                 IN THE COURT OF APPEALS OF TENNESSEE
                             AT NASHVILLE
                                   October 8, 2001 Session

         AMERICAN CHILD CARE, INC. v. STATE OF TENNESSEE,
             DEPARTMENT OF HUMAN SERVICES, ET AL.

                    Appeal from the Chancery Court for Davidson County
                      No. 00-413-III   Ellen Hobbs Lyle, Chancellor



                  No. M2000-01790-COA-R3-CV - Filed December 10, 2001


This appeal arises from the trial court’s denial of appellant American Child Care, Inc.’s, request for
attorney’s fees resulting from an administrative action in which appellant’s license was suspended
and later reinstated. The trial court later granted appellee summary judgment on all issues, including
attorney’s fees. We reverse the trial court’s decision denying the appellant’s application and remand
to the trial court to set a reasonable fee for the appellant.

          Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
                                Reversed and Remanded

BEN H. CANTRELL, P.J., M.S., delivered the opinion of the court, in which WILLIAM B. CAIN , J. and
JOHN A. TURNBULL , SP. J., joined.

James D. Kay, Jr. and John B. Enkema, Nashville, Tennessee, for the appellant, American Child
Care, Inc.

Paul G. Summers, Attorney General and Reporter; Elizabeth C. Driver, Assistant Attorney General,
for the appellee, State of Tennessee.

                                             OPINION

        This case stems from an incident that occurred at American Child Care Center, owned by
appellant, American Child Care, Inc., located in Nashville, Tennessee. On February 1, 2000, a three-
year old child walked out of American Child Care Center and walked into traffic on White Bridge
Road in Nashville. An employee at a neighboring business saw the incident and safely retrieved the
child from the street.

       On February 9, 2000, the Department of Human Services summarily suspended the
appellant’s license based on its “zero tolerance policy.” The zero tolerance policy is an internal
policy of the Department implemented to “represent[ ] a tougher stance on serious violations that
place children at risk of harm.”

        The appellant immediately filed a complaint and motion for a restraining order in Davidson
County Chancery Court. The appellant asked the trial court to enjoin and restrain the appellee from
taking any action to enforce its Order of Summary Suspension. On February 10, 2000, the trial court
denied the motion for a restraining order and converted the motion to an application for stay of an
agency action under Tenn. Code Ann. § 4-5-322(a)(1) and (c).

         The Department held an informal hearing February 11, 2000 and upheld the summary
suspension. On February 16, 2000, the trial court held a hearing on the application for a stay and
later filed a Memorandum and Order ruling that the Department had denied the appellant a fair
hearing on the reason for continuing the summary suspension. The court also held that, as applied,
the zero tolerance policy violated state law. The court required the appellee to hold a second hearing
regarding the suspended license taking notice of the trial court’s decision. The trial court did not lift
the suspension of appellant’s license.

        On February 23, 2000, appellee held a second informal hearing and upheld the suspension
of appellant’s license. Working with the Department, the appellant was able to get its license
reinstated on February 29, 2000. The appellant filed a Second Amended Complaint which included
a request for attorney’s fees pursuant to Tenn. Code Ann. § 4-5-325. On March 14, 2000, appellee
filed a motion for summary judgment to dismiss the appellee’s complaint in the trial court. On June
21, 2000, the trial court granted appellee’s motion for summary judgment on all causes of action.

                                                   II.

        Appellant argues that the trial court erred in granting summary judgment to appellee on
appellant’s claim for attorney’s fees pursuant to Tenn. Code Ann. § 4-5-325, and erred in failing to
grant appellant’s application for attorney’s fees.

       Upon review of a grant of summary judgment, this Court must determine whether the
requirements of Tenn. R. Civ. P. 56 have been satisfied. See Hunter v. Brown, 955 S.W.2d 49, 50-51
(Tenn. 1997). As this inquiry involves purely a question of law, our review is de novo without a
presumption of correctness. Robinson v. Omer, 952 S.W.2d 423, 426 (Tenn. 1997); McClung v.
Delta Square Ltd. Partnership, 937 S.W.2d 891, 894 (Tenn. 1996). Summary judgments are
appropriate only where there is no genuine issue of material fact relevant to the claim or defense
contained in the motion and the moving party is entitled to a judgment as a matter of law on the
undisputed facts. See Tenn. R. Civ. P. 56.03; Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997);
Carvell v. Bottoms, 900 S.W.2d 23, 26 (Tenn. 1995). Courts reviewing summary judgments must
view the evidence in the light most favorable to the nonmoving party and draw all reasonable
inferences in the nonmoving party’s favor. Omer, 952 S.W.2d at 426; Byrd v. Hall, 847 S.W.2d 208,
210 (Tenn. 1993).



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      Appellant argues that the trial court should have awarded attorney’s fees based on Tenn.
Code Ann. § 4-5-325. This statute reads as follows:

        (a) When a state agency issues a citation to a person, local governmental entity, board
        or commission for the violation of a rule, regulation or statute and such citation
        results in a contested case hearing, at the conclusion of such hearing, the hearing
        officer or administrative law judge may order such agency to pay to the party issued
        a citation the amount of reasonable expenses incurred because of such citation,
        including a reasonable attorney’s fee, if such officer or judge finds that the citation
        was issued:

                (1) Even though to the best of such agency’s knowledge, information and
        belief formed after reasonable inquiry the violation was not well grounded in fact and
        was not warranted by existing law, rule or regulation;1 or

               (2) for an improper purpose such as to harass, to cause unnecessary delay or
        cause needless expense to the party cited.

        (b) If a final decision in a contested case hearing results in the party issued a citation
        seeking judicial review pursuant to § 4-5-322, the judge, at the conclusion of the
        hearing, may make the same findings and enter the same order as permitted the
        hearing officer or administrative law judge pursuant to subsection (a).

Tenn. Code Ann. § 4-5-325.

        When addressing the subject of attorney’s fees in its Memorandum and Order, the trial court
stated the following:

                Taking Tennessee Code Annotated section 4-5-325, first, the Court notes that
        the text of the statute sets up certain conditions be met before attorney’s fees are
        recoverable. Those conditions are as follows:

                 1.       A state agency issues a citation to a business;
                 2.       The citation results in a contested case hearing;
                 3.       The contested case hearing is concluded;
                 4.       At the conclusion of the contested case hearing the officer or judge
                          finds that the issuance of the citation was not well grounded in fact
                          and was not warranted by existing law, rule or regulation or was



        1
           W e assume the legislature intended to use the word “citation” in this subsection instead of the word
“violation.” While the grammatical construction of the statute still leaves much to be desired, only by making the
substitution does the subsection make sense.

                                                       -3-
                          issued for an improper purposes [sic] such as to harass, to cause
                          unnecessary delay or to cause needless expense to the parties cited.
        ....

                 From the foregoing examination of the text of the statutes, the Court
         concludes that the balance the legislature has struck between providing agencies the
         necessary leeway to perform their regulatory duty to protect the community but
         checking any abuse by the agency of its power is to only allow recovery of attorney’s
         fees where (1) there is abuse in the nature of intentional conduct, such as harassment
         or bad faith by an agency, but only where the bad faith of the agency has resulted in
         the business having been put through the rigors and expense of an entire contested
         case proceeding (section 4-5-325(a) and (b)) . . . .2

                As to recovery under Tennessee Code Annotated section 4-5-325, the plaintiff
         was not put through the rigors and expense by the agency of a contested case
         proceeding. The plaintiff has, therefore, failed to state a claim to recover attorney’s
         fees under section 4-5-325.

        We think the trial court read Tenn. Code Ann. § 4-5-325(a) too narrowly in finding that
“abuse in the nature of intentional conduct, such as harassment or bad faith by an agency” is required
for a party to recover attorney’s fees. The statute states alternative grounds for awarding attorneys’
fees where the citation issued (1) for a reason not well grounded in fact and not warranted in existing
law, rule or regulation; or (2) for an improper purpose such as to harass, to cause unnecessary delay
or cause needless expense. Therefore a proceeding brought with the utmost good faith may result
in an award of attorneys’ fees to the cited party if the citation was not well grounded in fact and not
warranted by existing law.

         The Department also argues that the fee statute was not involved because the citation did not
result in a contested case hearing. This argument is based on Tenn. Code Ann. § 4-5-320(d)(1)(B)
which allows an agency to suspend a license summarily and then hold an informal hearing within
seven days of the suspension. Subsection (d)(2) provides that the informal hearing “shall not be
required to be held under the contested case provisions of the this chapter.” The hearing is to
provide an informal, reasonable opportunity for the licensee to present its version of the situation.

        A contested case is defined as a proceeding in which the legal rights, duties or privileges of
a party are required by any statute or constitutional provision to be determined by an agency after
an opportunity for a hearing. Tenn. Code Ann. § 4-5-102(3). It could be argued that the appellant’s
rights will not be determined after the informal hearing, therefore the proceedings do not amount to
a contested case. We are of the opinion that Tenn. Code Ann. § 4-5-320(d) only dispenses with the
procedural niceties that ordinarily attend contested cases. It does not change the definition of a


        2
           The trial court’s second conclusion which is not quoted here was in regard to Tenn. Code Ann. § 29-37-104.
Ten n. Co de A nn. § 29-37-104 is not at issu e in this appe al.

                                                        -4-
contested case contained in Tenn. Code Ann. § 4-5-102(3). In our view this proceeding fits that
definition.

         The trial court did not hold that the Department’s informal hearing was not a contested case;
rather, the court held that to qualify for attorneys’ fees under Tenn. Code Ann. § 47-5-325(a) a party
had to endure “the rigors and expense of an entire contested case proceeding.” We also think that
interpretation of the statute is too narrow. Here the agency summarily suspended a license under a
policy that the court held violated state law and then held a hearing that failed to comply with the
statutory mandate. To prevent the irreparable harm that would result from an extended shutdown
of its business, the appellee had to seek judicial intervention. The court ordered the agency to
conduct another hearing. Although the issues were resolved without a formal and protracted
contested case proceeding, that fact does not remove the proceeding from the statutory definition.

        The Department also argues that Tenn. Code Ann. § 4-5-325 requires that a citation be issued
and in this case the Department did not issue a citation. We think that argument exalts form over
substance. The Department skipped the citation and issued a summary suspension under an internal
zero tolerance policy that the court found to be invalid. Then the Department ignored the statutory
requirement of a meaningful hearing and its own regulations requiring it to work with the appellee
to remedy any safety violations. If the Department could avoid paying the appellee’s attorneys’ fees
because the Department did not issue a formal citation, it would have an incentive to adopt the same
procedure in the future.

         The appellee’s action in summarily suspending appellant’s license was not well-grounded
in fact, because there was not an adequate investigation in implementing the zero tolerance policy.
The appellee also acted outside of existing law in applying its zero tolerance policy. The trial court
ruled that appellee had violated Tennessee law as well as its own regulations. Therefore, under
Tenn. Code Ann. § 4-5-325(a), appellant is entitled to attorney’s fees.

      We reverse the decision of the trial court, and remand for proceedings to determine the
amount of attorney’s fees to be paid. We tax the costs of this appeal to the appellee, the State of
Tennessee.




                                               _________________________________________
                                               BEN H. CANTRELL, PRESIDING JUDGE, M.S.




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