court.
The filing of an application shall not stay the time for appealing the merits
of a case. When the state appeals the underlying merits of an adversary
proceeding, no decision on the application for fees and other expenses in
connection with that adversary proceeding shall be made under this section
until a final and unreviewable decision is rendered by the court on the
appeal or until the underlying merits of the case have been finally
determined pursuant to the appeal.
10
§ 536.087.3 and .4 (emphasis added). 4
These sections require a party who prevails before an agency to submit an
application for attorney’s fees and expenses to that agency within 30 days of the final
disposition of the agency proceeding. Where, as here, the state appeals the agency
determination, “the tribunal before which the fee application was properly brought will
retain jurisdiction over that fee application, and the action will be held in abeyance until
the adversary proceeding becomes final.” Missouri Comm'n on Human Rights v. Red
Dragon Rest., Inc., 991 S.W.2d 161, 172 (Mo. App. 1999); accord State ex rel. Div. of
Transp. v. Sure-Way Transp., Inc., 948 S.W.2d 651, 658 (Mo. App. 1997); § 536.087.4.
The prevailing party is not required to continue filing attorney’s fee applications at each
succeeding level of the process to recover attorney’s fees expended on appeal in defense
of the AHC decision in the party’s favor. Once the proceeding becomes final through an
unreviewable decision by a court on appeal, or once the underlying merits of the case are
finally determined on appeal, the agency can then determine the attorney’s fees
awardable, if any, and that award can include fees incurred in the trial and appellate
courts in defending the agency decision. 5
4
Under section 536.087.1 an applicant for attorney’s fees must also prove it is a “party”
who “prevailed[ed]” in an “agency proceeding” or civil action arising therefrom brought
by or against the “state,” as those terms are defined in section 536.085.
5
Greenbriar Hills Country Club v. Director of Revenue, 47 S.W.3d 346, 359 n.42 (Mo.
banc 2001) (considering the prevailing party’s application for fees including fees
incurred on appeal of the underlying action and in defending the fee award); Hernandez
v. State Bd. Of Registration for Healing Arts, 936 S.W.2d 894, 901-02 (Mo. App. 1997)
(holding that the administrative body before which the party prevailed retained authority
to award fees including “compensation … for all aspects of a litigation… including fees
11
Although Mr. Funk was the prevailing party in the AHC, he did not file an
application for attorney’s fees and expenses with the AHC within 30 days of its ruling in
his favor for a very simple reason: He represented himself and, therefore, had no
attorney’s fees. He later incurred attorney’s fees and expenses because he hired an
attorney to represent him when the Commission appealed the AHC decision to the circuit
court and then when he appealed the circuit court decision to the court of appeals and
ultimately prevailed. Because he had initially prevailed before the AHC, Mr. Funk filed
his application for attorney’s fees with the AHC within 30 days of prevailing in the court
of appeals.
The Commission moved to dismiss the application for attorney’s fees. Citing
section 536.087, it argued that even though Mr. Funk had no attorney’s fees when he first
prevailed before the AHC on November 5, 2008, section 536.087 is unequivocal that he
was required to file his request for fees within 30 days of that 2008 decision, even if he
had to request $0. Because he failed to do so, the Commission argued, his attorney’s fee
request should be denied.
The AHC properly rejected this argument. While on its face section 536.087.4
requires the party to apply for attorney’s fees in the forum in which the party first
and expenses incurred in seeking fees[.]”); State ex rel. Div. of Transp. v. Sure-Way
Transp., Inc., 948 S.W.2d 651, 658-59 (Mo. App. 1997) (“[W]hen the underlying case is
appealed by the agency, the fee application will wait in abeyance until the appeals
process ends. If at the end of that appeals process the citizen’s status as a prevailing party
is left undisturbed, the fee application is revived and leave to modify the application
should be made and granted by that tribunal which would then include those fees incurred
in the appeals process.”)
12
prevailed, the statute does not require a futile act. Had Mr. Funk incurred attorney’s fees
in that initial AHC proceeding in which he prevailed, section 536.087.3 and .4 would
have required him to file his application for attorney’s fees with the AHC. Because he
did not incur attorney’s fees in that AHC proceeding, however, he was not required to
seek reimbursement for non-existent fees.
Reading subsections 3 and 4 together, and in light of the intent of the legislature to
allow a party who prevails to recover the attorney’s fees incurred in prevailing in the
forum in which those fees first were incurred, this Court holds that where, as here, a party
does not incur attorney’s fees at the agency level at which the party first prevails, the
party is not required to file an application with the agency to recover such non-existent
fees.
But Mr. Funk is also incorrect. He says that, because he first won before the
AHC, he was entitled to file an application for attorney’s fees with the AHC once he
actually later incurred those fees on appeal and prevailed. But section 536.087.4 provides
that “a prevailing party in a civil action on appeal from an agency proceeding shall
submit an application for fees and expenses to the court.” Section 536.087.3 provides
that the party who seeks such fees “shall, within thirty days of a … final judgment in a
civil action, submit to the court, agency or Commission which rendered the final
disposition or judgment an application ….” Again, reading subsections 3 and 4 together,
the intent of the statutes is that the prevailing party seek attorney’s fees in the forum in
which the party first prevailed and incurred those attorney’s fees. Mr. Funk, having first
prevailed and incurred fees before the appellate court, therefore, was required to file his
13
application for attorney’s fees with the court of appeals.
For this reason, the AHC initially denied Mr. Funk’s application for attorney’s
fees and granted the Commission’s motion to dismiss, correctly holding that Mr. Funk
should have filed his application for attorney’s fees with the court of appeals. By the
time the AHC so ruled, more than 30 days had passed since the court of appeals had
finally disposed of his appeal. Mr. Funk, therefore, proceeded on a second front.
Mr. Funk filed an application for attorney’s fees with the court of appeals and,
acknowledging the otherwise untimely nature of that filing, asked the court of appeals to
recall its mandate and reissue its decision so that, given the unique circumstances, his
application for attorney’s fees from the court of appeals would be timely. In support, he
cited Greenbriar, in which this Court noted the unfairness of the fact that the mandate in
Greenbriar had issued before the time had run for the prevailing party in that case to seek
attorney’s fees. 47 S.W.3d at 354. To avoid this unseemly inconsistency, this Court sua
sponte chose to treat Greenbriar’s otherwise untimely application for attorney’s fees as a
motion to recall the Court’s mandate and granted it. The mandate then was reissued and
the prevailing party could timely be awarded attorney’s fees based on the new mandate.
Id. 6
6
An appellate court can, and usually will, remand the case to the trial court or to the
agency with directions to determine the award of attorney’s fees or remand for entry of a
judgment consistent with the court’s opinion. For example, in Berry v. Volkswagen
Group of Am., Inc., 397 S.W.3d 425, 433 (Mo. banc 2013), this Court remanded to the
trial court to determine the amount of attorney’s fees. Accord, Rosehill Gardens, Inc. v.
Luttrell, 67 S.W.3d 641, 648 (Mo. App. 2002) (same). See also Red Dragon, 991 S.W.2d
at 173 (court reversed Commission’s award of complainant’s litigation costs and
14
Here Mr. Funk did not file either his motion to recall mandate or an application for
attorney’s fees with the court of appeals within 30 days of the time that court’s decision
in his favor became final and unreviewable. His application was not timely.
Proceeding on a second front, at the same time as Mr. Funk sought to have the
appellate court recall its mandate, he appealed the AHC’s dismissal of his application for
attorney’s fees, arguing that the application had been properly filed with the agency. The
circuit court reversed and remanded to the agency without opinion, which Mr. Funk
interpreted to mean that the AHC should consider the merits of his attorney’s fee claim.
Mr. Funk, therefore, filed an amended application for attorney’s fees, which the AHC
considered on the merits and granted following an evidentiary hearing held on November
30, 2011. This AHC holding was error. For the reasons just noted, Mr. Funk should
have sought attorney’s fees in the court of appeals, where he first prevailed and incurred
such fees, not before the AHC, where he did not incur attorney’s fees when prevailing.
This Court need not consider whether, in light of the unique nature of the
procedural issues and the lack of precedent addressing where to file when the prevailing
party did not incur any fees in the forum in which the party first prevailed, this Court has
authority to recognize an exception to the normal timing requirements (much as
Greenbriar did). For the reasons discussed below, even if Mr. Funk’s application were
considered to be timely, he should not have been awarded attorney’s fees.
“remanded the case to the circuit court for remand to the [Commission] for entry of an
amended order”).
15
B. The position taken by the Commission in rejecting the application for
certification was substantially justified, precluding the award of attorney’s
fees.
Section 536.087.1 provides that:
A party who prevails in an agency proceeding or civil action arising
therefrom, brought by or against the state, shall be awarded those
reasonable fees and expenses incurred by that party in the civil action or
agency proceeding, unless the court or agency finds that the position of the
state was substantially justified or that special circumstances make an
award unjust.
(Emphasis added). “The burden is on the [state] to establish substantial justification.”
Greenbriar, 47 S.W.3d at 354. The Commission asserts its decision denying Mr. Funk’s
application for certification was substantially justified and the AHC decision to award
fees and costs is arbitrary and capricious, unreasonable, unsupported by competent and
substantial evidence, and contrary to law.
1. The record before an agency at the time of its decision is
examined to determine whether the agency position is
substantially justified.
The Commission argues that the AHC applied the wrong standard in determining
Mr. Funk’s right to attorney’s fees and expenses. The AHC based its grant of attorney’s
fees on its belief that “the Commission was not substantially justified in filing an appeal”
of the initial AHC decision because the AHC decision was based on the credibility and
weight of the evidence presented to the AHC as to the 2007 appraisals and “credibility
determination and the weighing of evidence are this Commission’s sole prerogatives …
[so s]uch an appeal had no realistic chance of succeeding.”
This was error. Although the attorney’s fees that Mr. Funk sought were those he
16
incurred while defending his judgment on appeal, his right to those attorney’s fees does
not depend on whether the Commission’s position in its briefs on appeal was meritorious
or stood a good chance of success. Every party has a right to appeal so long as the appeal
is not frivolous, and the remedy for frivolous appeals is a sanction under Rule 55.03 or
Rule 84.19, not the rejection of a “substantially justified” defense.
Section 536.087.3 specifically sets out the standard for determining whether an
agency position is substantially justified:
Whether or not the position of the state was substantially justified shall be
determined on the basis of the record … which is made in the agency
proceeding or civil action for which fees and other expenses are sought, and
on the basis of the record of any hearing the court or agency deems
appropriate to determine whether an award of reasonable fees and expenses
should be made, provided that any such hearing shall be limited to
consideration of matters which affected the agency’s decision leading to the
position at issue in the fee application.
(Emphasis added).
“Section 536.087.3 specifically provides that the determination on the issue of
substantial justification shall be based on the record made in the agency proceeding for
which fees are requested, not on the determination of a higher court when reviewing the
agency action for error.” Greenbriar, 47 S.W.3d at 357-58. In other words, the agency
position, which must be shown to be substantially justified, is the Commission’s position
before the AHC defending its denial of Mr. Funk’s initial application for certification as a
real estate appraiser because it reasonably believed, based in the record made before the
Commission, that he did not meet the competency requirements and standards for state
appraiser certification, not the Commission’s arguments on appeal.
17
Dishman v. Joseph, 14 S.W.3d 709, 711, 713-14 (Mo. App. 2000) (Dishman I),
provides a good example of the application of this standard. In Dishman I, the Personnel
Advisory Board erroneously reconsidered already litigated facts regarding a nurse’s
suspension when determining whether the agency’s position was substantially justified.
Id. at 718. The appellate court held that this was error because, when hearing an
application for attorney’s fees and costs, the Board “could only determine whether the
agency’s position was substantially justified when it suspended [the nurse] in light of the
underlying record in the case which was decided in her favor and in light of the facts and
investigation which the agency showed it considered in deciding to suspend her and in
trying to uphold that suspension.” Id. (Emphasis added). In other words, when
considering whether the nurse was entitled to attorney’s fees and expenses after
prevailing on an appeal of her suspension, the reviewing agency “could only determine
whether the agency’s position was substantially justified when it suspended [the
nurse]….” Id. (Emphasis added).
Similarly, in Greenbriar, the country club applied to this Court for attorney’s fees
after winning a tax appeal. 47 S.W.3d at 349-50. While the fees sought by Greenbriar
included those it incurred on appeal, the determination of whether it was entitled to those
fees did not depend on the merits of the Department of Revenue’s position on appeal.
Rather, this Court considered whether “the Director’s position in the original AHC
proceeding had a reasonable basis in fact and law” to determine whether the Director’s
position was substantially justified. Id. at 358 (emphasis added); accord Pulliam v. State,
96 S.W.3d 904, 907 (Mo. App. 2003) (“In reaching a fee decision, the agency may
18
consider the facts as determined in the underlying action, how those facts reasonably may
have appeared at the time the action was initiated, and the thoroughness of the
investigation preceding the action.”).
The AHC failed to follow this standard here. Rather than properly limiting itself
to considering whether the Commission’s position in the original proceeding was
substantially justified, it considered whether the appeal from that decision was
substantially justified and determined that, under the deferential standard of review, it
was not. That was not the correct analysis.
2. The Commission’s position was reasonably based in law and
fact.
This Court finds that the AHC’s decision that the Commission’s denial of
Mr. Funk’s application for state appraiser certification was not substantially justified was
unsupported by competent and substantial evidence and is contrary to law. “Missouri
courts have interpreted the term ‘substantially justified’ to mean there must be
‘reasonable basis both in law and fact’ for the government’s actions.” Greenbriar, 47
S.W.3d at 354.
In State ex rel. Pulliam v. Reine, 108 S.W.3d 148, 158-59, 161 (Mo. App. 2003),
the court held that there was substantial justification for the Missouri Board of Nursing
Home Administrators’ discipline of a nursing home administrator because an
investigation of alleged wrongdoing provided a factual basis for the proceedings and the
Board had statutory authority to enforce licensure provisions.
By contrast, in Hyde v. Department of Mental Health, 200 S.W.3d 73, 77 (Mo.
19
Ohio App. 2006), the court found that the agency denied services based on “emergency
criteria” but did not show “that its criteria was reasonable and was applied appropriately.”
In Joseph v. Dishman, 81 S.W.3d 147, 151, 153 (Mo. App. 2002) (Dishman II), decided
after Dishman I remanded the case, the court held the agency decision to discipline the
nurse was not substantially justified because the agency did not come forward with any
testimony explaining the investigation or defending the reasonableness of the action but
instead “contented itself with the perfunctory filing of two affidavits offering little in the
way of substance.”
The evidence of substantial justification presented by the Commission differs from
the evidence presented in cases such as Dishman II and Hyde, in which the agency did
not present substantial evidence that its decision was substantially justified. This case is,
rather, like the evidence in Pulliam in which the agency position was substantially
justified. Here, the Commission submitted evidence that showed the factual basis for the
denial of Mr. Funk’s application and presented evidence of the Commission’s statutory
criteria for issuing state appraiser certifications, its investigation into Mr. Funk’s
knowledge and understanding of appraisal methods, its application of the statutory
standards to Mr. Funk’s work, and its expert testimony explaining how Mr. Funk’s 2006
appraisals violated the standards and gave cause to deny his application.
The AHC denial hearing record was stipulated to be a part of the attorney’s fee
hearing record. It showed that the Commission based its denial of Mr. Funk’s application
on the errors and violations of appraiser standards the Commission found in the 2006
appraisal reports and the lack of understanding of appraisal methods Mr. Funk
20
demonstrated at the meeting with the Commission. Mr. Funk did not claim that the 2006
reports were prepared correctly (although he did claim their inadequacy did not justify
the denial of his application) but, rather, argued to the AHC at that denial hearing that the
2007 reports were a more accurate representation of his competence and constituted
substantial evidence supporting certification.
The AHC agreed with Mr. Funk as to the adequacy of the 2007 appraisal reports.
But the 2007 reports were not in evidence before the Commission when it made its
decision. Mr. Funk introduced them for the first time at the AHC hearing. Assuming the
AHC properly considered those unobjected-to 2007 reports in reaching its decision in
favor of Mr. Funk at the denial hearing (an issue not now before the Court), because
those reports were not before the Commission when it made its decision, the AHC
should not have considered them in determining whether the Commission’s rejection of
his application was substantially justified. To again quote Dishman I, the Commission
“could only determine whether the agency’s position was substantially justified … in
light of the underlying record in the case … and in light of the facts and investigation
which the agency showed it considered ….” 14 S.W.3d at 718 (emphasis added).
In determining attorney’s fees and costs, the AHC should have considered whether
the Commission’s rejection of Mr. Funk’s application was substantially justified based on
the information before the Commission when it rejected the application. The record
before the Commission included the 2006 appraisal reports and the information the
Commission gained in its meeting with Mr. Funk, and the AHC should have considered
“how these facts reasonably may have appeared” to the Commission when it denied
21
Mr. Funk’s application. 7
Section 536.087.3 explicitly states that the fact “that the state has lost the agency
proceeding or civil action creates no legal presumption that its position was not
substantially justified.” This is because even if the agency “was determined in the
underlying case to be wrong … [it] does not necessarily mean that the State’s position
was not well-founded in law and fact.” Dishman I, 14 S.W.3d at 718-19. Rather, it
means that the burden is on the agency to show that the basis for the agency’s position
was “clearly reasonable, although not necessarily correct.” Id. at 717. This standard is
particularly appropriate here, where the basis of the AHC reversal was evidence that
never was put before the Commission. In other words, the AHC did not reject the basis
of the Commission’s decision because it found the denial of certification was
unreasonable or not well-founded based on the evidence before the Commission. The
AHC simply found that the certification should have been granted based on additional
evidence first presented only once the case was appealed to the AHC.
For these reasons, the AHC award of attorney’s fees and costs based on its
determination that the Commission’s position was not substantially justified is
7
Mr. Funk argues that whether the Commission was substantially justified in its initial
decision to deny the state appraiser certification is not germane because he incurred no
fees until the appeal of the AHC decision reversing the denial. The fact that Mr. Funk
did not incur attorney’s fees until the appeal is relevant to the determination of the
amount of the award, but, as discussed above, the position at issue is substantial
justification for the Commission’s denial of his state appraiser certification. The statutory
language is clear that “matters which affected the agency’s decision leading to the
position at issue in the fee application” are germane to the question whether a position is
substantially justified. § 536.087.3.
22
unsupported by competent and substantial evidence and is contrary to law. Taking the
facts as found by the Commission in its initial decision and in light of the statutes and
rules governing the grant of certification, the Commission’s denial of Mr. Funk’s
application for state certification was “clearly reasonable, well-founded in law and fact,
solid, although not necessarily correct.” Dishman I, 14 S.W.3d at 719.
IV. CONCLUSION
The judgment of the circuit court reversing the decision of the AHC is affirmed. 8
______________________________
LAURA DENVIR STITH, JUDGE
Breckenridge, C.J., Fischer, Draper, Wilson
and Russell, JJ., concur; Teitelman, J., concurs
in part in separate opinion filed.
8
As this Court determines that Mr. Funk is not entitled to attorney’s fees and costs, this
Court overrules as moot his motion for reasonable fees and expenses on appeal.
23
SUPREME COURT OF MISSOURI
en banc
MISSOURI REAL ESTATE APPRAISERS )
COMMISSION, )
Respondent, )
)
vs. ) No. SC95255
)
MARK A. FUNK, )
)
Appellant. )
OPINION CONCURRING IN PART
I concur in sections I through III(A) of the principal opinion. The fact that Mr.
Funk did not timely file his application for attorney fees in the proper forum is
dispositive. I express no opinion regarding the dicta pertaining to whether the
commission’s decision was substantially justified.
_________________________________
Richard B. Teitelman, Judge