Opinion ID: 835212
Heading Depth: 2
Heading Rank: 1

Heading: The Claim for Damages in the Magistrate Division

Text: The regular division proceeding is an original, independent proceeding[] and [is] tried    de novo.  ORS 305.425(1). Despite the independent and de novo character of the regular division proceeding, we see nothing inappropriate in the decision of the tax court to examine whether the magistrate had erred in applying ORS 305.437. The answer to that inquiry potentially could affect the extent of any award of damages that the tax court might make. We turn, then, to the magistrate's application of ORS 305.437. At the outset, we note that we have no disagreement with the magistrate's conclusion, with which taxpayers now agree, that taxpayers' original justifications for denying that they had earned income in 2002 were frivolous. This court rejected similar justifications by a taxpayer as frivolous in Combs v. Dept. of Rev., 331 Or. 245, 248, 14 P.3d 584 (2000), and affirmed an award of damages under ORS 305.437. The sole legal question here concerns the magistrate's refusal to award damages to the department. To resolve that question, we must interpret ORS 305.437. In the words of that statute, we must determine the legislature's intent in requiring an award of damages to the department when the taxpayer's position in such proceeding is frivolous. [5] No statute specially defines damages, as ORS 305.437 uses that term. However, the term damages has an established legal meaning. [6] Black's Law Dictionary 351-52 (5th ed. 1979) provides the following legal definition of damages: A pecuniary compensation or indemnity, which may be recovered in the courts by any person who has suffered loss, detriment, or injury, whether to his person, property, or rights, through the unlawful act or omission or negligence of another. A sum of money awarded to a person injured by the tort of another. Restatement, Second, Torts, § 12A. Under that legal definition, a damages award, in its essence, compensates a party for the injury caused to that party by a wrong or injury. The extent of a party's damages typically depends on proof of a loss or injury that flows as a direct consequence of the wrongful act or omission in question. We conclude that ORS 305.437 incorporates at least that compensatory principle in referring to a damages award in favor of the department. Courts also are familiar with another form of damages, punitive or exemplary damages. Courts award that form of damages over and above compensation for loss or injury to punish an actor for aggravated or oppressive behavior and to deter or set an example for similar wrongdoers. In cases in which it is proved that a defendant has acted willfully, maliciously, or fraudulently, a plaintiff may be awarded exemplary damages in addition to compensatory or actual damages. Id. at 352. Whether ORS 305.437 requires (or even permits) a damages award not only to compensate the department for loss but also to punish taxpayers is a question that the text of that statute does not answer. In other statutes that govern the administration of tax laws, the legislature has used a different term, i.e., penalty, to describe a monetary fine that is designed to inflict punishment for wrongful conduct. See ORS 305.228(1), (2); [7] ORS 316.992(1), (2). [8] The term penalty also is a familiar legal concept; it involves [the] idea of punishment, corporeal or pecuniary, or civil or criminal, although its meaning is generally confined to pecuniary punishment. See Black's at 1020 (defining penalty). From the foregoing, it appears that the legislature's use of the word damages, rather than penalty, in ORS 305.437 indicates that the legislature intended an award of damages under that statute to serve the objective of compensation for proven loss, but not punishment. Two additional aspects of statutory text reinforce that view. First, each of the penalty statutes quoted above incorporates a mathematical formula that governs calculation of the penalty. Under ORS 305.228(2), the penalty for tendering a dishonored check or other negotiable instrument is the greater of $25 or three times the amount of the dishonored check, draft, order or electronic funds transfer. The amount of the penalty shall not be greater than $500. Under ORS 316.992(1), the penalty for filing an incomplete or incorrect return is a specific sum, $250. Those statutes leave no discretion for the calculation of a penalty. ORS 305.437, by contrast, contains no formula for calculating damages, except that the award may not exceed $5,000. Second, ORS 316.992(2) permits imposition of a penalty for filing an incomplete or incorrect return only if the improper filing is due to [a] position which is frivolous or an intention to delay or impede the administration of the income tax laws of this state. ORS 305.437 addresses frivolous and delay-motivated litigation, but does so through an award of damages, not a penalty. The distinctive textual elements discussed above indicate that the legislature intended ORS 305.437 to incorporate a policy of compensation for the department's proven losses caused by a taxpayer's frivolous litigation, but not an additional policy of financial recovery beyond compensation to punish the taxpayer. We reach that conclusion to give effect, as we must, to the legislature's use in the tax statutes of different terms, each with well-known definitions, to describe different consequences for frivolous litigation. The department cites no authority supporting a contrary statutory construction. Although not cited by the parties or the court below, one case is relevant to our discussion. In Stirling v. Dari-Delite, Inc., 262 Or. 359, 491 P.2d 1168, on motion for damages, 262 Or. 359, 494 P.2d 252, on motion to recall mandate, 262 Or. 359, 498 P.2d 753 (1972), this court had awarded a monetary sum against an unsuccessful defendant who, on appeal, had failed to obtain reversal of a default judgment for damages in the sum of $84,700. A statute, former ORS 19.160 (1953), renumbered as ORS 19.445 (1997), [9] required the appellate court, on affirming a judgment for recovery of money, to give judgment for an additional specific sum  10 percent of the amount of the trial court judgment  for damages for the delay, unless there was probable cause for taking the appeal. After the court made that award on appeal, the defendant's surety, an insurance company, challenged its liability for the additional award of damages for the delay. This court declined to relieve the surety company of its liability, because the legislature had used the same word, damages, to describe the amounts for which a surety was liable on appeal. In dictum, this court in Stirling described the statutory award for damages for the delay under former ORS 19.160 as a penalty to discourage frivolous appeals taken without probable cause for the purpose of delay   . Id. at 370, 491 P.2d 1168. We agree with that characterization. Like the penalty statutes regarding tax law administration discussed above, the statute in Stirling required imposition of a judgment for a specific amount of money as the price for identified misconduct on appeal. As the court explained in Stirling, the legislature's specification of the required amount of the award on appeal defeated any inference that the amount of damages for the delay depended on a showing of actual damages. That circumstance, and the legislature's distinctive use of the terms damages and penalty in the tax statutes, distinguish Stirling for purposes of this discussion. In addition to the term penalty, the legislature also has used the word sanction to describe, among other things, a monetary award, in favor of either a party or the court, that results from certain misconduct during litigation. ORCP 17 D provides, in part: (1) The court may impose sanctions against a person or party who is found to have made a false certification under section C of this rule, or who is found to be responsible for a false certification under section C of this rule.      (4) Sanctions under this section must be limited to amounts sufficient to reimburse the moving party for attorney fees and other expenses incurred by reason of the false certification, including reasonable attorney fees and expenses incurred by reason of the motion for sanctions, and upon clear and convincing evidence of wanton misconduct amounts sufficient to deter future false certification by the party or attorney and by other parties and attorneys. The sanction may include monetary penalties payable to the court. The sanction must include an order requiring payment of reasonable attorney fees and expenses incurred by the moving party by reason of the false certification. (Emphasis added.) Sanctions awarded under ORCP 17 D(4) carry express compensatory and punitive consequences. We think that it is significant that the legislature, in referring to damages in ORS 305.437, incorporated no wording, similar to that in ORCP 17 D(4), confirming that a damages award should reflect the amount necessary to deter misconduct by a party or attorney. We conclude from the foregoing that the legislature clearly intended an award of damages under ORS 305.437 to compensate the department for its actual losses caused by a taxpayer's pursuit of a frivolous position in proceedings before the Oregon Tax Court. No party contends that that statute has no application in the magistrate division, so the magistrate properly considered its application to the facts before him. The record before the magistrate contained no evidence of any actual losses, costs, or expenses to the department caused by taxpayers' frivolous position in that tribunal. The magistrate noted that the department's actual damages are trivial and that any award would be de minimus [ sic ] because the department's effort in the magistrate division was so limited. In light of the compensatory policy that underlies ORS 305.437, as discussed above, and the magistrate's findings concerning the lack of evidence of damages, we conclude that the magistrate did not err in declining to award damages.