Title: Necanicum Investment Co. v. Employment Dept.
Citation: N/A
Docket Number: S055231
State: Oregon
Issuer: Oregon Supreme Court
Date: December 31, 2008

FILED: December 31, 2008
IN THE SUPREME COURT OF THE STATE OF OREGON
NECANICUM INVESTMENT CO.,
Petitioner on Review,
v.
EMPLOYMENT DEPARTMENT,
Respondent on Review.
(Agency No. T70772; 
CA A131207; SC S055231)
En Banc
On petition for
attorney fees.
Joseph D. McDonald,
Smith, McDonald &amp; Vaught, LLP, Portland, filed the petition for attorney
fees.
Rolf C. Moan,
Assistant Attorney General, Salem, filed the respondent's response objecting to
petitioner's petition for attorney fees.  With him on the response were Hardy
Myers, Attorney General, and Mary H. Williams, Solicitor General.
DE MUNIZ, C. J.
Petitioner's statement
of costs and disbursements is allowed in the sum of $369.24.  The petition for
attorney fees is denied.
DE MUNIZ, C.J.
Petitioner on review, Necanicum
Investment Company, successfully challenged a tax assessment by respondent
Employment Department (the department).  Necanicum Investment Co. v.
Employment Dept., 345 Or 138, 190 P3d 368 (2008).  Petitioner now seeks an
award of attorney fees and costs.  The department objects to the attorney fee
request, asserting that petitioner has not met the statutory requirements.  For
the reasons that follow, we agree with the department, and therefore deny
petitioner's request for attorney fees.  We award petitioner costs of $369.24. 

We first review the facts in the
underlying case.  In Necanicum, the department determined
that fees that petitioner had paid to the members of its board of directors in
2003 were subject to unemployment tax and issued a notice of tax assessment for
approximately $700.  345 Or at 140.  An administrative law judge (ALJ) from the
Office of Administrative Hearings (OAH) upheld the assessment, and the Court of
Appeals affirmed.  Necanicum Investment Co. v. Employment Dept., 214 Or
App 385, 164 P3d 1197 (2007).  On review, this court held that the legislature
did not intend to include corporate directors, serving solely as directors,
within the statutory definition of an "employee" of a corporation for
purposes of the unemployment tax, because directors are not "employed
by" the corporation in the same sense as other persons who perform, in the
words of the relevant statutory definition, "service for an employer * * *
for remuneration."  As a result, this court reversed the decision of the
Court of Appeals and the order of the OAH, and remanded the case to the department
for further proceedings.  Necanicum, 345 Or at 145.  
Petitioner now seeks a discretionary attorney
fee award under ORS 183.497, which provides, in part:
"(1) In a judicial proceeding * * * [like
the judicial review proceeding involved here] the court:
"(a) May, in its discretion, allow a
petitioner reasonable attorney fees and costs if the court finds in favor of
the petitioner.
"(b) Shall allow a petitioner reasonable
attorney fees and costs if the court finds in favor of the petitioner and
determines that the state agency acted without a reasonable basis in fact or in
law; but the court may 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."
Petitioner
brings its claim for attorney fees under ORS 183.497(1)(a) only, and does not
otherwise assert that the department's actions were unreasonable.  We therefore
need not consider whether attorney fees should be ordered under ORS
183.497(1)(b).  
ORS 183.497(1)(a) does not include
any standards to guide a court's exercise of discretion in awarding fees. 
However, ORS 20.075(1) -- the general statute governing awards of attorney fees
-- lists eight factors that a court must consider in deciding whether to make a
discretionary attorney fee award.  That statute provides:
"(1) A court shall consider the following
factors in determining whether to award attorney fees in any case in which an
award of attorney fees is 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." 
In analyzing petitioner's
attorney fee petition, we begin with this court's decision in McKean-Coffman
v. Employment Div., 314 Or 645, 842 P2d 380 (1992), which interpreted ORS
183.497(1)(a), and then consider the effect of ORS 20.075, which was enacted
after this court's decision in McKean-Coffman.  
As noted above, ORS 183.497(1)
provides, in part:
"In a judicial proceeding designated under
subsection (2) of this section the court:
"(a) May, in its discretion, allow a
petitioner reasonable attorney fees and costs if the court finds in favor of
the petitioner."
In McKean-Coffman, this court
declined to award a successful petitioner attorney fees under ORS 183.497(1)(a),
concluding that the Employment Division, although wrong in its application of
law, nevertheless had acted reasonably: 
"The Division's position in the case was wrong; but it
was not unreasonable.  We doubtless have wide discretion to award an attorney
fee under ORS 183.497(1)(a), but we rarely will exercise it in favor of an
award when an agency has acted reasonably.  To do so could easily make
administrative agencies timorous about pursuing reasonable positions as to what
the law is or ought to be.  The public interest would be ill-served in such
circumstances."
Id. at
649-50.  
However, since McKean-Coffman
was decided, the legislature enacted ORS 20.075(1).  See Or Laws 1995,
ch 618, § 6 (enacting ORS 20.075).  As noted, ORS 20.075(1) lists eight factors
that a court "shall consider * * * in determining whether to award
attorney fees in any case in which an award of attorney fess is authorized by
statute and in which the court has discretion to decide whether to award
attorney fees[.]"  By its terms, then, ORS 20.075(1) applies to the
discretionary decision whether to award fees under ORS 183.497(1).
The factors listed in ORS 20.075(1) include
the parties' prelitigation conduct, the objective reasonableness of the
parties' claims and defenses, the extent to which a fee award would deter
others from asserting good faith claims and defenses, and the extent to which a
fee award would deter others from asserting meritless claims and defenses.  The key consideration in this court's decision in McKean-Coffman
-- whether a party's position was objectively reasonable, and whether a fee
award would deter a party from asserting a good faith defense -- now appear as
paragraphs (b) and (c) of ORS 20.075(1).  Other factors are listed as well, so
that McKean-Coffman is now explicitly augmented by the statute.  We turn
to a consideration of the record and the parties' arguments in this case in light
of the factors set out in ORS 20.075(1).   
We begin our analysis by noting that
petitioner's only argument in support of its petition for attorney fees is that "[t]his case involved a tax assessment against a small
employer, the cost of which to defend was significant in relation to the amount
wrongfully assessed."  However, in Barbara Parmenter Living Trust v. Lemon,
345 Or 334, 343-44, 194 P3d 796 (2008), this court held that the reasonableness
of the amount of fees requested in light of the recovery made was not a
relevant consideration under the factors listed in ORS 20.075(1).  We therefore
look to the criteria listed in ORS 20.075(1) that are relevant in this case to
determine whether to authorize an attorney fee award.   See McCarthy v.
Oregon Freeze Dry, Inc., 327 Or 84, 95, 957 P2d 1200 (1998) (ORS 20.075
states criteria that court shall consider in determining whether to make award
of attorney fees).
With regard to the
factors set out in ORS 20.075(1), petitioner does not refer to any particular conduct
on the department's part that we should consider, or assert that the department
engaged in conduct that was reckless, willful, malicious, in bad faith, or
illegal.  ORS 20.075(1)(a).  Although we have determined that the department erroneously
assessed the tax, petitioner does not claim that the department was objectively
unreasonable in doing so.  ORS 20.075(1)(b). 
Next, ORS
20.075(1)(c) provides that a court shall consider "[t]he 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."  The
department asserts that, if we were to grant petitioner's attorney fee
petition, "the implication will be that a state agency risks attorney-fee
liability in any case in which -- based on efforts to construe statutes whose
meaning reasonably may be disputed -- it issues an order that adversely affects
some individual or entity."  We agree with the department that it must be
able to pursue reasonable legal positions in the public interest.  Accord
McKean-Coffman, 314 Or at 649-50.  In our view, that factor supports the
department's contention that we should not award attorney fees in this case.
 
ORS 20.075(1)(e) provides
that a court shall consider "[t]he objective reasonableness of the
parties and the diligence of the parties and their attorneys during the
proceedings."  This case concerned the application of a
statute in a new context, and in our view involved reasonable positions on both
sides.  
Finally,
petitioner is entitled to a statutory prevailing party fee of $100.00.  ORS
20.190.(1) 
ORS 20.075(1)(g) directs a court to consider the amount of any prevailing party
fee that it has awarded in deciding whether to also award attorney fees. 
Implicit in that factor is the proposition that awarding both attorney fees and
a prevailing party fee may overcompensate a party.  See Barbara Parmenter
Living Trust, 345 Or at 346-47 (courts should consider whether awarding a
prevailing party both attorney fees and an enhanced prevailing party fee under
ORS 20.190(3) would overcompensate that party).  In
this case, because the prevailing party fee is statutory, we regard that factor
as neutral.
Based on our
consideration of all of the factors discussed above, we conclude that the
department assessed the tax and asserted its legal position during the
subsequent litigation in good faith, and that an attorney fee award in this
case could deter the department from advancing plausible, even if incorrect,
statutory interpretations in future disputes with other taxpayers.  We
therefore deny petitioner's request for an award of attorney fees.
Petitioner's statement of costs and
disbursements is allowed in the sum of $369.24.  The  petition for attorney
fees is denied.  
1. ORS 20.190 provides, in part:
"(1) * * * a prevailing party in a civil
action or proceeding who has a right to recover costs and disbursements in the
following cases also has a right to recover, as a part of the costs and
disbursements, the following additional amounts:
"(a) In the Supreme Court or Court of
Appeals, on an appeal, $100."