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STATE OF MICHIGAN 

COURT OF APPEALS 

GRASS LAKE IMPROVEMENT BOARD, 

 Petitioner-Appellee/CrossAppellant, 

FOR PUBLICATION 

July 19, 2016 

9:15 a.m. 

v No. 326571 

Ingham Circuit Court 

DEPARTMENT OF ENVIRONMENTAL 

QUALITY, 

LC No. 2014-001064-AA 

 Respondent-Appellant/CrossAppellee. 

Before: Wilder, P.J., and Murphy and O’Connell, JJ. 

WILDER, P.J. 

 In these cross-appeals arising out of a contested administrative proceeding, the parties 

appeal from the circuit court’s order reversing the decision of an administrative law judge (ALJ) 

and awarding attorney fees to petitioner, Grass Lake Improvement Board (the Board). We 

reverse the circuit court and reinstate the decision of the ALJ. 

I. FACTUAL BACKGROUND 

 The attorney fees at issue were incurred in a previous contested case under the 

administrative procedures act of 1969 (APA), MCL 24.201 et seq., which was initiated by the 

Board against respondent, Department of Environmental Quality (DEQ) [Administrative Hearing 

File, Volumes I and II (AHF)]. The dispute between the parties arose after the Board filed an 

application seeking a permit to use an “augmentation well” to pump water into Grass Lake and 

thereby increase its water level. In June 2009, DEQ denied the Board’s application. [AHF, pp 

1040, 1046.] In response, the Board filed a petition seeking review of DEQ’s decision in a 

contested case [AHF, pp 1064-1065]. 

 The pivotal issue in the contested case was whether the Board’s proposed augmentation 

well would “enlarge” Grass Lake as that term is used in Part 301 of the Natural Resources and 

Environmental Protection Act (NREPA), MCL 324.30101 et seq., specifically in MCL 

324.30102(1) (“Except as provided in this part, a person without a permit from the department 

shall not do any of the following. . . . Create, enlarge, or diminish an inland lake or stream.”) 

(emphasis added). Part 301 of the NREPA does not define the term “enlarge,” but, at the time 
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DEQ denied the Board’s application, the Michigan Administrative Code provided1

 a definition at 

Mich Admin Code, R 281.811(1)(e): 

“enlarge or diminish an inland lake or stream” means the dredging or filling of 

bottomlands, or the dredging of adjacent shorelands, to increase or decrease a 

body of water’s surface area or storage capacity or the placement of fill or 

structures, or the manipulation, operation, or removal of fill or structures, to 

increase or decrease water levels in a lake, stream, or impoundment. 

The Board argued that, under the above definition of “enlarge,” its proposed activity of raising 

the water level by constructing an augmentation well did not constitute an enlargement of Grass 

Lake. Thus, the Board argued, DEQ’s denial of the Board’s application was improper under the 

department’s own administrative rules. [AHF, pp 698-700.] 

 DEQ responded that, as interpreted by both DEQ and an advisory opinion of our 

Attorney General’s office, “the plain language of the statute [MCL 324.30102(1)] . . . clearly 

includes adding water to a lake to increase its volume and surface area[.]” [AHF, pp 601-602, 

634-635.] DEQ acknowledged that the above interpretation of MCL 324.30102(1) was contrary 

to Mich Admin Code, R 281.811(1)(e). Nevertheless, citing the well-settled principle that “when 

a statute and an administrative rule conflict, the statute controls,” DEQ argued that, to the extent 

its administrative rule conflicted with the plain meaning of MCL 324.30102(1), DEQ was 

required to follow the statute and ignore the rule [AHF, p 611]. 

 In reply, the Board argued that, under established Michigan law, administrative agencies, 

such as DEQ, have a duty to follow their own duly promulgated administrative rules. Citing in 

support Micu v City of Warren, 147 Mich App 573; 382 NW2d 823 (1985), the Board further 

argued that DEQ’s duty to follow Rule 281.811(1)(e) extended even to a situation, such as this, 

where DEQ believed the rule was contrary to the plain meaning of a statute. [AHF, pp 591-593.] 

 After considering the matter, the ALJ decided in the Board’s favor, reasoning as follows: 

 [DEQ] contends that it “has worked for years to change the existing 

administrative rule [Rule 281.811(1)(e)], but such changes can take a very long 

time due to debate amongst the relevant stakeholders as to what should be 

changed, and how it should be changed, etc.” By making this statement, [DEQ] is 

acknowledging the very reason why it must follow its administrative rules. When 

[DEQ] is able to ignore its own administrative rule, it is able to create and enforce 

policy without considering the input and interests of relevant stakeholders. 

Reconciling stakeholder interests is an important part of the rulemaking process. 

Allowing [DEQ] to circumvent its rules through an alternate interpretation 

bypasses the steps which were created in the APA to account for and protect 

relevant stakeholders and public interests. The statutory language taken on its 

 

1

 Mich Admin Code, R 281.811 has since been amended to remove the definition at issue here. 

2015 Mich Reg 5, p 75 (April 1, 2015). 
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own seems broad enough to include the [Board]’s proposed activity (i.e. lake 

enlargement). However, the rule defining the term “enlargement” clearly limits 

the [DEQ]’s jurisdiction to activities taking place on bottomlands. Based upon 

the application of the Rule . . . and other documentary evidence submitted, the 

proposed lake augmentation project does not implicate Part 301 jurisdiction. 

 I conclude as a matter of law that the proposed lake augmentation project, 

that is the act of adding water to the lake without activity on bottomlands, does 

not implicate the Department’s jurisdiction under Part 301. There is no 

enlargement of Grass Lake. [AHF, p 579 (citation omitted).] 

Following a motion for reconsideration, the ALJ’s opinion and order was adopted by DEQ 

Director Dan Wyant [AHF, p 437]. Thereafter, the remaining issues were summarily dismissed 

by stipulation of the parties, the contested case was concluded, and DEQ issued the requested 

permit to the Board [AHF, pp 9-10, 333-334]. 

 Afterwards, the Board initiated a second contested case, in which it sought its attorney 

fees related to the first contested case. Relevant to this appeal, the Board argued that, under 

MCL 24.323(1), it was entitled to such fees because DEQ’s legal position in the prior contested 

case was “devoid of arguable legal merit.” [AHF, pp 108-112.] The ALJ denied the Board’s 

request for attorney fees, deciding that DEQ’s legal position had at least some arguable legal 

merit: 

 Entitlement to relief under § 123(1)(c) may [] be summarily eliminated 

based on the [Board]’s argument, that “[t]his case is one that has numerous 

complex legal and technical issues.” In reviewing the proceedings and pleadings 

in this case, the [Board]’s characterization of the “numerous complex legal . . . 

issues,” is accurate. Given this, [QED]’s positions cannot be deemed to be devoid 

of arguable legal merit under MCL 24.323(1)(c). [AHF, pp 10-11 (footnote 

omitted)]. 

The Board appealed in the circuit court, which reversed the ALJ’s fee decision: 

The ALJ below found that [QED]’s position was not devoid of arguable legal 

merit. . . . The [Board] argues, and this [c]ourt agrees, that this determination 

fails as a reasoned determination by an administrative agency. The ALJ failed to 

make any conclusions of fact or law. The ALJ failed to point out any particulars 

within the record to support such a conclusion. He cited no legal authority and 

provided no reasoning whatsoever in support of his conclusion. This is the very 

definition of arbitrary and capricious: unreasoned, without reference to guiding 

principles or considerations, and a decisive exercise of will or caprice. 

 Furthermore, [the Board] argues that [QED]’s position was frivolous by 

being devoid of legal merit. This [c]ourt agrees. The [QED]’s position was that 

there existed a conflict of law between a statute, Part 301[ of the NREPA], and an 

administrative rule, [] Rule 281.811. The [QED] argued that where such conflicts 

exist, the statute prevails over the rule[.] 
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* * * 

 However, [] Director [Wyant] found in his final order that . . . the 

language of the statute and the language of the Rule were not conflicting per se. 

The statute at issue does not define what it means to “enlarge” a lake or stream, 

where that is precisely what the Rule does. The Rule’s narrow interpretation of 

the statue is not a direct conflict. 

 Furthermore, Michigan case law makes it clear that administrative 

agencies must follow their own rules once properly promulgated. MICU[, 147 

Mich App at 584]. . . . Here, not only did [DEQ] knowingly violate its own rule, it 

apparently did so for years without attempting to re-promulgate [sic] a new rule. 

Given the overwhelming case law that condemns this exact behavior, it is clear 

the reliance on a policy that prescribes that behavior is devoid of legal merit, and 

therefore, the [DEQ]’s position in this case was frivolous. This [c]ourt grants [the 

Board]’s motion for fees and costs incurred defending its case in the Michigan 

Administrative Hearing System. [Circuit Court Order, pp 3-4.] 

The instant cross-appeals followed. 

II. STANDARDS OF REVIEW 

 We review the circuit court’s decision to determine whether it “applied correct legal 

principles and whether it misapprehended or grossly misapplied the substantial evidence test to 

the agency’s factual findings.” City of Sterling Heights v Chrysler Group, LLC, 309 Mich App 

676, 681; 873 NW2d 342 (2015) (quotation marks and citation omitted). We review the circuit 

court’s interpretation and application of statutes de novo. Glenn v TPI Petroleum, Inc, 305 Mich 

App 698, 702; 854 NW2d 509 (2014). On the other hand, an administrative agency’s statutory 

interpretation is reviewed under the standard first enunciated in Boyer-Campbell Co v Fry, 271 

Mich 282; 260 NW 165 (1935): 

[T]he construction given to a statute by those charged with the duty of executing 

it is always entitled to the most respectful consideration and ought not to be 

overruled without cogent reasons. However, these are not binding on the courts, 

and [w]hile not controlling, the practical construction given to doubtful or obscure 

laws in their administration by public officers and departments with a duty to 

perform under them is taken note of by the courts as an aiding element to be given 

weight in construing such laws and is sometimes deferred to when not in conflict 

with the indicated spirit and purpose of the legislature. [In re Complaint of Rovas, 

482 Mich 90, 101, 108; 754 NW2d 259 (2008) (second alteration in original), 

quoting Boyer-Campbell, 271 Mich at 296-297 (quotation marks and citations 

omitted).] 

“Respectful consideration” of an agency’s statutory interpretation is not akin to “deference,” at 

least as that “term is commonly used in appellate decisions” today. Rovas, 482 Mich at 108. 

While an agency’s interpretation can be a helpful aid in construing a statutory provision with a 

“doubtful or obscure” meaning, our courts are responsible for finally deciding whether an 
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agency’s interpretation is erroneous under traditional rules of statutory construction. Id. at 103, 

108-109. 

III. ANALYSIS 

 On appeal, DEQ argues that the circuit court applied incorrect legal principles when it 

reversed the ALJ’s decision. We agree. 

In pertinent part, MCL 24.323 provides: 

(1) The presiding officer that conducts a contested case shall award to a prevailing 

party, other than an agency, the costs and fees incurred by the party in connection 

with that contested case, if the presiding officer finds that the position of the 

agency to the proceeding was frivolous. To find that an agency’s position was 

frivolous, the presiding officer shall determine that at least 1 of the following 

conditions has been met: 

(a) The agency’s primary purpose in initiating the action was to 

harass, embarrass, or injure the prevailing party. 

(b) The agency had no reasonable basis to believe that the facts 

underlying its legal position were in fact true. 

(c) The agency’s legal position was devoid of arguable legal merit. 

(2) If the parties to a contested case do not agree on the awarding of costs and fees 

under this section, a hearing shall be held if requested by a party, regarding the 

awarding of costs and fees and the amount thereof. . . . [Emphases added.] 

Under MCL 24.325(1), “a party that is dissatisfied with the final action taken by the presiding 

officer under section 123 [MCL 24.323] in regard to costs and fees may seek judicial review of 

that action pursuant to chapter 6.” The reviewing court “may modify” the presiding officer’s 

“action only if the court finds that the failure to make an award or the making of an award was an 

abuse of discretion, or that the calculation of the amount of the award was not based on 

substantial evidence.” MCL 24.325(2); Widdoes v Detroit Pub Sch, 218 Mich App 282, 289; 

553 NW2d 688 (1996). If the reviewing court “awards costs and fees to a prevailing party upon 

judicial review of the final action of a presiding officer in a contested case,” then the reviewing 

court “shall award those costs and fees provided for in [MCL 24.323], if the court finds that the 

position of the state involved in the contested case was frivolous.” MCL 600.2421d; Widdoes, 

218 Mich App at 289. 

 The circuit court decided that, under MCL 24.323(1)(c), DEQ’s legal position in the 

original contested case was frivolous. In reaching that conclusion, the circuit court applied an 

incorrect legal standard. The circuit court reasoned that, because DEQ’s legal position was 

“devoid of legal merit,” it necessarily followed that DEQ’s legal “position in this case was 

frivolous.” [Circuit Court Order, pp 3-4.] But whether an argument has “legal merit” is not the 

proper legal question to be considered by the circuit court. Rather, the standard, as announced 
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by MCL 24.323(1)(c), is whether DEQ’s legal position “was devoid of arguable legal merit.” 

(Emphasis added.) 

 There is little authority interpreting the language of MCL 24.323(1)(c). Fortunately, 

however, there are many cases interpreting the nearly identical language found in MCL 

600.2591(3)(a).2 See, e.g., Adamo Demolition Co v Dep’t of Treasury, 303 Mich App 356, 368; 

844 NW2d 143 (2013). We find such authority highly persuasive here. “A claim is not frivolous 

merely because the party advancing the claim does not prevail on it.” Id. Instead, “a claim is 

devoid of arguable legal merit if it is not sufficiently grounded in law or fact, such as when it 

violates basic, longstanding, and unmistakably evident precedent.” Id. at 369 (quotation marks, 

citations, and footnotes omitted; emphasis added). 

 Here, although DEQ did not prevail in the prior contested case, its legal position was 

sufficiently grounded in law as to have some arguable legal merit. There is an undeniable 

tension between the legal rules cited by the parties in the prior contested case. On one hand, as 

DEQ argued below, it has long been recognized by Michigan Courts that, due to the very nature 

of an administrative agency’s rulemaking power, when a statute and an administrative rule 

conflict, the statute necessarily controls. See Rovas, 482 Mich at 98 (“While administrative 

agencies have what have been described as ‘quasi-legislative’ powers, such as rulemaking 

authority, these agencies cannot exercise legislative power by creating law or changing the laws 

enacted by the Legislature.”); Mich Sportservice v Nims, 319 Mich 561, 566; 30 NW2d 281 

(1948) (“The provisions of the rule must, of course, be construed in connection with the statute 

itself. In case of conflict, the latter governs. It is not within the power of the department of 

revenue to extend the scope of the act.”); Acorn Iron Works v Auditor Gen, 295 Mich 143, 151; 

294 NW 126 (1940) (“The state board of tax administration from time to time has changed its 

construction and method of enforcing the sales tax law as it affects building trade transactions; 

but in this connection it is sufficient to note that liability for payment of the sales tax is 

controlled by statute. It cannot be imposed by rulings or regulations of the board.”); Walgreen 

Co v Macomb Twp, 280 Mich App 58, 71; 760 NW2d 594 (2008) (“A rule is invalid when it 

conflicts with the provisions of the governing statute.”). 

 On the other hand, it is equally well-settled, as the Board argued below, that agencies are 

bound to follow their own duly promulgated rules. See Detroit Base Coalition for Human Rights 

 

2

 MCL 600.2591(3)(a) provides: 

(a) “Frivolous” means that at least 1 of the following conditions is met: 

(i) The party’s primary purpose in initiating the action or asserting the defense 

was to harass, embarrass, or injure the prevailing party. 

(ii) The party had no reasonable basis to believe that the facts underlying that 

party’s legal position were in fact true. 

(iii) The party’s legal position was devoid of arguable legal merit. 
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of Handicapped v Dep’t of Social Services, 431 Mich 172, 189; 428 NW2d 335 (1988) (“An 

agency is under a duty to follow its own rules.”); Micu, 147 Mich App at 584 (“[O]nce 

promulgated, the rules made by an agency to govern its activity cannot be violated or waived by 

the agency that issued the rules.”); Rand v Civil Serv Comm, 71 Mich App 581, 586; 248 NW2d 

624 (1976) (“An administrative agency, in addition to following constitutional and statutory 

mandates, must also comply with its own rules.”). 

 Given the tension between such precedents as they apply to the facts of the prior 

contested case, we conclude that the ALJ did not clearly abuse his discretion. DEQ’s legal 

position was sufficiently grounded in law as to have at least some arguable legal merit, and 

hence it was not “frivolous” under MCL 24.323(1)(c).3

 Accordingly, we reverse the circuit court and reinstate the decision of the ALJ. As the 

prevailing party, DEQ may tax costs pursuant to MCR 7.219. 

/s/ Kurtis T. Wilder 

/s/ William B. Murphy 

/s/ Peter D. O’Connell 

 

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 Having reached that conclusion, we need not address the additional issues raised in the parties’ 

cross-appeals regarding the propriety of the amount of costs and attorney fees awarded by the 

circuit court.