Title: Preble v. Dept. of Rev.

State: oregon

Issuer: Oregon Supreme Court

Document:

FILED: FEBRUARY 23, 2001
IN THE SUPREME COURT OF THE STATE OF OREGON
WALLACE L. and ELIZABETH PREBLE,
Appellants,
	v.
DEPARTMENT OF REVENUE,
Respondent.
(OTC 4130; SC S45863)
	On petition for attorney fees and statement of costs and
disbursements filed December 1, 2000.
	Submitted on the record January 23, 2001.
	Kevin O'Connell, Kevin O'Connell, P.C., Portland, filed the
petition, statement, and reply to objection for appellants. 
	Jerry Bronner, Assistant Attorney General, Salem, filed the
objection for respondent.  With him on the objection was Hardy
Myers, Attorney General.
	Before Carson, Chief Justice, and Gillette, Durham, Leeson,
Riggs, and De Muniz, Justices.*
	DURHAM, J.
	Appellants' statement of costs and disbursements is allowed
in the sum of $1,054.43.  Appellants' petition for attorney fees
is denied.
	*Kulongoski, J., did not participate in the consideration of
the petition or statement.
	DURHAM, J.
	Taxpayers prevailed in this court in their appeal from
a judgment of the Oregon Tax Court.  Preble v. Dept. of Rev., 331
Or 320, ____ P3d ____ (2000).  Taxpayers have filed a petition
for attorney fees and a statement of costs and disbursements. 
The Department of Revenue (department) has filed objections to
each.  The court overrules the department's objection to the
statement of costs and disbursements and awards taxpayers the sum
of $1,054.43.  For the reasons that follow, the court denies the
petition for attorney fees.
	ORS 305.447(1) grants this court discretion to award
attorney fees to taxpayers.  In Swarens v. Dept. of Rev., 320 Or
669, 674, 890 P2d 1374 (1995), this court stated that it would
apply the following standard in exercising discretion under ORS
305.447(1):
		"We agree with the parties that an explanation of
how we choose to exercise our discretion will be of
benefit to those involved in future tax appeals.  In
general, we also agree with the rationale of the court
in Van Gordon [v. Ore. State Bd. of Dental Examiners,
63 Or App 561, 666 P2d 276 (1983)] when it addressed
its exercise of discretion to award fees in the face of
an agency's erroneous but reasonable interpretation of
a statute.  That is, generally, when an agency
erroneously but reasonably interprets a statute, the
purposes ascribed to the attorney fee statute are not
served by a fee award:
			"'A fee award will not deter similar actions
in the future, because reasonable
misinterpretations are mistakes made in good faith
rather than reckless or intentional decisions to
adopt erroneous constructions.  There is also less
of a "fairness" justification for attorney fees in
such cases.'  63 Or App at 568.
		"The Romani [v. Dept. of Rev., 10 OTR 64 (1985),]
formulation makes sense with respect to ambiguous
regulations or tax forms, because those are within the
department's control to make clear, but the same cannot
be said of the statutes that the department is required
to apply.  Under ORS 305.447(1), we will be guided,
inter alia, by the following principle in exercising
our discretion when a taxpayer prevails on appeal: We
usually will exercise our discretion to award attorney
fees to the taxpayer when the department's
interpretation contradicts the clear meaning of a
controlling statute, as disclosed by that statute's
text and context or legislative history."
	After this court issued Swarens, the legislature
enacted ORS 20.075.  Or Laws 1995, ch 618, § 6.  That statute
sets out a number of factors that "[a] court" must consider in
determining whether to make a discretionary award of attorney
fees and the amount of any award.  ORS 20.075 applies to an award
of attorney fees by an appellate court.  McCarthy v. Oregon
Freeze Dry, Inc., 327 Or 84, 92, 957 P2d 1200, on recons 327 Or
185, 957 P2d 1200 (1998).  The question presented is:  After the
enactment of ORS 20.075, does the principle discussed in Swarens
continue to influence the court's decision to award or deny
attorney fees under ORS 305.447(1)?
	ORS 20.075 is mandatory. (1)  The court must consider the
factors listed in ORS 20.075(1) in deciding whether to exercise
discretion granted by a statute to award attorney fees.  However,
one of the listed factors, subsection (1)(h), requires
consideration of "[s]uch other factors as the court may consider
appropriate under the circumstances of the case."  That factor
grants the court discretion to consider other factors, in
addition to the factors listed expressly in subsection (1)(a)-(g), if the court decides that that is appropriate under the
circumstances of the case.
	Properly understood, Swarens is illustrative of such an
additional factor that this court usually will deem to be worthy
of consideration in these circumstances.  In Swarens, this court
recognized that an award of attorney fees does not serve the
purposes underlying the attorney fees statute if the department
erroneously, but reasonably, has interpreted the controlling
statute.  Swarens also stated that a fee award is appropriate if
the department adopts a construction of the controlling statute
that contradicts its clear meaning, "as disclosed by that
statute's text and context or legislative history."  320 Or at
674.
	A problem inheres in the analytical dividing line that
Swarens sought to draw.  The first point expressed in Swarens --
that a fee award is not appropriate if the department
erroneously, but reasonably, has interpreted the controlling
statute -- unquestionably is correct.  However, the second point
expressed in Swarens focuses not on whether the department's
statutory interpretation is reasonable, even if erroneous, but on
whether the meaning of the statute, as disclosed by the court's
analysis of the statute's text and context or legislative
history, is different than the meaning adopted by the department. 
The latter approach focuses too narrowly on the statute's text
and context or legislative history and omits appropriate
consideration of whether the department's erroneous statutory
construction was the result of a reasonable mistake on its part. 
In our view, the correct approach is to consider not only the
meaning of the statute, as determined by the court, but also all
the surrounding circumstances that help to explain whether the
department's erroneous statutory construction was the result of a
reasonable mistake.
	Despite the analytical problem noted above, the court
in Swarens actually followed the correct approach, as described
above, and reached the correct conclusion in allowing an award of
attorney fees.  The court had determined that the text and
context of the statute at issue, ORS 314.410(3), was ambiguous. 
Swarens v. Dept. of Rev., 320 Or 326, 333, 883 P2d 853 (1994). 
The court had then turned to the legislative history of the
statute and discovered that the department's predecessor, the
State Tax Commission, had proposed the statute in question and
had explained its purpose in a report.  Id. at 334.  Despite that
clear evidence of the statute's meaning, the department had
adopted a statutory interpretation that contradicted the meaning
that the legislative history clearly identified.  320 Or at 675. 
Under the circumstances, the department's statutory
interpretation was unreasonable, not the result of a reasonable
mistake on its part, and justified an award of attorney fees. 
320 Or at 675.
	Several of the factors listed in ORS 20.075(1)(a)-(g)
guide the court, in determining whether to award attorney fees,
to consider the objective reasonableness, good faith, and
diligence of the parties' conduct, including their claims and
defenses.  Those factors do not refer expressly to the
reasonableness of a government agency's interpretation of a
controlling statute, but they probably would permit, if not
require, consideration of that issue.  In any event, we deem it
appropriate to include that matter, as explained above, as a
factor that the court considers under ORS 20.075(1)(h) when
determining whether to award attorney fees under ORS 305.447(1).
	We next consider the record in this case in light of
the factors set out in ORS 20.075(1).  In this proceeding,
taxpayers argued that the department's notice of deficiency was
invalid because it did not include the certification required by
ORS 305.265(2)(c). (2)  The department acknowledged that the notice
of deficiency lacked the statutory certification.  However, it
contended that the court should determine that the absence of the
certification did not affect the validity of the notice.
	This court determined that the phrase "the notice
shall" in ORS 305.265(2) expresses a clear legislative mandate to
require the certification.  Preble, 331 Or at 324.  However, the
question of the validity of a notice of deficiency that lacked
the certification admitted of no simple answer.  ORS 305.265 does
not state expressly whether a notice of deficiency that lacks the
certification is valid or invalid.  The court answered that
question only after considering the statutory text as a whole,
including the practical consequences of an inadequate notice on
the statutory scheme for contesting a proposed deficiency.  331
Or at 324-25.  Although the court was able to discern the clear
intent of the legislature after examining ORS 305.265 in detail,
we cannot say that the text was so clear on the issue of the
validity of a deficient notice as to preclude reasonable but
conflicting legal arguments as to its meaning.  
	We conclude that the department erroneously interpreted
the legislature's intention regarding the validity of the notice,
but that the department's mistake was a reasonable
misinterpretation of the statute.  Under the circumstances, the
factors set out in ORS 20.075(1)(a)-(h) weigh against an award of
attorney fees.  As Swarens noted, a fee award will not deter a
similar misinterpretation in the future, because the interpretive
error here resulted from a good faith, reasonable mistake by the
department.  320 Or at 674.  (Citing Van Gordon v. Ore. State Bd.
of Dental Examiners, 63 Or App 561, 568, 666 P2d 276 (1983)).  We
consider that fact particularly under ORS 20.075(1)(h).  As a
consequence of the foregoing, we exercise our discretion under
ORS 305.447(1) to deny the petition for attorney fees.
	Appellants' statement of costs and disbursements is
allowed in the sum of $1,054.43.  Appellants' petition for
attorney fees is denied.



1. 	ORS 20.075 provides in part:
		"(1) A court shall consider the following factors
in determining whether to award attorney fees in any
case in which attorney fees are authorized by statute
and in which the court has discretion to decide whether
to award attorney fees:
		"(a) The conduct of the parties in the
transactions or occurrences that gave rise to the
litigation, including any conduct of a party that was
reckless, willful, malicious, in bad faith or illegal.
		"(b) The objective reasonableness of the claims
and defenses asserted by the parties.
		"(c) The extent to which an award of an attorney
fee in the case would deter others from asserting good
faith claims or defenses in similar cases.
		"(d) The extent to which an award of an attorney
fee in the case would deter others from asserting
meritless claims and defenses.
		"(e) The objective reasonableness of the parties
and the diligence of the parties and their attorneys
during the proceedings.
		"(f) The objective reasonableness of the parties
and the diligence of the parties in pursuing settlement
of the dispute.
		"(g) The amount that the court has awarded as a
prevailing party fee under ORS 20.190.
		"(h) Such other factors as the court may consider
appropriate under the circumstances of the case."

2. 	ORS 305.265 provides in part:
		"(2) * * * If the department discovers from an
examination or an audit of a report or return or
otherwise that a deficiency exists, it shall compute
the tax and give notice to the person filing the return
of the deficiency and of the department's intention to
assess the deficiency, plus interest and any
appropriate penalty.  Except as provided in subsection
(3) of this section, the notice shall:
		"(a) State the reason for each adjustment;
		"(b) Give a reference to the statute, regulation
or department ruling upon which the adjustment is
based; and
		"(c) Be certified by the department that the
adjustments are made in good faith and not for the
purpose of extending the period of assessment.
		"(3) When the notice of deficiency described in
subsection (2) of this section results from the
correction of a mathematical or clerical error and
states what would have been the correct tax but for the
mathematical or clerical error, such notice need state
only the reason for each adjustment to the report or
return."
(Emphasis added.)