H 3657 General Bill, By Wilkes and B.O. Baker

Similar(S 347)
 A Bill to amend 40-1-60, Code of Laws of South Carolina, 1976, relating to the
 licensing of professional associations, so as to provide that any provision
 applying to partnerships relating to accountants requiring certain
 qualifications or requirements of a partner shall also apply to a member or
 members of professional corporations and that persons licensed as accountants
 may operate in any form allowed by law; to amend Section 40-1-190, Code of
 Laws of South Carolina, 1976, relating to the examination and education
 requirements of certified public accountants, so as to include five years
 teaching accounting in a college or university recognized by the Board as one
 of the experience requirements; to amend Section 40-1-240, Code of Laws of
 South Carolina, 1976, relating to the waiver of examination for a person
 certified in another state as a certified public accountant, so as to provide
 for foreign reciprocity when such jurisdictions have substantially equivalent
 requirements as South Carolina; to amend Section 40-1-270, Code of Laws of
 South Carolina, 1976, relating to the filing of certificate of compliance with
 continuing education requirements, so as to provide that annually or on or
 before the last day of February a certificate of compliance with the
 continuing education requirements must be filed with the Board; to amend
 Section 40-1-290, Code of Laws of South Carolina, 1976, relating to the
 revocation or suspension of a license or permit, so as to provide specific
 violations for which the Board may revoke or suspend any certificate of a
 certified public accountant or a license of a public accountant;to amend
 Section 40-1-570, Code of Laws of South Carolina, 1976, relating to the
 licensing of professional associations, so as to provide specific violations
 for which the Board may revoke or suspend any license or permit of an
 accounting practitioner; to amend Article 1, Chapter 5, Title 15, Code of Laws
 of South Carolina, 1976, by adding Section 15-5-50, so as to provide that in
 order to bring a negligence action against any accountant, partnership of
 accountants, or any accounting corporation, in the course of accountancy
 services, the plaintiff must be in privity of contract with the accountant,
 partnership of accountants, or any accounting corporation; to amend Article 1,
 Chapter 5, Title 15, Code of Laws of South Carolina, 1976, by adding Section
 15-5-55, so as to provide for actions brought for money damages against
 accountants, partnership of accountants, or any accounting corporation, to
 provide for proportionate liability if a judgment is rendered against an
 accountant, partnership of accountants, or any accounting corporation; and to
 amend Article 1, Chapter 5, Title 15, Code of Laws of South Carolina, 1976, by
 adding Section 15-5-60, so as to provide that the non-prevailing party of an
 action brought under this Act shall be subject to attorney's fees and costs of
 the prevailing party if the court does not determine that the action was
 substantially justified.

   03/08/93  House  Introduced and read first time HJ-28
   03/08/93  House  Referred to Committee on Labor, Commerce and
                     Industry HJ-30

A BILL

TO AMEND 40-1-60, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE LICENSING OF PROFESSIONAL ASSOCIATIONS, SO AS TO PROVIDE THAT ANY PROVISION APPLYING TO PARTNERSHIPS RELATING TO ACCOUNTANTS REQUIRING CERTAIN QUALIFICATIONS OR REQUIREMENTS OF A PARTNER SHALL ALSO APPLY TO A MEMBER OR MEMBERS OF PROFESSIONAL CORPORATIONS AND THAT PERSONS LICENSED AS ACCOUNTANTS MAY OPERATE IN ANY FORM ALLOWED BY LAW; TO AMEND SECTION 40-1-190, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE EXAMINATION AND EDUCATION REQUIREMENTS OF CERTIFIED PUBLIC ACCOUNTANTS, SO AS TO INCLUDE FIVE YEARS EXPERIENCE TEACHING ACCOUNTING IN A COLLEGE OR UNIVERSITY RECOGNIZED BY THE BOARD AS ONE OF THE EXPERIENCE REQUIREMENTS; TO AMEND SECTION 40-1-240, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE WAIVER OF EXAMINATION FOR A PERSON CERTIFIED IN ANOTHER STATE AS A CERTIFIED PUBLIC ACCOUNTANT, SO AS TO PROVIDE FOR FOREIGN RECIPROCITY WHEN SUCH JURISDICTIONS HAVE SUBSTANTIALLY EQUIVALENT REQUIREMENTS AS SOUTH CAROLINA; TO AMEND SECTION 40-1-270, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE FILING OF CERTIFICATE OF COMPLIANCE WITH CONTINUING EDUCATION REQUIREMENTS, SO AS TO PROVIDE THAT ANNUALLY OR ON OR BEFORE THE LAST DAY OF FEBRUARY A CERTIFICATE OF COMPLIANCE WITH THE CONTINUING EDUCATION REQUIREMENTS MUST BE FILED WITH THE BOARD; TO AMEND SECTION 40-1-290, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE REVOCATION OR SUSPENSION OF A LICENSE OR PERMIT, SO AS TO PROVIDE SPECIFIC VIOLATIONS FOR WHICH THE BOARD MAY REVOKE OR SUSPEND ANY CERTIFICATE OF A CERTIFIED PUBLIC ACCOUNTANT OR A LICENSE OF A PUBLIC ACCOUNTANT; TO AMEND SECTION 40-1-570, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE LICENSING OF PROFESSIONAL ASSOCIATIONS, SO AS TO PROVIDE SPECIFIC VIOLATIONS FOR WHICH THE BOARD MAY REVOKE OR SUSPEND ANY LICENSE OR PERMIT OF AN ACCOUNTING PRACTITIONER; TO AMEND ARTICLE 1, CHAPTER 5, TITLE 15, CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 15-5-50, SO AS TO PROVIDE THAT IN ORDER TO BRING A NEGLIGENCE ACTION AGAINST ANY ACCOUNTANT, PARTNERSHIP OF ACCOUNTANTS, OR ANY ACCOUNTING CORPORATION, IN THE COURSE OF ACCOUNTANCY SERVICES, THE PLAINTIFF MUST BE IN PRIVITY OF CONTRACT WITH THE ACCOUNTANT, PARTNERSHIP OF ACCOUNTANTS, OR ANY ACCOUNTING CORPORATION; TO AMEND ARTICLE 1, CHAPTER 5, TITLE 15, CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 15-5-55, SO AS TO PROVIDE FOR ACTIONS BROUGHT FOR MONEY DAMAGES AGAINST ACCOUNTANTS, PARTNERSHIP OF ACCOUNTANTS, OR ANY ACCOUNTING CORPORATION, TO PROVIDE FOR PROPORTIONATE LIABILITY IF A JUDGMENT IS RENDERED AGAINST AN ACCOUNTANT, PARTNERSHIP OF ACCOUNTANTS, OR ANY ACCOUNTING CORPORATION; AND TO AMEND ARTICLE 1, CHAPTER 5, TITLE 15, CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 15-5-60, SO AS TO PROVIDE THAT THE NON-PREVAILING PARTY OF AN ACTION BROUGHT UNDER THIS ACT SHALL BE SUBJECT TO ATTORNEY'S FEES AND COSTS OF THE PREVAILING PARTY IF THE COURT DOES NOT DETERMINE THAT THE ACTION WAS SUBSTANTIALLY JUSTIFIED.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION 1. Section 40-1-60 of the 1976 Code is amended to read:

"Section 40-1-60. Professional associations may be licensed and operate as certified public accountants, public accountants, and accounting practitioners and shall be governed by the provisions of this chapter and any provision applying to partnerships in such chapter requiring certain qualifications or requirements of a partner or partners shall apply to a member or members of the professional association or professional corporation. And all persons licensed as certified public accountants, public accountants, and accounting practitioners may practice and operate in any form or manner provided by law."

SECTION 2. Section 40-1-190 of the 1976 Code is amended to read:

"Section 40-1-190. The examination described in Section 40-1-170 must be held by the Board board at least once each year.

The Board board shall advertise the dates of the examinations at least eight weeks prior to the date set in a newspaper so as to provide adequate statewide notice. Beginning in 1986 the dates set in a newspaper must be at least by September first for the November examination and by March first for the May examination.

The Board board may make use of all or any part of the uniform certified public accountants' examination or advisory grading service as it considers appropriate to assist it in performing its duties.

A candidate for the certificate of certified public accountant who has successfully completed the examination required under Section 40-1-170 shall have no status as a certified public accountant, unless and until he has the requisite experience and has received his certificate as a certified public accountant. The experience required is two years of accounting experience under the direct supervision and review of a certified public accountant or public accountant licensed to practice, whether in public, governmental, or private employment. either:

(a) two years of accounting experience in public, governmental, or private employment under the direct supervision and review of a certified public accountant licensed to practice accounting in some state or territory of the United States or the District of Columbia;

(b) five years experience teaching accounting in a college or university recognized by the board; or

(c) any combination of such experience determined by the board to be substantially equivalent to the foregoing. The experience must include experience, satisfactory to the Board board, in applying generally accepted auditing standards to financial statements prepared in accordance with generally accepted accounting principles.

The Board board may by regulation provide for granting a credit to a candidate for satisfactory completion of a written examination in any one or more of the subjects provided in Section 40-1-170 given by the licensing authority in any other state of the United States if at the time he took the examination he was not a resident of this State. The regulation must include requirements as the Board board determines appropriate in order that any examination approved as a basis for any such credit is, in the judgment of the Board board, at least as thorough as that included in the most recent examination given by the Board board at the time of the granting of credit.

The Board board may by regulation prescribe the terms and conditions under which a candidate who passes the examination in one or more of the subjects provided by Section 40-1-170 may be reexamined in only the remaining subjects, with credit for the subjects previously passed. It may also provide by regulation for a reasonable waiting period for a candidate's reexamination in a subject he has failed.

The educational requirement must be a baccalaureate degree from a college or university recognized by the Board including a minimum of twenty-four hours or the equivalent in accounting hours.

The Board board shall charge each candidate a fee, to be determined by the Board board, not in excess of two hundred dollars for the initial examination provided for in Section 40-1-170.

Fees for reexamination provided by this section are charged by the Board board in amounts determined by it, but not in excess of eighty dollars for each subject in which the candidate is reexamined.

An application for examination or reexamination as prescribed by the Board board must be submitted and the applicable fee paid at least five weeks prior to the date of the examination. Beginning in 1986 the application must be submitted and the applicable fee paid by September fifteenth for the November examination and by March fifteenth for the May examination."

SECTION 3. Section 40-1-240 of the 1976 Code is amended to read:

"Section 40-1-240. (A) The board, upon application in writing, may waive the examination referred to in Section 40-1-170 and issue a certificate to a person who is the holder of a certificate, or the equivalent, as a certified public accountant issued under the laws of any state and who has the qualifications required by this article and the regulations of the board when the person submits to the board evidence as to the qualifications it requires.

A nonresident obtaining a certificate in this State under the provisions of this section shall pay application, certificate, and license fees required of residents of this State and is subject to regulations and restrictions required of residents who are recipients of certificates of registration under this article. or territory of the United States or the District of Columbia and:

(1) who has the qualifications required by this article and the regulations of the board; or

(2) when, in the judgment of the board, the requirements for issuing or granting certificates in the other state, territory, or District of Columbia are substantially equivalent to the requirements established by this article and the regulations of the board, and provided further, that the other state or political subdivision of the United States grants the same privileges to holders of certificates issued by this State.

(B) The board, upon application in writing, may waive the examination referred to in Section 40-1-170 and issue a certificate to a holder of a foreign designation, granted in a foreign country entitling the holder thereof to engage in the practice of public accountancy provided that:

(1) the foreign authority which granted the designation makes similar provisions to allow a person who holds a valid certificate issued by this State to obtain such foreign authority's comparable designation;

(2) the foreign designation:

(a) was duly issued by a foreign authority that regulates the practice of public accountancy and the foreign designation has not expired or been revoked or suspended;

(b) entitles the holder to issue reports upon financial statements; and

(c) was issued upon the basis of educational, examination, and experience requirements by the foreign authority or by law; and

(3) the applicant:

(a) received the designation, based on educational and examination standards substantially equivalent to those in effect in this State at the time the foreign designation was granted;

(b) completed an experience requirement substantially equivalent to the requirement set out in Section 40-1-190 and regulations of the board; and

(c) passed a uniform qualifying examination in national standards acceptable to the board."

SECTION 4. Section 40-1-270 of the 1976 Code is amended to read:

"Section 40-1-270. Every registered certified public accountant, public accountant, or accounting practitioner who desires to continue to practice as such in this State must meet the following requirements on or before the dates indicated:

(1) Pay pay to the secretary of the Board board annually on or before July first a license fee, to be fixed by the Board. board; and

(2) Biennially on or before December thirty-first of each odd-numbered year beginning in 1983, complete the continuing education requirements, as required by Section 40-1-380. Biennially on or before the last day of February of each even-numbered year beginning in 1984, file with the secretary of the Board, on a form or forms prescribed by the Board for this purpose, a certificate of compliance with the continuing education requirements necessary for license renewal as required by Section 40-1-380.

(2) annually, on or before the last day of February each year, file with the board, on a form or forms prescribed by the board for this purpose, a certificate of compliance with the continuing education requirements necessary for license renewals as required by Section 40-1-380.

The Board board, by regulation, may provide a penalty not to exceed five hundred dollars for each violation for failure to comply with the provisions of either items (1) or (2) above.

Upon payment of the fee, any penalty required, and filing of the certificate in proper form, the secretary of the Board board shall issue a license entitling the applicant to practice in this State until July first of the following year.

The Board board may, in its discretion, reduce or waive the above requirements in cases of illness, mental or physical incapacity, retirement from practice, and similar situations."

SECTION 5. Section 40-1-290 of the 1976 Code is amended to read:

"Section 40-1-290. Any person having a certificate of registration as a certified public accountant or licensed as a public accountant, as provided for in this article, may have his certificate or license revoked or suspended by the Board after a proper hearing as provided in Section 40-1-310 for any of the following causes:

(a) Conviction of a crime involving moral turpitude under the law of any state or of the United States or of any other country, in which case the record of conviction, or a copy thereof, certified by the clerk of court or by the judge in whose court the conviction is had, shall be conclusive evidence thereof; and the word "conviction" shall include a plea of guilty or a plea of nolo contendere;

(b) When a certificate or license has been secured by fraud or deceit; or

(c) For violation of any rule of conduct promulgated by the Board under the authority granted by this article or for gross negligence in his profession. (A) After notice and hearing pursuant to Section 40-1-310, the board may revoke any certificate as a certified public accountant or license as a public accountant issued under the provisions of this article; suspend any such certificate or license for a period of not more than five years; reprimand, censure, or limit the scope of practice of any certificate holder or licensee; impose an administrative fine not exceeding $1,000, or place any certificate holder or licensee on probation, all with or without terms, conditions, and limitations, for any one or more of the following reasons:

(1) fraud or deceit in obtaining a certificate or license;

(2) cancellation, revocation, suspension, or refusal to renew authority to engage in the practice of public accountancy in any other state, territory of the United States, or District of Columbia, for any cause;

(3) revocation or suspension of the right to practice before any state or federal agency;

(4) dishonesty, fraud, or gross negligence in the practice of public accountancy or in the filing or failure to file the certificate holder's or licensee's own income tax returns;

(5) violation of any provision of this article or any rule or regulation promulgated by the board under the authority granted by this article;

(6) violation of any rule of professional conduct promulgated by the board under the authority granted by this article;

(7) conviction of a felony, or any crime an element of which is dishonesty or fraud, under the laws of the United States, of this State, or any other state if the acts involved would have constituted a crime under the laws of this State. The record of conviction, or a copy thereof, certified by the clerk of court or the judge in whose court the conviction is had, shall be conclusive evidence thereof; and the word `conviction' shall include a plea of guilty or a plea of nolo contendere;

(8) performance of any fraudulent act while holding a certificate or license under this article; or

(9) any conduct reflecting adversely upon the certificate holder's or licensee's fitness to engage in the practice of public accountancy.

(B) In lieu of or in addition to any remedy specifically provided in (A) above, the board may require one or more of the following requirements of a certificate or licensee:

(1) a quality review conducted in such fashion as the board may require;

(2) satisfactory completion of such continuing professional education programs as the board may specify; or

(3) a `quality review' means a study, appraisal, or review of one or more aspects of the professional work of a person or firm in the practice of public accountancy, by a person or persons who hold certificates or licenses and who are not affiliated with the person or firm being reviewed.

(C) In any proceeding in which a remedy imposed by subsections (A) and (B) of this section is imposed, the board may also require the respondent certificate holder or licensee to pay the costs of the proceeding."

SECTION 6. Section 40-1-570 of the 1976 Code is amended to read:

"Section 40-1-570. After notice and hearing, the Board may revoke or suspend any license or permit issued under this article, or may censure the holder of any such license or permit, for any one or any combination of the following causes:

(a) Conviction of a crime involving moral turpitude, under the law of any state or of the United States or of any other country, in which case the record of conviction, or a copy thereof, certified by the clerk of court or by the judge in whose court the conviction is had, shall be conclusive evidence thereof; and the word "conviction" shall include a plea of guilty or a plea of nolo contendere;

(b) When any license or permit has been obtained by fraud or deceit;

(c) For violation of any rule of conduct promulgated by the Board under the authority granted by this article or for gross negligence;

(d) The revocation or suspension of the license or the permit of any partner;

(e) The cancellation, revocation, suspension or refusal to renew the authority of the partnership or any partner thereof to practice accounting in any other state for any cause other than failure to pay an annual registration fee in such other state;

(f) The violation of the rules of conduct as promulgated from time to time by the Board for the regulation of accounting practitioners.

The provisions of subsections (d) and (e) above shall apply only to the revocation, suspension or refusal to renew a partnership permit issued under this article. (A) After notice and hearing pursuant to Section 40-1-310 the board may revoke any license or permit as accounting practitioner issued under the provisions of this article; suspend any such license or permit for a period of not more than five years; reprimand, censure, or limit the scope of practice of any license or permit holder; impose an administrative fine not exceeding $1,000; or, place any license or permit holder on probation, all with or without terms, conditions, and limitation, for any one or more of the following reasons:

(1) fraud or deceit in obtaining a license or permit;

(2) cancellation, revocation, suspension, or refusal to renew authority to engage in the practice of public accountancy in any other state, territory of the United States, or District of Columbia, for any cause;

(3) revocation or suspension of the right to practice before any state or federal agency;

(4) dishonesty, fraud, or gross negligence in the practice of public accounting or in filing or failure to file licensee's own income tax return;

(5) violation of any provision of Article 1 or Article 3 of this chapter or any rule or regulation promulgated by the board under the authority granted by this chapter;

(6) violation of any rule of professional conduct promulgated by the board under the authority granted by this chapter;

(7) conviction of a felony, or any crime an element of which is dishonesty or fraud, under the laws of the United States, of this State, or any other state if the acts involved would have constituted a crime under the laws of this State. The record of conviction, or a copy thereof, certified by the clerk of court or the judge in whose court the conviction is had, shall be conclusive evidence thereof and the word `conviction' shall include a plea of guilty or a plea of nolo contendere;

(8) performance of any fraudulent act while holding a license or permit under this article; or

(9) any conduct reflecting adversely upon the certificate holder's or licensee's fitness to engage in the practice of public accountancy."

SECTION 7. Article 1, Chapter 5, Title 15 of the 1976 Code is amended by adding Sections 15-5-50, 15-5-55, and 15-5-60 to read:

"Section 15-5-50. (A) This section applies to all causes of action of the type specified herein filed on or after the effective date.

(B) This section governs any action based on negligence brought against any accountant or firm of accountants practicing in this State by any person or entity claiming to have been injured as a result of financial statements or other information examined, compiled, reviewed, certified, audited, or otherwise reported or opined on by the defendant accountant or in the course of an engagement to provide other public accountancy services.

(C) No action covered by this section may be brought unless:

(1) the plaintiff is:

(a) issuer (or successor of the issuer) of the financial statements or other information examined, compiled, reviewed, certified, audited, or otherwise reported or opined on by the defendant; and

(b) engaged the defendant accountant to examine, compile, review, certify, audit, or otherwise report or render an opinion on such financial statements or to provide other public accountancy services; or

(2) the defendant accountant or firm:

(a) was aware at the time the engagement was undertaken that the financial statements or other information were to be made available for use in connection with a specified transaction by the plaintiff who was specifically identified to the defendant accountant;

(b) was aware that the plaintiff intended to rely upon such financial statements or other information in connection with the specified transaction; and

(c) had direct contact and communication with the plaintiff and expressed by words or conduct the defendant accountant's understanding of the reliance on such financial statements or other information.

Section 15-5-55. (A) This section applies to all causes of action of the type specified herein filed on or after the effective date.

(B) This section governs any claim for money damages brought against any accountant; any partnership of accountants or any accounting corporation registered, licensed, or practicing in this State; or any employee or principal of such partnership or corporation by any person or entity claiming to have been injured as a result of the practice of public accountancy by the defendant accountant or other person or entity.

(C) No judgment for money damages may be entered against any accountant, partnership, corporation, employee, or principal described in subsection (B) (collectively referred to in this subsection as the `accountant') in an action covered by this section except in accordance with the provisions of this subsection.

(1) If the party seeking a judgment for damages against the accountant proves that the accountant acted with the deliberate intent to deceive, manipulate, or defraud for the accountant's own direct pecuniary benefit, the liability of the accountant shall be determined according to the principles that generally apply to such an action.

(2) If the accountant is not proven to have acted with the deliberate intent to deceive, manipulate, or defraud for the accountant's own direct pecuniary benefit, the amount of the accountant's liability in damages shall be determined as follows:

(a) The trier of fact shall determine the percentage of responsibility of the plaintiff, of each of the defendants, and of each of the other persons or entities alleged by the parties to have caused or contributed to the harm alleged by the plaintiff. In determining the percentages of responsibility, the trier of fact shall consider both the nature of the conduct of each person and the nature and extent of the causal relationship between that conduct and the damage claimed by the plaintiff.

(b) The trier of fact shall next determine the total amount of damage suffered by the plaintiff caused in whole or in part by the plaintiff, the defendants, and other persons alleged to have caused or contributed to the damage.

(c) The trier of fact shall then multiply the percentage of responsibility of the accountant (determined under (a)) by the total amount of damages (determined under (b)) and shall enter a judgment or verdict against the accountant in an amount no greater than the product of those two factors.

(d) In no event shall the damages awarded against or paid by an accountant exceed the amount determined under (c). The accountant shall not be jointly liable on any judgment entered against any other party to the action.

(e) Except where a contractual relationship permits, no defendant shall have the right to recover from an accountant any portion of the percentage of damages assessed against such other defendant.

Section 15-5-60. (A) If the court in any cause of action brought against an accountant, partnership of accountants, or any accounting corporation, in the practice of public accountancy, enters into a final judgment against a party litigant on the basis of a motion to dismiss, motion for summary judgment, or a trial of the merits, the court shall, upon motion by the prevailing party, award the prevailing party reasonable fees and other expenses incurred by that party unless the court determines that the position of the losing party was substantially justified. If the court determines that the position of the losing party was substantially justified, it shall not award fees and other expenses to the prevailing party. The determination whether the position of the losing party was substantially justified shall be made on the basis of the record which is made in the civil action for which fees and other expenses are sought.

(B) A party seeking an award of fees and other expenses shall, within thirty days of a final, nonappealable judgment in the action, submit to the court an application for fees and other expenses that verifies that the party is entitled to such an award under subsection (A) and the amount sought, including an itemized statement from any attorney or expert witness representing or appearing on behalf of the party stating the actual time expended and the rate at which fees and other expenses are computed.

(C) The court, in its discretion, may:

(1) determine whether the amount to be awarded pursuant to this section shall be awarded against the unsuccessful party, its attorney, or both; and

(2) reduce the amount to be awarded pursuant to this section, or deny an award, to the extent that the prevailing party during the course of the proceedings engaged in conduct that unduly and unreasonably protracted the final resolution of the matter in controversy.

(D) In adjudicating any motion for an order compelling discovery or any motion for a protective order made in any implied private action arising under this act, the court shall award the prevailing party reasonable fees and other expenses incurred by the party in bringing or defending against the motion, including reasonable attorney's fees, unless the court finds that special circumstances make an award unjust.

(E) For purposes of this section:

(1) The term `fees and other expenses' includes the reasonable expenses of expert witnesses, the reasonable cost of any study, analysis, report, test, or project which is found by the court to be necessary for the preparation of the party's case, and reasonable attorney's fees and expenses. The amount of fees awarded under this section shall be based upon prevailing market rates for the kind and quality of services furnished.

(2) The term `substantially justified' means that the party's litigating position has:

(a) a reasonable basis in truth for the facts alleged in the pleading;

(b) a reasonable basis in law for the theory which it propounds; and

(c) a legal theory which is reasonably supported by the facts alleged."

SECTION 8. This act takes effect upon approval by the Governor.