When a California licensing agency seeks to discipline a license by filing and serving an accusation, in the accusation there is usually a request for cost recovery. Cost recovery is mandatory reimbursement paid to the agency for all of its investigative costs and attorneys fees. In other words, if you receive an accusation against your license, your license agency usually can, and if it can it will, ask for you to pay it back all of the costs incurred in prosecuting you.
There is one primary statute and one case that govern license discipline cost recovery in California. Under Business and Professions Code section 125.3, an administrative law judge may award an agency the reasonable costs of its investigation and enforcement. This issue is unique in that a license board, bureau, department or agency can never increase the amount of cost recovery beyond what the administrative law judge has ordered. The agency only has the power to reduce or eliminate the amount. This is limitation on the agency’s power is rare, because in all other respects the agency, which has the final say, can always increase a penalty.
The one case on point is Zuckerman v. Board of Chiropractic Examiners [(2002) 29 Cal.4th 32.] In Zuckerman, the California Supreme Court found that a licensing agency "must exercise its discretion to reduce or eliminate cost awards in a manner that … does not deter [licensees] with potentially meritorious claims or defenses from exercising their right to a hearing." The Court went on to find that a licensing agency "must not assess the full costs of investigation and prosecution when to do so will unfairly penalize a [licensee] who has committed some misconduct, but who has used the hearing process to obtain dismissal of other charges or a reduction in the severity of the discipline imposed. The [agency] must consider the [licensee’s] ‘subjective good faith belief in the merits of his or her position’ and whether the [licensee] has raised a ‘colorable challenge" to the proposed discipline." Also, a licensing agency may not force a licensee to pay costs for an unreasonably large or unnecessarily extensive investigation.
A licensing agency may not get cost recovery for the hearing itself, only the investigation and enforcement costs up to the start of the hearing. Also, as a general rule, cost recovery is not available for license denial cases. Finally, the licensee’s ability to pay can be a significant factor in determining whether a judge orders cost recovery, in what amount, and whether she or he sets forth any payment arrangements.
Many licensees do not realize that cost recovery can range from a few thousand dollars in a simple case to $25,000 or more in a complex case. A licensing attorney well versed in this issue can save a licensee thousands of dollars on this issue alone. Also, in the case of settlement, the cost recovery amount can be sometimes negotiated. I have seen costs typically reduced 20 to 50 percent through negotiation; I have negotiated as much as a 90 percent reduction (although that is not a typical result at all).
In my opinion, Administrative Law Judges in California tend to disfavor monetary penalties against licensees. For all intents and purposes, a cost recovery order is a monetary penalty. Therefore, judges are very receptive to arguments for the reduction of the cost recovery amount.