Title: J. R. Simplot Co. v. Dept. of Agriculture
Citation: N/A
Docket Number: S52081
State: Oregon
Issuer: Oregon Supreme Court
Date: March 9, 2006

FILED: March 9, 2006
IN THE SUPREME COURT OF THE STATE OF OREGON
J.R. SIMPLOT COMPANY,
Petitioner on Review,
v.
DEPARTMENT OF AGRICULTURE,
Respondent on Review.
(ODA No. 2000-1; CA A118024; SC S52081)
En Banc
On review from the Court of Appeals.*
Argued and submitted September 7, 2005.
Christopher A. Rycewicz, of Rycewicz and Chenoweth, LLP,
Portland, argued the cause and filed the brief for petitioner on
review.  With him on the brief was Christopher W. Rich.
Denise J. Fjordbeck, Assistant Attorney General, Salem,
argued the cause and filed the brief for respondent on review
Oregon Department of Agriculture.  With her on the brief were
Hardy Myers, Attorney General, and Mary H. Williams, Solicitor
General.
BALMER, J.
The decision of the Court of Appeals and the order of the
Department of Agriculture are affirmed.
*Appeal from Oregon Department of Agriculture 195 Or App 98, 96 P3d 1262 (2004).
BALMER, J. 
Petitioner J.R. Simplot Company (Simplot) seeks
judicial review of an order of the Oregon Department of
Agriculture (department), which denied a refund of inspection
fees that Simplot had paid to the department.  The Court of
Appeals affirmed that order, holding that ORS 293.445(2) contains
a three-year limitations period that had expired and thus barred
the department from providing Simplot a refund.  We affirm the
Court of Appeals, but we do so on different grounds.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Simplot's primary complaint is that the department
overcharged it for inspecting potatoes used to make french fries
at Simplot's Hermiston plant.  We briefly describe that
inspection process before describing the particulars of this
case.  We take the facts from the department's final order, the
Court of Appeals opinion, and from the record.
The quality and characteristics of agricultural
products such as potatoes determine the product's grade, which,
in turn, affects the product's price.  ORS 632.940 (1)
authorizes the department to conduct inspections of agricultural
products to determine their quality and characteristics.  The
department performs all inspections of agricultural products
within Oregon unless the growers of those products vote to
terminate the department's role, ORS 632.945 to 632.950, in which
case licensed private inspectors perform that task.  The
department performs inspections through its Agricultural Shipping
Point Inspection program (inspection program), using employees
who are licensed through a cooperative agreement with a division
of the United States Department of Agriculture (USDA).
The department performs two primary types of
inspections:  fresh pack and processor.  The department conducts
fresh pack inspections on produce to be sold in unprocessed form. 
Those inspections are conducted at the time that the fresh
produce is prepared for shipping from the grower.  When
conducting a fresh pack inspection of potatoes, a department
inspector examines a sample of the potatoes for size, shape, skin
condition, cleanliness, firmness, and other characteristics to
grade them according to USDA standards.  See 7 CFR §§ 51.1540 to
51.1587 (2005) (USDA standards for grading potatoes).  The
department conducts processor inspections on produce that will be
processed into another form.  Those inspections occur at the
processing site.  The type of services performed in a processor
inspection varies depending on individual processors' needs.  For
potatoes that will be processed into french fries, the
inspections generally include USDA grading as well as "french fry
color" tests and tests of the potatoes' internal density.  Some
processors prefer to choose their own representative sample,
while others request that the inspector choose the sample.  
The department sets separate fees for fresh pack
inspections and processor inspections.  The fresh pack fees are
set in cents per hundredweight, with minimum hourly fees to
ensure that inspectors' costs are covered. (2)  See OAR 603-053-0200 (establishing fresh pack fees).  The processor fees are
established on a regional basis in cents per hundredweight. 
Processors in the same area who request the same processor
inspection services pay the same hundredweight rates.  ORS 632.940 provides that the costs of the inspection
program and administration are to be covered by the fees that the
department charges for inspections.  In determining the fee
levels, the department follows that statutory mandate and
attempts to ensure that the total amount of all fees is
sufficient to cover the costs of the inspection program,
including a reserve of approximately four months' operating
costs.  The purpose of that reserve is to ensure that the program
can pay for itself despite fluctuating employee costs; varying
crop quality, amount, and location; and unpredictable weather. 
The USDA also recommends, as part of the cooperative agreement,
that the department maintain a four-month reserve to cover the
costs associated with an unforeseen shutdown of the program. 
During the period at issue here, the department increased and
decreased both fresh pack and processor fees from time to time in
an attempt to match the fees with the cost of the inspection
program, including the four-month reserve.
The department estimated that $1.25 million was
sufficient to cover four months' operating costs.  However,
because of the very fluctuations that the reserve was meant to
guard against, the amount of the reserve varied over time.  In
the early 1990s, the reserve was as little as $76,992.  By fiscal
year 1998, however, the reserve had risen to $2,330,733.  When
the fund balance rose, the department considered ways to manage
it, including reducing future fees and making grants to fund
capital improvements in processing facilities where the
department's inspectors regularly worked.  The purpose of those
grants was to improve safety and working conditions for the
inspectors, as well as to reduce the cost and increase the
efficiency and accuracy of inspections.  
During the time that the department performed processor
inspections for Simplot, the total fresh pack inspection fees
that the program collected were less than the total direct cost
of providing fresh pack inspections, while the total processor
inspection fees that the program collected were more than the
total direct cost to the department of providing processor
inspections.
We turn now to the circumstances and procedural history
of this case.  From at least 1993 to 1999, the department
performed processor inspections of approximately 15 percent of
the potatoes that Simplot processed in its Hermiston plant. (3) 
The department notified Simplot of fee changes by letter whenever
they occurred.  After performing the inspections, the department
issued invoices and monthly statements for inspection fees to
Simplot, requiring payment within 30 days.  Simplot paid the
department for the inspections as invoiced.
In 1998, Simplot and some growers became dissatisfied
with the department's inspection services.  Under ORS 632.950, 20
percent of the growers that ship to a particular processor may
request a vote on whether to terminate the department's
inspections and instead have inspections conducted by a private
inspector.  The department conducted such a vote in the spring of
1998, but the growers voted to continue having the department
perform the inspections.  In July 1999, the growers again voted
on whether to continue the department's inspection services, and
that time the growers voted to discontinue those services.  The
department stopped inspections at Simplot's facility shortly
thereafter. 
In January 2000, Simplot filed a petition with the
department alleging that the department had overcharged Simplot
for processor inspections and requesting a refund.  In March
2000, the department issued a notice proposing to deny the
request for a refund.  Simplot requested a contested case
hearing, and the department referred the matter to a hearings
officer who conducted a hearing and issued a proposed order
denying Simplot's claim for a refund.  Simplot filed exceptions
to the proposed order, and the department issued a final order
addressing those exceptions and denying Simplot's claim for a
refund.
Simplot sought review in the Court of Appeals, which
affirmed the department's final order.  J. R. Simplot Co. v. Dept.
of Agriculture, 195 Or App 98, 96 P3d 1262 (2004).  Simplot
petitioned for review of the Court of Appeals' decision.  We
allowed Simplot's petition for review.II.  DISCUSSION
We begin with the Court of Appeals' ruling, which
affirmed the final order on the basis of ORS 293.445(2).  That
statute provides:
"When any agency determines that moneys have been
received by it in excess of the amount legally due and
payable to the agency or that it has received moneys to
which it has no legal interest, the agency, within
three years from the date the money was paid to the
agency, shall refund the excess or erroneous payment to
the person who made the payment or to the person's
legal representative, and such moneys hereby are
continuously appropriated for such purpose."
(Emphasis added.)  The Court of Appeals interpreted ORS
293.445(2) as a statute of limitations that deprived the
department of authority to provide refunds after three years from
the date that the person seeking a refund paid the money to the
department.  The court therefore affirmed the department's order
denying a refund on the grounds that the agency's authority to
comply with Simplot's refund request had expired.  Simplot, 195
Or App at 101-03.
Neither the parties nor the Court of Appeals appear to
have considered the meaning of the initial phrase of ORS
293.445(2):  "When any agency determines that moneys have been
received by it in excess of the amount legally due * * *." 
Nevertheless, when presented with a question of statutory
interpretation, this court must identify the correct
interpretation, whether or not the parties have suggested it. 
Stull v. Hoke, 326 Or 72, 77, 948 P2d 722 (1997) (stating
principle).  Because this case requires us to decide whether ORS
293.445(2) bars petitioners' claims, as the Court of Appeals
held, we consider the statute to determine whether it applies.  
For two reasons, we disagree with the Court of Appeals'
conclusion that ORS 293.445(2) bars Simplot's claims in this
instance.  First, the plain text of ORS 293.445(2) shows that it
applies only "when any agency determines that" a refund is due. 
In this case, no agency has made any determination that the
department has received moneys "in excess of the amount legally
due and payable" or "to which it has no legal interest." 
Therefore, ORS 293.445(2) does not apply. (4)  Second, we do
not think that ORS 293.445(2) constitutes a statute of limitation
that prevents an agency from making refunds after the expiration
of the three-year period.  That statute states only that an
agency "shall" make refunds within the three-year period, but
that directive does not prohibit the agency from making refunds
after the three-year period expires.  Indeed, ORS 293.445(3)
clarifies that an agency may, under certain conditions, make
refunds after the three-year period:
"Unless otherwise provided by law, any agency
having in its possession any moneys held for refund or
payment to claimants or distributees, or for
determination or adjustment of license fees or of other
amounts due the state, may, with the consent of the
State Treasurer and in accordance with rules prescribed
by the State Treasurer, deposit such funds in
designated accounts with the State Treasurer and make
lawful payments or adjustments therefrom to proper
claimants or distributees, by checks or orders drawn on
the State Treasurer signed by the officer or
administrative head of the agency depositing such
funds."
We agree with the Court of Appeals that an "agency may withdraw
and pay public funds only in accordance with any limitations that
the legislature places on [its] authority."  Simplot, 195 Or App
at 101-02.  ORS 293.445, however, does not limit an agency's
authority in that way.  ORS 293.445(2) does not entirely cut off
an agency's authority to make refunds at "three years from the
date the money was paid to the agency," because ORS 293.445(3)
clarifies that, more than three years after that payment, the
agency may make refunds in the manner that that subsection
prescribes. (5)  
Having concluded that the Court of Appeals erred in
disposing of Simplot's claim under ORS 293.445(2), we turn to the
claim itself:  that the department's method of determining fees
for inspections of agricultural products was beyond the
department's statutory authority, that the resulting fees were
excessive, and that Simplot therefore is entitled to a refund.
ORS 632.940 grants the department the authority to
perform fresh pack inspections.  It further provides:
"The department may fix, assess and collect, or cause
to be collected, fees for such services when they are
performed by employees or agents of the department. 
Such fees shall be on a uniform basis in an amount
reasonably necessary to cover the cost of such
inspection and administration of this section.  The
department shall so adjust the fees to be collected
under this section as to meet the expenses necessary to
carry out the provisions of this section, and may
prescribe a different scale of fees for different
localities.  The department also may prescribe a
reasonable charge for traveling expenses and services
when such services involve unusual cost to the
department in their performance."
(Emphasis added.)  ORS 632.945, which governs processor
inspections, requires the department to fix, assess, and collect
fees for those inspections "in the manner and to the extent
provided by ORS 632.940."  ORS 632.945(3).
Simplot argues that the department overstepped its
statutory authority in two respects when it set the fees for the
department's processor inspections of Simplot's potatoes: (1) in
charging more than was "reasonably necessary to cover the cost"
of inspections and the administration of the inspection program,
and (2) in assessing fees on other than a "uniform basis."  We
address each of those arguments in turn.
A. "Reasonably Necessary" Fees
Simplot first argues that the department erred by
failing to set inspection fees in an amount that was "reasonably
necessary to cover the cost of [the] inspection and
administration" of the inspection program.  In Simplot's view,
maintaining reserve funds was not a proper part of what was
"reasonably necessary."  The department responds that the reserve
was "reasonably necessary" as that phrase is used in ORS 632.940.
In Springfield Education Assn. v. School Dist., 290 Or
217, 621 P2d 547 (1980), this court considered the interpretation
of statutory terms that delegate authority to an administrative
agency.  Springfield delineated three categories of terms, each
of which requires a different level of appellate court deference
to an agency interpretation of a particular term.  The first
category includes "terms of precise meaning," the meaning of
which are easily discernible on their face and require only
agency factfinding in their application.  Id. at 223.  This court
reviews an administrative order applying a term of precise
meaning for substantial evidence in the record.  Id. at 224; see
also ORS 183.482(8)(c).  The second category includes "inexact
terms" which constitute a complete expression of legislative
policy.  Springfield, 290 Or at 224.  A court reviews the
agency's actions pursuant to those terms as a matter of law to
determine whether the agency's action effectuated the legislative
policy, as evidenced by the text and context of the statute.  Id.
at 227-28; see also ORS 183.482(8)(a); Coast Security Mortgage
Corp. v. Real Estate Agency, 331 Or 348, 353-54, 15 P3d 29 (2000)
(illustrating process; identifying and construing inexact
statutory term).  The third category consists of "delegative
terms," which the legislature uses when it intends to confer
discretion on the agency to "refin[e] and execut[e] generally
expressed legislative policy."  Springfield, 290 Or at 228.  When
it is acting pursuant to a delegative term, an agency carries out
a function that is "essentially legislative."  Id. at 229.  This
court reviews a final order applying a delegative term as a
matter of law to determine whether that decision "is within the
range of discretion allowed by the more general policy of the
statute."  Id. at 229; see also ORS 183.482(8)(b)(A) (requiring
remand if agency exercises discretion beyond range delegated by
law). 
The department argues that the phrase "reasonably
necessary" is a delegative term that provides it with discretion
to set fees in a manner that advances the generally expressed
legislative policy of the inspection statute.  Simplot disagrees,
asserting that "reasonably necessary" is an inexact term.  In our
view, both parties focus too narrowly on the words "reasonably
necessary," when the proper inquiry also must encompass the words
that immediately follow:  "to cover the cost of inspection and
administration." 
Viewed from that perspective, the phrase "reasonably
necessary to cover the cost of inspection and administration" is
not so general as to constitute a delegative term, because it
does more than simply set a generally expressed legislative
policy for the department to pursue.  Instead, that phrase tells
the department how to pursue the policy objective of funding an
inspection program:  It is to do so by setting fees that bear a
defined relationship with the likely range of costs for the
program.  The department may determine what the cost of
inspection and administration likely will be, and then it must
set the fees at a level that will "cover" those costs. 
Therefore, that phrase is an "inexact term" that expresses a
complete legislative policy, and we review the department's
action to determine whether it effectuated that policy.
The question remains whether the completed policy
expressed in ORS 632.940 allowed the agency to set fees at a
level that would allow it to establish a reserve fund.  The text
and context of ORS 632.940 contain several indications that a
reserve fund is consistent with that policy.  First, ORS 632.940
requires the department to set fees in an amount sufficient to
cover the cost of "such inspection and administration of this
section."  (Emphasis added.)  By explicitly referring to the
costs of administration, the legislature indicated that revenue
raised by fees need not be precisely tailored to the direct costs
of inspection only.  In creating a reserve for administrative
contingencies, the department ensured that the indirect costs of
administration, as well as the direct costs of inspection, were
covered.  Second, ORS 632.940 requires that all fees be
"deposited in the Department of Agriculture Service Fund" and
provides that the revenues in that fund shall be continuously
appropriated to the department for the maintenance of the
program.  That provision effectively structures the program to be
self-sustaining and therefore free from possible cash flow
interruptions that might require legislative assistance.  The
state's fiscal year ends on June 30, at the start of the peak
inspection season.  At that moment, the department needs to have
available the inspectors and administrative resources to perform
the work that will produce revenues in the coming year.  If the
department were required to forgo a reserve and narrowly tailor
its fee intake in a particular year to its expenditures in that
year, then the department would risk the very funding shortfalls
that ORS 632.940 appears to be intended to guard against. 
Finally, ORS 632.940 specifically directs the department to
"adjust" the fees to be collected.  That implies that the revenue
that the department raises through fees will not always remain at
the exact level necessary to support the department.  For all of
those reasons, we conclude that the department's practice of
maintaining a reserve fund is consistent with the legislative
policy behind ORS 632.940 and therefore is within the
department's fee-setting authority under that statute.
In addition to challenging the practice of maintaining
a reserve fund, Simplot challenges the amount of that reserve. 
As noted previously, the department determined that four months'
operating costs was an appropriate reserve.  Simplot advances no
cogent argument that a four-month reserve is unreasonable or
inconsistent with the legislative policy described above, and we
are aware of none.  In fact, as noted, that specific level was
recommended as part of the department's cooperative agreement
with the USDA.  Although the amount of the reserve fluctuated
above and below the target level, the record indicates that the
department, as required by ORS 632.940, continually "adjust[ed]"
the fees by increasing them to build the reserve when it was low
and reducing them when the reserve was high.  That practice also
appears consistent with legislative policy.
B. "Uniform Basis"
Simplot also contends that the department erred because
it did not assess fees on a "uniform basis," as required by ORS
632.940.  As described previously, the department set separate
fees for fresh pack inspections and processor inspections,
setting fresh pack fees in cents per hundredweight, with minimum
hourly rates, while setting processor fees in cents per
hundredweight only.  In Simplot's view, those separate fees were
not "uniform."  
We disagree.  ORS 632.940 and 632.945 recognize that
the department may conduct different types of inspections and
that the fees for inspections may vary.  ORS 632.940, for
example, provides that the department "may prescribe a different
scale of fees for different localities" and "may prescribe a
reasonable charge for traveling expenses and services when such
services involve unusual cost * * * ."  Fresh pack inspections
and processor inspections are fundamentally different processes
that take place in different locations and involve examinations
of product under different criteria.  Because those two methods
of inspection are not equivalent, there is no reason to think
that their attendant fees should be.  The context that ORS
632.940 and 632.945 provide confirms that a fee structure is
"uniform" when it specifies the same price for the same service. 
That is exactly what the department did in this case.  Because
Simplot paid the same price for inspection services as other
recipients of equivalent services, Simplot paid a "uniform" fee. 
Therefore, the department did not commit legal error in
determining that the fees were "uniform" as that term is used in
ORS 632.940.
Finally, Simplot argues that the fresh pack inspection
and processor inspection fees are not "uniform" because, as the
final order found, "[h]istorically, the fees assessed and
collected for the fresh inspections were less than the total
direct cost of providing fresh product inspection, and the fees
assessed and collected [for processor inspections] were more than
the total direct cost of the [processor inspections]."  In our
view, that fact may show how difficult it was for the agency to
match income to revenue needs, but, for the reasons that we have
just described, it does not demonstrate that the fresh pack
inspections and processor inspection fees were not uniform. 
The decision of the Court of Appeals and the order of
the Department of Agriculture are affirmed.
1. The department performed inspections for Simplot from
1993 through 1999.  During that period, ORS 632.940 did not
change in any way relevant to this opinion, and unless otherwise
indicated we cite the 1999 version of the statute. 
2. The department's final order in this case states that
fresh pack fees are set in cents per hundredweight; the order
does not mention the minimum hourly fees.  However, neither party
contests that historical fact directly, and both parties'
arguments in this court assume that the department assessed fresh
pack fees on an hourly basis.  The uncontradicted evidence in the
record shows that the department set those fees both in cents per
hundredweight and as hourly fees, as described in OAR 603-053-0200.  Therefore, we conclude that the final order's statement to
the contrary was not supported by substantial evidence in the
record.
3. The remaining potatoes were grown in Washington and
inspected by a private inspection service.
4. ORS 293.445(2) does not require an agency to make that
determination on its own initiative.  A party might obtain a
court order to the same effect, one by which the agency was
bound.  Alternatively, a party might ask the agency to make a
declaratory ruling under ORS 183.410 that a refund was due. 
5. We note that one or more other statutes of limitation
may apply to a claim for a refund from a state agency.  This
opinion concerns only whether ORS 293.445 itself imposes a time
limitation.  As described above, we conclude that it does not.