§ 1028.5 (a) In any civil action between a small business or a licensee and a state regulatory agency, involving the regulatory functions of a state agency as …

(a)  In any civil action between a small business or a licensee and a state regulatory agency, involving the regulatory functions of a state agency as applied to a small business or a licensee, if the small business or licensee prevails, and if the court determines that the action of the agency was undertaken without substantial justification, the small business or licensee may, in the discretion of the court, be awarded reasonable litigation expenses in addition to other costs. Funds for such expenses and costs shall be paid from funds in the regular operating budget of the state regulatory agency where the appropriation therefor encompasses the payment of such costs and expenses, and not from unappropriated money in the General Fund.

(b)  “Reasonable litigation expenses” means any expenses not in excess of seven thousand five hundred dollars ($7,500) which the judge finds were reasonably incurred in opposing the agency action, including court costs, expenses incurred in administrative proceedings, attorney’s fees, witness fees of all necessary witnesses, and such other expenses as were reasonably incurred.

(c)  “Small business” means a business activity that is all of the following:

(1)  Independently owned and operated.

(2)  Not dominant in its field of operation.

(3)  Not exceeding the following annual gross receipts or other criteria in the categories of:

(d)  “Licensee” means any person licensed by a state agency who does not qualify as a small business, but whose annual gross receipts from the use of such license do not exceed one million dollars ($1,000,000).

(e)  A small business or a licensee shall be deemed to prevail in any action in which there is no adjudication, stipulation, or acceptance of liability on the part of the small business or licensee.

(f)  A small business or licensee shall not be deemed to have prevailed in actions commenced at the instance of, or on the basis of a complaint filed by, a person who is not an officer, employee, or other agent of the state regulatory agency if the action is dismissed by the agency upon a finding of no cause for the action, or is settled by the agency and small business or licensee without a finding of fault.

(g)  Section 800 of the Government Code shall not apply to actions which are subject to the provisions of this section.

(h)  Every state regulatory agency against which litigation expenses have been awarded under this section shall, at the time of submission of its proposed budget pursuant to Section 13320 of the Government Code, submit a report to the Department of Finance and the Legislature as to the amount of those expenses awarded and paid during the fiscal year.

(i)  This section shall be known and may be cited as the Carpenter-Katz Small Business Equal Access to Justice Act of 1981.