ADES May Defend Unemployment Decisions: Attorney-Fee Exclusions Turn on the Underlying Administrative Proceeding

A. Statutory Participation Replaces the Need for an Independent Injury Showing

Arizona’s Constitution does not impose the federal Constitution’s case-or-controversy requirement. Arizona nevertheless ordinarily requires standing as a matter of judicial policy, principally to prevent advisory decisions and ensure genuine adversarial presentation. A litigant may satisfy that requirement through either a legislative grant of standing or a distinct and palpable injury.

The court of appeals focused on whether the Department possessed its own justiciable stake in defending an administrative ruling. The Supreme Court held that this approach began at the wrong point. Where legislation authorizes participation, the initial inquiry is whether that legislation applies—not whether the participant could independently satisfy injury-based standing requirements.

Two features of § 41-1993(B), read together, established the Department’s standing:

1. The statute gives “[t]he department and all parties before the appeals board” notice and an opportunity to appear.
2. It makes the cost of providing the record taxable if the Department “prevails.”

The first provision places the Department alongside the administrative parties on the same terms. The second contemplates that the Department will seek and obtain a judicial result. When it defends the board’s decision, that result is affirmance. Treating the Department’s appearance as merely nominal would deprive the prevailing-party provision of meaningful operation.

This reasoning is specific to the statutory scheme. The Court did not announce that every statutory entitlement to notice automatically confers unrestricted standing. Its conclusion rests on the combined appearance language, prevailing-party language, and related unemployment-insurance provisions.

B. Legislative History Confirms an Intentional Appellate Role

The court of appeals treated the prevailing-party language as a leftover from an earlier version of the statute requiring an appeal “against the department.” The Supreme Court rejected that explanation because it did not account for the legislature’s coordinated changes:

• 1979: The legislature added the prevailing-party provision while the statute contemplated an appeal against the Department.
• 1980: It removed a deputy’s authority to petition the board for review, distinguishing the Department’s representative from an interested party.
• 1981: It deleted the requirement that an appeal be taken against the Department, retained the prevailing-party provision, and expressly added the Department to those entitled to notice and an opportunity to appear.

The 1981 amendment therefore did not eliminate the Department’s appellate role. It reformulated that role expressly. The addition mattered because the Department does not ordinarily appear before the board as an interested party and consequently would not fall within the statute’s reference to parties before the board.

The resulting allocation is deliberate: the Department’s administrative functions differ from its judicial-review participation. Its remedy for an erroneous deputy determination includes reconsideration under § 23-773(E), rather than an unrestricted right to pursue the same administrative appeals available to interested parties. Its appellate standing instead derives from § 41-1993(B).

C. Standing Does Not Eliminate Restrictions on Arguments

The Court carefully separated the Department’s entitlement to participate from the permissible content of its advocacy. Section 41-1993(B) supplies important boundaries:

• Preserved issues: An issue generally cannot be raised on appeal unless it was raised in the petition for board review.
• The administrative record: Appeals are limited to the record before the Department unless the reviewing court orders otherwise.
• Agency factual findings: The Department cannot obtain affirmance by asking the court to rely on facts beyond the board’s findings.
• Alternative legal reasoning: The Court nevertheless left room for affirmance on a legal rationale supported by the record.

The distinction between factual supplementation and alternative legal reasoning is significant. Counsel may explain why the established record supports a lawful result; counsel may not supply missing factual findings through appellate briefing.

The proper response to an impermissible argument is to disregard that argument, not exclude the Department altogether. On remand, the court of appeals may examine whether particular arguments exceed these limits.

The Court also distinguished standing from impartiality. Arizona law requires impartial appeal tribunals and restricts participation by interested persons acting on the Department’s behalf. But the legislature did not impose an equivalent prohibition against Department advocacy in judicial review. The Court declined to add one. It did not, however, resolve every possible due-process challenge to agency participation, and it preserved questions concerning the constitutionality of the issue-preservation rule in other applications.

D. The Fee Exclusion Looks Back to the Administrative Proceeding

Section 12-348(A)(2) ordinarily requires an award of fees and expenses to a qualifying non-state party who prevails in judicial review of a state agency decision. That entitlement is subject to statutory exclusions.

Section 12-348(H)(1) excludes an action arising from a proceeding in which the state’s role was:

1. to determine an individual’s eligibility or entitlement to a monetary benefit or its equivalent;
2. to adjudicate a dispute or issue between private parties; or
3. to establish or fix a rate.

The Court’s interpretation turns on grammar and statutory structure. The phrase describing what the state’s role “was” modifies the underlying “proceeding before this state,” not the subsequent court action. A reviewing court must therefore identify the administrative proceeding from which the action arose and determine the state’s role there.

Williams’s case falls directly within the monetary-benefits category. The Department’s administrative task was to determine her eligibility for unemployment-insurance payments. Its later decision to defend that determination does not change the proceeding’s character. Consequently, the exclusion applies whether Williams ultimately wins or loses the benefits appeal.

The Court contrasted § 12-348(H)(1) with § 12-348(H)(4), which excludes proceedings in which the state is a nominal party. Nominal-party status does depend on litigation conduct: an agency that becomes an active advocate may no longer be nominal. Importing that conduct-based test into paragraph (H)(1), however, would disregard the different language governing that paragraph.

E. Unemployment Eligibility Is Not a Private Employer–Employee Adjudication

The Court also rejected the characterization of Williams’s claim as merely an individual dispute between her and Lamont. Unemployment insurance serves a statutory public purpose, and benefits come from a state-administered fund rather than directly from the former employer.

Although an employer has an economic interest because benefits charged to its account may affect future contribution rates, that interest concerns its relationship with the state. Fund assets are commingled and undivided, and an employer has no prior claim to its own contributions.

Moreover, tribunal hearings are designed as non-adversarial information-gathering proceedings. Their purpose is to determine a claimant’s statutory entitlement fairly, not simply to adjudicate competing private claims.

This classification supports both major holdings. The Department is not merely a judge defending its resolution of a private lawsuit, and the applicable fee exclusion is the monetary-benefits clause rather than the private-dispute clause.

F. The Court Narrows Cortaro Without Disturbing Its Judgment

The principal precedential clarification concerns Cortaro Water Users' Ass'n v. Steiner, 148 Ariz. 314 (1986). That decision considered several fee exclusions and included language suggesting that an agency’s active participation in judicial review could eliminate protection otherwise available because of its administrative role.

The Court separated three propositions:

• Monetary benefits: Cortaro Water Users' Ass'n v. Steiner did not concern payment of money or its equivalent, so that exclusion did not apply.
• Nominal-party status: Its active-advocacy reasoning remains appropriate because an agency’s litigation conduct determines whether it is merely nominal.
• Private disputes: Its suggestion that later advocacy defeats this exclusion cannot be reconciled with the present paragraph (H)(1), which focuses on the underlying administrative proceeding.

The Court accordingly disavowed a construction making any of paragraph (H)(1)’s exclusions contingent on litigation conduct. Because the paragraph’s three categories share the same grammatical structure, they must receive a consistent treatment.

The earlier judgment remains intact. The groundwater proceeding in Cortaro Water Users' Ass'n v. Steiner involved competing claims to a public resource, including an application by the City of Tucson. The agency acted as a stakeholder or guardian of the state’s groundwater supply, not simply as an adjudicator between private parties. The private-dispute exclusion therefore did not apply in the first place.

A. Statutory Interpretation and Legislative Change

• State v. Serrato, 259 Ariz. 493 (2025), supplies de novo review for statutory interpretation and the rule against rendering statutory language superfluous. It directly undermines the treatment of the Department’s prevailing-party provision as an obsolete drafting artifact.
• Franklin v. CSAA Gen. Ins. Co., 255 Ariz. 409 (2023), establishes the text-first starting point. The Court accordingly grounds both holdings in the statutes’ actual language rather than general assumptions about agency neutrality.
• Nicaise v. Sundaram, 245 Ariz. 566 (2019), requires statutory language to be read in its full context and alongside related enactments. This supports reading the appearance and costs provisions together and examining the broader unemployment-insurance scheme.
• In re Riggins, 257 Ariz. 28 (2024), appears through the quotation in State v. Serrato supporting a cohesive reading that gives effect to every provision.
• Premier Physicians Grp., PLLC v. Navarro, 240 Ariz. 193 (2016), supplies the qualification that statutory language ordinarily governs unless it produces an absurd or unconstitutional result. The Court identifies no such basis for departing from the relevant text.
• Garibay v. Johnson, 259 Ariz. 248 (2025), permits contemporary dictionary usage to illuminate statutory meaning. The Court uses this approach to explain why a provision allowing the Department to “prevail” contemplates substantive participation.
• ACLU of Ariz. v. Ariz. Dep't of Child Safety, 251 Ariz. 458 (2021), reinforces that prevailing means obtaining the relief sought. For a Department defending a board decision, that relief is affirmance.
• State v. Sweet, 143 Ariz. 266 (1985), quoting Automatic Registering Mach. Co. v. Pima County, 36 Ariz. 367 (1930), permits consideration of related earlier and later enactments. This supports the coordinated reading of the 1979, 1980, and 1981 amendments.
• State v. Garza Rodriguez, 164 Ariz. 107 (1990), supplies the presumption that statutory amendments change existing law. Adding the Department to the appearance provision must therefore have operative significance.
• Sharpe v. Ariz. Health Care Cost Containment Sys., 220 Ariz. 488 (App. 2009), supports treating a requirement’s inclusion in one provision and omission from another as intentional. The Court applies that principle to distinguish conduct-sensitive nominal-party status from paragraph (H)(1)’s administrative-role exclusions.

B. Standing and the Right to Advance Particular Arguments

Bennett v. Brownlow, 211 Ariz. 193 (2005), and Armory Park Neighborhood Ass'n v. Episcopal Cmty. Servs. in Ariz., 148 Ariz. 1 (1985), establish the prudential purposes of Arizona standing doctrine. The present decision does not abandon those purposes. Rather, it holds that the legislature’s designation of the Department as an authorized participant, whose success the statute contemplates, supplies the requisite interest. The Court also preserves the general rule against advisory opinions and moot adjudications.

Welch v. Cochise Cnty. Bd. of Supervisors, 251 Ariz. 519 (2021), establishes that the legislature may confer standing. It is the key doctrinal bridge between the language of § 41-1993(B) and the Department’s entitlement to participate. By contrast, Sears v. Hull, 192 Ariz. 65 (1998), describes the distinct-and-palpable-injury route, which the Court finds unnecessary to examine once statutory standing is established.

Evertsen v. Industrial Commission, 117 Ariz. 378 (App. 1977), approved and adopted, 117 Ariz. 342 (1977), provides the closest statutory analogy. There, deleting an express reference to the Industrial Commission removed its statutory authority to appear, leaving participation dependent on a legitimate interest to defend. The Supreme Court reasons that describing the amendment as a deletion of authority necessarily recognizes that the earlier language conferred authority. Here, adding the Department to the statute produces the converse effect.

Kerr v. Killian, 197 Ariz. 213 (App. 2000), distinguishes a party’s entitlement to participate from its entitlement to assert someone else’s rights. An agency aggrieved by a fee award could appeal but could not invoke nonparty taxpayers’ due-process rights. The precedent therefore supports filtering particular arguments, not excluding an otherwise authorized litigant.

Miller v. Ariz. Corp. Comm'n, 227 Ariz. 21 (App. 2011), makes a similar distinction. Utility customers could challenge the Commission’s jurisdiction but could not invoke a doctrine protecting utilities against managerial interference when no utility asserted that protection. Neither this case nor Kerr v. Killian addressed an express legislative grant of participatory rights comparable to § 41-1993(B).

Hurles v. Superior Court, 174 Ariz. 331 (App. 1993), barred a nominally named respondent judge from participating solely to defend the correctness of her ruling. The Supreme Court distinguishes that procedural-rule setting from a statutory grant authorizing Department participation in a public-benefits appeal. The Department’s institutional role is also materially different from that of a judge resolving private litigation.

The court of appeals’ decision, Williams v. Ariz. Dep't of Econ. Sec., 261 Ariz. 303 (App. 2025), is the immediate ruling under review. Its reliance on these authorities incorrectly converted possible restrictions on particular arguments into a categorical exclusion of the Department’s brief.

C. Preservation, Agency Findings, and the Nature of Benefits Proceedings

Barriga v. Ariz. Dep't of Econ. Sec., 256 Ariz. 543 (2024), interprets § 41-1993(B) as preventing any party from raising an appellate issue omitted from the petition for board review. The Court follows that interpretation while expressly leaving unresolved constitutional questions concerning other applications of the restriction.

Motor Vehicle Mfrs. Ass'n of the U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983), supplies an analogous warning against appellate counsel’s post hoc rationalizations for agency action. The citation reinforces the requirement that review remain grounded in the agency’s factual findings. The present opinion nevertheless permits an alternative legal rationale supported by the record.

Dynometrics Inc. v. Ariz. Dep't of Econ. Sec., 257 Ariz. 283 (App. 2024), describes unemployment tribunal hearings as non-adversarial proceedings designed to gather information for a fair determination. That characterization helps defeat the assumption that the Department merely adjudicates a private employer–employee dispute.

D. Attorney Fees and the Distinct Statutory Exclusions

Mission Hardwood Co. v. Registrar of Contractors, 149 Ariz. 12 (App. 1986), construed the predecessor language by examining the agency’s role in the underlying administrative proceeding. It supports the Court’s grammatical conclusion that paragraph (H)(1) looks backward to that proceeding rather than forward to litigation conduct.

Rosas v. Ariz. Dep't of Econ. Sec., 249 Ariz. 26 (2020), is dispositive on unemployment-benefit fees. Claimants successfully challenged a denial of benefits and received fees from the court of appeals, but the Supreme Court reversed the fee award under § 12-348(H)(1). The Department had participated in that litigation; its advocacy did not defeat the monetary-benefits exclusion.

Johnson v. Ariz. Dep't of Econ. Sec., 247 Ariz. 351 (App. 2019), demonstrates that the exclusion requires attention to what the applicant actually sought. Developmental-disability services were broader than monetary benefits or their equivalent, so the clause did not apply. This prevents the present holding from becoming a blanket fee immunity for all agency-benefit litigation.

Simmons v. Ariz. Dep't of Econ. Sec., 254 Ariz. 109 (App. 2022), supplies the corresponding unemployment example: establishing eligibility for a monetary benefit did not support a fee award under the statute.

Cortaro Water Users' Ass'n v. Steiner, 148 Ariz. 314 (1986), is the principal precedent clarified. Its nominal-party reasoning survives, while a reading that transfers its litigation-conduct test to paragraph (H)(1) is disavowed. The Court preserves its judgment because the groundwater proceeding was not an adjudication between private parties.

Estate of Walton, 164 Ariz. 498 (1990), confirms the proper domain of the active-advocacy principle. The Department of Revenue, having contested an heirship claim through trial and appeal, could not claim nominal-party status. That reasoning remains sound under paragraph (H)(4), without controlling paragraph (H)(1).