S055231, Opinion — Necanicum Investment Co. v. Employment Dept.

518
On petition for attorney fees, petitioner's statement of costs and disbursements
allowed in sum of$369.24; petition for attorney fees denied December 31, 2008
NECANICUM INVESTMENT CO.,
Petitioner on Review,
v.
EMPLOYMENT DEPARTMENT,
Respondent on Review.
(Agency No. T70772; CAA131207; SC S055231)
200P3d129
CJS, States § 328.

Cite as 345 Or 518 (2008) 	519
En Banc
Joseph D. McDonald, Smith, McDonald & 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.

520 	Necanicum Investment Co. v. Employment Dept.
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., 345Or138,
190 P3d 368 (2008). Petitioner now seeks an award of attor-
ney 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 attor-
ney 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 peti-
tioner 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 Adminis-
trative 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 corpora-
tion 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 stat-
utory definition, "service for an employer * * * for remunera-
tion." 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 reason-
able attorney fees and costs if the court finds in favor of the
petitioner.

Cite as 345 Or 518 (2008) 	521
"(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 reason-
able 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 circum-
stances 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. How-
ever, ORS 20.075(1)-the general statute governing awards
of attorney fees-lists eight factors that a court must con-
sider 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.

522 	Necanicum Investment Co. v. Employment Dept.
"(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 pre-
vailing 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 reason-
able attorney fees and costs if the court finds in favor of the
petitioner."
In McKean-Coffman, this court declined to award a success-
ful petitioner attorney fees under ORS 183.497(1)(a), con-
cluding that the Employment Division, although wrong in its
application oflaw, 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 adminis-
trative agencies timorous about pursuing reasonable posi-
tions 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

Cite as 345 Or 518 (2008) 	523
the court has discretion to decide whether to award attorney
fees[.]" By its terms, then, ORS 20.075(1) applies to the dis-
cretionary 	decision 	whether 	to 	award 	fees 	under 	ORS
183.497(1).
The factors listed in ORS 20.075(1) include the par-
ties' 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' argu-
ments 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 rela-
tion 	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 reasonable-
ness 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 deter-
mine 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 con-
sider 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

524 	Necanicum Investment Co. v. Employment Dept.
we 	have 	determined 	that 	the 	department 	erroneously
assessed the tax, petitioner does not claim that the depart-
ment 	was 	objectively 	unreasonable 	in 	doing 	so. 	ORS
20.07 5(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 impli-
cation 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 dili-
gence of the parties and their attorneys during the proceed-
ings." 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 prevail-
ing 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
' 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."

Cite as 345 Or 518 (2008) 	525
overcompensate that party). In this case, because the pre-
vailing party fee is statutory, we regard that factor as
neutral.
Based on our consideration of all of the factors dis-
cussed above, we conclude that the department assessed the
tax and asserted its legal position during the subsequent lit-
igation 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.