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State takes hit on attorney fees in gambling case

The ruling could mean higher fees for Florida in the future.

An appeals court on Friday sided with pari-mutuel cardroom operators in a challenge over attorney fees, in a decision that could leave the state on the hook for more money in future consolidated legal cases.

The 2nd District Court of Appeals’ ruling overturned a decision in a dispute stemming from a proposed state rule dealing with controversial “designated player” card games.

Administrative Law Judge E. Gary Early in 2017 sided with pari-mutuels in various parts of the state in finding that Florida officials were wrong to do away with a rule governing designated player games without replacing the regulations.

But in a subsequent fight about attorney fees, Early agreed in 2018 with regulators that a $50,000 statutory cap on fees in disputes with state agencies applied in the aggregate to all of the gambling operators — not to each individual party. Early wrote that the law “is not so clear as to allow for a definitive determination on its face as to whether the statute allows for multiple awards against an agency up to $50,000 when multiple parties have challenged the same proposed rule.”

But a three-judge panel of the appeals court Friday said that if the administrative law judge’s decision were allowed to stand, consolidation of cases would prejudice the rights of parties to recover attorney fees when they are successful.

“In effect, the ALJ (Early) fashioned an exception to a prevailing petitioner’s statutory right to recover up to $50,000 in attorney’s fees, when the Legislature prescribed no such exception. This was beyond the ALJ’s authority,” appeals-court Judge Stevan Northcutt wrote in the opinion joined by judges Craig Villanti and Anthony Black.

The panel also rejected arguments by the state Department of Business and Professional Regulation that allowing parties to each receive up to $50,000 in legal fees could result in a bonanza for petitioners and incentivize them “to band together, hire the same attorney, prosecute virtually identical rule challenges, and then each recover full attorney’s fees,” Northcutt wrote, adding that the argument was “not unfounded.”

In the designated-player game case, Early noted that the rule challenges were “with few exceptions, identical” and had “pervasive similarities” suggesting that the petitioners had coordinated.

“But for two reasons we are unpersuaded by the department’s fear that attorneys might reap double-recovery windfalls,” Northcutt wrote.

First, state law mandates an award of “reasonable” fees, the appellate judge wrote.

“If petitioners share the workload or if an attorney uses his or her work on behalf of one petitioner in the representation of another, that economy of scale must necessarily be factored into the assessment of a reasonable fee, and it thereby would redound to the benefit of the agency,” Northcutt wrote.

In addition, “even if the agency’s concerns were well-founded, they would present a policy question that is for the Legislature,” he added.

The state agency “is not empowered to alter the terms of a statute based on its own determinations,” the ruling said.

The three-judge panel reversed Early’s fee order and sent the case back to the administrative law judge.

The Department of Business and Professional Regulation is reviewing the appeals-court ruling, agency spokeswoman Karen Smith told The News Service of Florida in an email.

A 1996 law created the cap on attorney fees in disputes with state agencies and set the maximum at $15,000. In 2008, the law was amended, and the cap was raised to $50,000.

A staff analysis of the legislation that established the caps didn’t clarify the issue, Early found.

“There is little in the attorney fees section of the 1996 bill analysis that sheds further light on the issue of whether the statutory cap on fees is to be applied per case or per party,” the judge wrote.

An analysis of the 2008 bill, which later became law, provided more insight, according to Early. That analysis noted that the bill raises the cap on attorney fees “that may be awarded against a party” in an administrative law proceeding.

But, in a concurring opinion Friday in the appeals court, Black wrote that scrutinizing the legislative intent of the law was unnecessary.

“In my view, reversal is required in light of the plain language of the statute after giving effect to the related statutory provisions …,” he wrote.

Early’s January 2018 order granted a single award of $50,000 to lawyers representing nine cardrooms that had challenged the rule. John Lockwood, a lawyer representing seven cardrooms, filed one appeal, which he later dropped.

Friday’s decision came in a separate appeal by Foley & Lardner lawyers Christopher Kise, Joshua Hawkes and Jim McKee, representing cardrooms operated at a greyhound track and a horse track in Tampa.

The ruling applies only to the two Tampa challenges, meaning the state — which could have been on the hook for up to $450,000 — is facing a payout of a maximum of $100,000, minus taxes.

Administrative law judges have handled attorney fees in consolidated challenges in a variety of ways, according to Patricia Nelson, a lawyer who spent more than a decade handling contentious rulemaking issues for state agencies.

But unless the Department of Business and Professional Regulation successfully appeals to the Florida Supreme Court, Friday’s ruling cements the practice of awarding up to $50,000 to each of the attorneys in consolidated challenges.

“This case is the first time that procedure has been addressed by a district court, making it more like black-letter law for parties at DOAH (the Division of Administrative Hearings),” Nelson, who also spent four years reviewing agency rules for former Gov. Rick Scott’s administration, told the News Service.

Designated-player games have been a contentious issue in recent years and were at the heart of a long-running battle between the Seminole Tribe of Florida and the state. A federal judge agreed with the tribe that the designated player games breached an agreement that gave the tribe exclusive rights to operate banked card games, such as blackjack, at most of its casinos.

In May, the tribe ceased about $350 million in annual payments to the state because gambling regulators continued to allow pari-mutuel cardrooms to operate the games.

The News Service of Florida provides journalists, lobbyists, government officials and other civic leaders with comprehensive, objective information about the activities of state government year-round.

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