Title: Kaib's Roving R.Ph. Agency v. Employment Dept.
Citation: N/A
Docket Number: S51165
State: Oregon
Issuer: Oregon Supreme Court
Date: April 28, 2005

FILED:  April 28, 2005
IN THE SUPREME COURT OF THE STATE OF OREGON
EMPLOYMENT DEPARTMENT,
Respondent on Review/
Petitioner on Review.
(96-T-0123A; CA A110993; SC S51078, S51165)
On review from the Court of Appeals.*
Argued and submitted November 8, 2004.
James E. Mountain, Jr., of Harrang Long Gary Rudnick P.C.,
Portland, argued the cause and filed the brief for petitioner on
review/respondent on review Kaib's Roving R.Ph. Agency, Inc. 
With him on the briefs on the merits were Craig A. Etter, pro hac
vice, of Greenberg Traurig, LLP, McLean, Virginia, and Harvey J.
Shulman, pro hac vice, Washington, D.C.
Denise G. Fjordbeck, Assistant Attorney General, Salem,
argued the cause and filed the briefs for respondent on
review/petitioner on review Employment Department.  With her on
the briefs were Hardy Myers, Attorney General, and Mary H.
Williams, Solicitor General.
Joseph H. Hobson, Jr., Salem, filed briefs for amicus curiae
Oregon Farm Bureau Federation.
Ross Day, Tigard, filed a brief for amicus curiae Oregonians
in Action Legal Center. 
Before Carson, Chief Justice, and Gillette, Durham, Riggs,
De Muniz, and Balmer, Justices.**
GILLETTE, J.
The decision of the Court of Appeals is reversed, and the
case is remanded to that court to award reasonable attorney fees
and costs. 
* 189 Or App 579, 77 P3d 327 (2003).
** Kistler, J., did not participate in the consideration or
decision of this case.
GILLETTE, J.
This is an attorney fee dispute arising out of a 
judicial review proceeding in which the Court of Appeals vacated
and remanded for reconsideration an order of the Employment
Department (department) that affirmed an unemployment tax
assessment against petitioner.  The party that obtained the
remand, Kaib's Roving R.Ph. Agency, Inc. (petitioner), sought
attorney fees and costs under either ORS 183.497(1)(a) or (b),
set out post.  A divided panel of the Court of Appeals denied
that request.  Kaib's Roving R.Ph. Agency v. Employment Dept.,
189 Or App 579, 77 P3d 327 (2003) (Kaib's III).  We allowed both
petitioner's and the department's petitions for review.  For the
reasons that follow, we reverse the decision of the Court of
Appeals.  
The operative facts and procedural history of this
proceeding are not in dispute.  Petitioner provides relief
pharmacists to various pharmacies in this state.  Petitioner
views those pharmacists as independent contractors.  The
department, however, views the pharmacists as petitioner's
employees, for whom petitioner must pay unemployment tax. 
Accordingly, in 1996, the department sent petitioner an
assessment for unemployment taxes and interest.  Petitioner
requested a hearing and an administrative law judge (ALJ) upheld
the assessment.  Petitioner then sought judicial review.  The
Court of Appeals reversed the department's order on the ground
that the department had ignored an earlier ruling by the
Department of Revenue (DOR), concluding that pharmacists were not
employees, notwithstanding the fact that a statute, ORS
670.600, (1) directs both departments to use the same statutory
criteria to determine independent contractor status.  The Court
of Appeals remanded the matter for further consideration.  Kaib's
Roving R.Ph. Agency v. Employment Dept., 161 Or App 290, 984 P2d
886 (1999) (Kaib's I).  
Upon receipt of the notice of remand, the ALJ wrote a
letter to petitioner acknowledging that the Court of Appeals had
remanded the matter and informing petitioner that the hearings
section did not intend to hold another hearing, in light of the
fact that, in the ALJ's view, the hearings section had "the
evidence we need to respond to the Court."  The ALJ further
informed petitioner that the hearings section would be issuing a
proposed order, to which petitioner would be permitted to respond
with exceptions, after which "the agency [would] issue a Final
Order."  
Thereafter, the ALJ issued a proposed order that once
again affirmed the assessment.  After petitioner received that
proposed order, petitioner formed a belief that, in considering
the case, the hearings section had had improper contact with
various Employment Department officials outside that section
including, specifically, the director of the department. 
Accordingly, petitioner requested records pertaining to contacts
between anyone in the hearings section and anyone outside the
hearings section concerning the substance of the case.  The
department complied with that request in April and May 2000. 
Petitioner also submitted multiple exceptions to the specific
findings in the proposed order.  The last objection alleged that
the adjudicatory process used in the case violated petitioner's
due process right to an impartial tribunal and violated
applicable Oregon procedural statutes, because the hearings
section decision-makers had had ex parte contacts concerning the
merits of the issues before the hearings section.  In June 2000,
the department issued a final order in the proceeding that
affirmed the assessment, denied that the hearings section had
violated petitioner's due process rights or any Oregon procedural
statutes, and denied that department officials had engaged in any
improper contacts concerning the merits of the issues before the
hearings section.  The director of the department signed that
order.  
Petitioner sought judicial review of that final order
in the Court of Appeals.  In its brief to that court, petitioner
argued that the department erred in concluding that it had not
violated petitioner's due process right to a fair hearing before
an impartial adjudicator, that the department erred in concluding
that it was entitled to ignore the earlier Department of Revenue
ruling that petitioner's pharmacists were independent
contractors, and that the department erred in concluding that the
pharmacists were petitioner's employees and not independent
contractors. 
The Court of Appeals once again vacated the
department's final order and remanded the case for
reconsideration under the terms of its earlier decision in Kaib's
I, this time directing the department to hold a new hearing
before an ALJ who was not involved in the previous remand. 
Kaib's Roving R.Ph. Agency v. Employment Dept., 182 Or App 481,
487, 50 P3d 1193 (2002) (Kaib's II).  In deciding the case in
petitioner's favor, the Court of Appeals declined to address the
constitutional arguments that petitioner raised; instead, the
court resolved the issue on subconstitutional grounds.
The court observed that the chief of the department's
hearings section, in collaboration with other department
employees, had prepared the final order for the director's
signature, which, as noted, the director then had signed. 
However, the court pointed out, two sections of the department's
governing statute, ORS 657.683 and ORS 657.684, make it clear
that the director is a party to proceedings before a hearing
officer.  Id. at 485-86.  It followed, the court held, that the
department must reconsider the case once again.  Id.
The Court of Appeals further observed in Kaib's II that
nothing in the department's governing statute changes the
respective roles of the director and the ALJ after a remand.  Id.
at 486.  Accordingly, the court reasoned, after it had held in
Kaib's I that "the Employment Department must reconsider the
evidence offered by [petitioner] regarding the Department of
Revenue's prior determination," and remanded the proceeding for
reconsideration, the case should have gone back to an ALJ. 
Kaib's II, 182 Or App at 486, quoting Kaib's I, 161 Or App at
298.  The court noted that, although it had not expressly
directed such a remand to an ALJ, that was the necessary
consequence of its decision, because only an ALJ has authority to
issue orders on behalf of the department in this kind of case. 
Id. at 486-87.  The court once again vacated the department's
order and remanded the matter for reconsideration.  Id. at 487.
Having obtained what it considered to be a ruling in
its favor in Kaib's II, petitioner then requested the Court of
Appeals to award attorney fees and costs under ORS 183.497.  As
noted, a divided Court of Appeals denied that request, and we
allowed both parties' petitions for review.  
ORS 183.497 provides, in part:  
In explaining its decision in Kaib's III nonetheless to
deny petitioner attorney fees and costs, the Court of Appeals
began by reviewing the standard for such awards.  The court
acknowledged that ORS 183.497 seems to provide alternative
standards for awarding attorney fees and costs--ORS
183.497(1)(a) making such awards discretionary in most
circumstances, and ORS 183.497(1)(b) making them mandatory in
cases in which the agency acted "without a reasonable basis in
fact or in law."  Kaib's III, 189 Or App at 585.  However, it
held that the two provisions were, under the circumstances of the
case before it, legally indistinguishable.  Id. at 587.  The
court reasoned that, in Van Gordon v. Ore. State Bd. of Dental
Examiners, 63 Or App 561, 565-66, 666 P2d 276 (1983), it had
adopted, with respect to discretionary awards, a "no reasonable
basis in law or fact" standard.  Kaib's III, 189 Or App 586.  In
addition, according to the court, ORS 20.075 provides criteria
for discretionary decisions whether to award fees, and those
criteria also capture the "no reasonable basis in law or fact"
standard. (2)  Kaib's III, 189 Or App at 586-87.  For that
reason, the court stated, it would not distinguish, for purposes
of its analysis, between claims for fees asserted under ORS
183.497(1)(a) and (b).  Id. at 587. 
The Court of Appeals next turned to consider
petitioner's contention that the department had ignored two key
provisions of its own unambiguous governing statute, ORS 657.683
and ORS 657.684, when it failed to recognize its party status and
permitted the director rather than the ALJ to sign the final
order, and that that fact inexorably leads to the conclusion that
the department "acted without a reasonable basis in fact or in
law."  The court stated that there were two difficulties with
petitioner's position.  First, although it had cited them,
petitioner had not relied on ORS 657.683 and ORS 657.684 when it
argued to the Court of Appeals in Kaib's II that the department
had acted improperly in rendering its decision in the proceeding. 
Rather, petitioner had confined its arguments to constitutional
due process claims that the department had denied petitioner a
right to a fair hearing before an impartial adjudicator.  Kaib's
III, 189 Or App at 588.  Second, and more importantly, the Court
of Appeals ruled that the department had not acted unreasonably
when it failed to discern the applicability of ORS 657.683 and
ORS 657.684 to petitioner's case.  That is so, according to the
court, because no appellate court previously had construed those
sections and adjudged them to be applicable in circumstances like
the present.  Under those circumstances, the court held, an award
of fees was not warranted. (3)  Id. at 589-90.
In this court, petitioner argues that the Court of
Appeals misconstrued ORS 183.497 by conflating the standards for
discretionary and mandatory fee awards in paragraphs (a) and (b)
of subsection (1) and that, based at least in part on that
misconstruction, it erred in holding that an award of fees was
not warranted.  As will be shown below, we agree that the Court
of Appeals misconstrued ORS 183.497(1).  However, before
examining the standards for awards of fees under the two
paragraphs of that subsection, we take up a preliminary objection
that the department has raised to any award of attorney fees to
petitioner, viz., an argument that the Court of Appeals erred in
concluding that its decision in Kaib's II was a finding "in favor
of" petitioner.  That is the appropriate approach because, if the
department is correct that the Court of Appeals' vacation of the
final order and remand in Kaib's II was not a finding "in favor
of" petitioner, then no award of fees is appropriate under either
paragraph of ORS 183.497(1).
ORS 183.497 provides for an award of attorney fees and
costs "[i]n a judicial proceeding * * * if the court finds in
favor of the petitioner."  As noted, the Court of Appeals held
that it had found in favor of petitioner in Kaib's II because
petitioner gained a reassessment of the case by a new decision-maker.  The department argues that that is not sufficient. 
According to the department, petitioner won only a de minimus
victory, because petitioner has not advanced its position with
respect to the substantive merits of its claim.  And, the
department reasons, because the Court of Appeals' decision in
Kaib's II did not resolve the ultimate issues in the case in
petitioner's favor, it was not a finding "in favor of" petitioner
within the meaning of ORS 183.497.  
To discern the meaning of the phrase "in favor of," we
employ the now-familiar methodology for construing statutes that
this court described in PGE v. Bureau of Labor and Industries,
317 Or 606, 859 P2d 1143 (1993).  Under that methodology, we
first examine the text of the statute, in context, in an effort
to discern the intent of the legislature.  Id. at 610.  If the
meaning of the statute is clear at that level of analysis,
further inquiry is unnecessary.  Id. at 611.  
We begin with the observation that the department is
not arguing that the Court of Appeals' decision in Kaib's II was
not actually "in favor of" petitioner in the ordinary sense. 
Obviously, the outcome of Kaib's II was a significant success for
petitioner, because the Court of Appeals vacated the department's
order and remanded for a new hearing in accordance with
procedures that the department had resisted.  However, the
department contends that petitioner had not won a victory
justifying an award of attorney fees and costs.  According to the
department, a decision is only "in favor of" a particular party
if it resolves the ultimate issues of the case; anything else is
insufficient to trigger an entitlement to attorney fees under ORS
183.497(1).
The department points to no textual or contextual clues
to support its proffered interpretation. (4)  Rather, it jumps
straight to consideration of legislative history.  Text and
context, however, support a contrary view.  First, ORS 183.497(1)
applies in proceedings for "judicial review of a final order." 
ORS 183.497(2)(a).  Judicial review can and often does result in
findings for or against parties without addressing the ultimate
merits of a claim.  No wording in ORS 183.497 suggests that the
legislature intended to limit attorney fee awards to judicial
review of the merits of a claim.  Indeed, the fact that the
statute deals with awards of fees in "judicial proceedings"
indicates that it is not concerned with the overall
administrative proceeding but, rather, with the specific result
obtained on judicial review. 
The department asserts, based on its review of the
legislative history, that a finding "in favor of" a party is
equivalent to a finding that a party is a "prevailing party."  It
also cites several cases supporting the proposition that only a
party who obtains substantive relief on the claims asserted is a
"prevailing party" for purposes of an award of attorney fees and
costs.  That argument is misplaced.  ORS 183.497 does not use the
phrase "prevailing party," but another part of ORS chapter 183
does.  ORS 183.485(1) requires a court having judicial review of
contested cases to direct its decision, including its judgment,
to the agency that issued the order being reviewed, and permits
the court to "direct that its judgment be delivered to the
circuit court for any county designated by the prevailing party
for entry in the court's register."  Clearly, the legislature
knew how to refer to a "prevailing party" when that was what it
intended.  The fact that the legislature chose instead to refer
in ORS 183.497(1) to a finding "in favor of" a party suggests
that it intended something different.  
Based on the foregoing, we conclude that the meaning of
the phrase "in favor of" is clear at the first level of our
analysis and further inquiry is unnecessary. (5)  A decision of
the court may be "in favor of" a party, even if it addresses only
procedural matters. (6)  In this case, the Court of Appeals'
decision vacating the final order and remanding the proceeding
for reassessment before a different decision-maker was a decision
"in favor of" petitioner.  
We turn now to petitioner's assertion that the Court of
Appeals erred in denying it attorney fees and costs under ORS
183.497(1)(a) or (b).  ORS 183.497(1)(a) provides that, in a
judicial proceeding, the court "[m]ay, in its discretion, allow a
petitioner reasonable attorney fees and costs if the court finds
in favor of the petitioner."  By the plain words of that
subsection, that authority to award fees and costs is
discretionary.  McKean-Coffman v. Employment Div., 314 Or 645,
647, 842 P2d 380 (1992).  By contrast, the plain words of ORS
183.497(1)(b) state that the court "[s]hall allow a petitioner
reasonable attorney fees and costs" if the court finds that a
state agency "acted without a reasonable basis in fact or in
law."  Thus, in contrast to ORS 183.497(1)(a), ORS 183.497(1)(b)
imposes a mandatory obligation on the court in cases in which an
agency has acted without such a reasonable basis. (7)  McKean-Coffman, 314 Or at 647; see also 1000 Friends v. LCDC, 293 Or
440, 442, 649 P2d 592 (1982) (in construing earlier version of
statute, court stated that, by using the word "shall," statute
goes beyond merely allowing court discretion to award fees but,
instead, requires court to award fees under circumstances
described).  The Court of Appeals' contrary construction, which
treated the two subsections as setting indistinguishable
standards, was error. (8)
As discussed above, petitioner's primary argument is
that, in ignoring or being unaware of key provisions of its own
unambiguous governing statutes, in failing to recognize its party
status, and in permitting the director of the department rather
than the ALJ to sign the final order, the agency "acted without a
reasonable basis in * * * law."  Therefore, petitioner contends,
it is entitled to a mandatory award of attorney fees and costs
under ORS 183.497(1)(b).  In response, the department essentially
adopts the reasoning of the Court of Appeals, asserting that an
award of fees is not warranted because petitioner did not raise
ORS 657.683 and ORS 657.684 as bases for its objections to the
final order, and that the department did not act unreasonably in
failing to understand that the director was a party to the
proceeding and had no authority to sign the order.  
The first of those two contentions is easily disposed
of.  With respect to mandatory awards, there is no room to
consider whether the Court of Appeals decided the case on a
ground asserted by the petitioner.  That is, while the content
and contours of a petitioner's argument to the Court of Appeals
and its failure to urge a dispositive point of law in that court
may be crucial in evaluating whether it is appropriate for the
Court of Appeals to exercise its discretionary authority to award
fees, such a consideration is irrelevant to the question of the
reasonableness of a state agency's earlier conduct in issuing a
final order.  We must answer that question by reference to the
agency's authority as delineated in its governing statutes.  
The Court of Appeals held in Kaib's II, and we agree,
that ORS 657.683 and ORS 657.684 clearly treat the director as a
party to the proceeding and not as the ultimate decision-maker. 
ORS 657.683 sets out the procedure by which an employer who
objects to the director's assessment of employment taxes under
ORS 657.681 may seek a hearing before an ALJ.  First, the
employer files an application for a hearing.  ORS 657.683(1). 
Then an ALJ sets the date and time for a hearing and "shall give
notice of the time and place of the hearing to the director * * *
and shall give notice to the [employer]."  ORS 657.683(2). 
Thereafter, the ALJ holds a hearing and enters a decision either
affirming, modifying, or setting aside the assessment, and
promptly notifies both the employer and the director.  ORS
657.683(4).  The decision of the ALJ is final, ORS 657.683(5),
except that either the employer or the director may seek judicial
review of the decision by filing a petition for judicial review. 
ORS 657.684. 
The department either ignored the foregoing statutory
provisions in the present case or it was unaware of them.  It
attempts to excuse its failure to act in accordance with those
unambiguous provisions by asserting that no court had interpreted
them and that the Court of Appeals' remand order was vague in
stating that "the Employment Department" must reconsider the
matter.  The department, however, is obligated to understand the
clear provisions of its governing statute without a court's
published opinion interpreting it.  As Judge Wollheim stated in
his dissenting opinion below, 
This court has explained that an agency's erroneous
interpretation of its statutes will not, in every case, support a
claim for attorney fees under ORS 183.497(1)(b).  McKean-Coffman,
314 Or at 649.  An agency's interpretation of a statute may be
legally incorrect but not unreasonable.  In such a case, a
mandatory award of fees is not appropriate.  Id.  This, however,
is not such a case.  The department has not proffered an
"interpretation" of ORS 657.683 and ORS 657.684, or any other
section of its governing statute, that would have permitted the
director to sign the final order in this case.  
As is evident from the foregoing, we conclude that the
department acted without a reasonable basis in law when it failed
to recognize that the director was a party to the proceeding and
permitted the director, rather than the ALJ, to sign the final
order.  Because this case fits the other criteria in ORS
183.497(1)(b) for an award of fees, granting petitioner's request
for an award of attorney fees was mandatory.  The Court of
Appeals' contrary ruling denying fees and costs was error. (9)  
The decision of the Court of Appeals is reversed, and 
the case is remanded to that court to award reasonable attorney
fees and costs.
1. 
ORS 670.600 provides:
In S-W Floor Cover Shop v. Natl. Council on Comp. Ins., 318 Or
614, 628, 872 P2d 1 (1994), this court concluded that the
legislative intent behind that wording was to achieve uniformity
as to who qualifies as an independent contractor for purposes of,
among other things, the revenue code and the unemployment laws.
2. 
ORS 20.075 provides, in part:  
3. Judge Wollheim filed a dissenting opinion in which he
contended that petitioner was entitled either to a mandatory or a
discretionary award of fees under ORS 183.497.  Id., 189 Or App at
590-94.
4. The department claims that the "plain meaning" of the
words "in favor of" is "unequivocal and explicit: the challenged
order must be invalidated or altered in a way that is of present
benefit to the petitioning party." (Emphasis omitted.)  According
to the department, that proposition means one thing, viz., that
the challenged order must have been invalidated on the merits of
the substantive claim.  That conclusion does not follow from its
premise, however.  It unquestionably is of present benefit to
petitioner to be granted reassessment of its case before a
different decision-maker. 
5. 
Given our view of the clarity of the text and context
on this point, it is unnecessary to describe the legislative
history in any detail.  It is sufficient here to note that our
review of the legislative history to which the department has
referred us does not change our view of the intended meaning of
the phrase "in favor of," based on text and context alone.  
6. 
We say "may be," rather than "is," only because there
could be circumstances in which a party's "win" truly was
minimal, even pyrrhic.  But that is not the case here.
7. 
The mandatory obligation to award fees in ORS
183.497(1)(b) is subject to an exception allowing the court to
"withhold all or part of the attorney fees from any allowance to
a petitioner if the court finds that the state agency has proved
that its action was substantially justified or that special
circumstances exist that make the allowance of all or part of the
attorney fees unjust."  The department did not rely on that
exception in its objections to petitioner's attorney fee request
in the Court of Appeals, and the Court of Appeals did not address
its meaning or application in this case.  The department has made
an argument to this court that the exception applied, but that
argument is unpreserved, and we therefore do not consider it.  
8. 
That error appears to have been due, at least in part,
to an inappropriately narrow reading of that court's Van Gordon
decision.  In any event, this court's later decision in McKean-Coffman makes it absolutely clear that the authority conferred by
each subsection of ORS 183.497(1) differs.  314 Or at 647.
9. 
In light of our ruling under ORS 183.497(1)(b), it is
not necessary to consider petitioner's arguments concerning its
entitlement to fees under the court's discretionary authority in
ORS 183.497(1)(a).