Clackamas County Assessor v. Village at Main Street Phase II, LLC
Docket: TC 4877; SC S058755
Court: Oregon Supreme Court; June 28, 2012; Oregon; State Supreme Court
The Tax Court awarded attorney fees to Village At Main Street Phase II LLC after it successfully challenged the Clackamas County Assessor's property tax assessment regarding site developments related to its apartment complex project. The Tax Court's order required the Department of Revenue to pay these fees, although both the county and the department appealed this decision. The appellate court found that the Tax Court erred in awarding the fees and reversed the supplemental judgment.
In 2004, Village developed real property in Clackamas County, making site improvements that included grading and infrastructure. In 2005 and 2006, the county assessed the property but assigned no value to these improvements, adjusting the land value based on undeveloped land trends. In 2007, the county attempted to add the previously omitted value of these improvements to the tax roll, increasing Village's tax liability by about $18,000. Village contested this action, arguing the improvements were not 'omitted' property under ORS 311.216, leading to a successful summary judgment in the Tax Court's Magistrate Division. The magistrate ruled that the county had undervalued the property rather than omitted it, stating that existing property appraised during the original inspection cannot be retroactively added as omitted. The case was subsequently brought to the Tax Court’s Regular Division, where proceedings are original and de novo under ORS 305.425.
On cross-motions for summary judgment, the Tax Court ruled that site developments were not omitted property, aligning with the magistrate's findings. The Tax Court assessed that Clackamas County had undervalued, rather than omitted, these developments, as they were integral to the land's value. The county appealed, asserting that the Tax Court's decision contradicted ORS 311.216, which governs omitted property. The court identified that the dispute hinged on statutory interpretation, observing that both parties' interpretations were supported by the statute's text. The court then reviewed the statute’s context and legislative history, ultimately determining that the site improvements were integral to the land and could not be classified as omitted property. The court ruled in favor of Village and affirmed the Tax Court's judgment. Subsequently, Village petitioned the Tax Court for attorney fees under ORS 305.490(4), which allows for reasonable attorney fees for prevailing taxpayers in property tax matters. The county contested this petition, arguing that its challenge was reasonable and made in good faith. The Tax Court indicated it would consider factors from ORS 20.075 when deciding on the fee award, including the reasonableness of the non-prevailing party’s position and whether the prevailing party's efforts clarified the law.
The Tax Court determined that Village was entitled to reasonable attorney fees, primarily referencing its earlier decision in Wheeler I. The court noted that while many factors under ORS 20.075 did not favor or oppose a fee award, the county had essentially relitigated issues it had previously lost. The county retains the right to appeal decisions from the Magistrate Division, but when it fails again, it is appropriate for the taxpayer to be relieved of the attorney fees incurred in the appeal process.
The Tax Court ruled that the Department of Revenue must pay these attorney fees, despite not being a party to the original proceeding, based on ORS 305.490(4)(b), which mandates such payments per ORS 305.790. The department had been served with the complaint and had the right to intervene, and an attorney for the department attended the hearing.
Both the department and the county have appealed the supplemental judgment awarding attorney fees, arguing that the Tax Court improperly relied on Wheeler I rather than the mandatory factors outlined in ORS 20.075. The department contends it should not be liable for fees in non-party cases, while the county disputes the Tax Court's authority to make it a judgment debtor under ORS 305.490.
The court agreed that the Tax Court erred in awarding fees to Village, thus sidestepping the issue of whether ORS 305.490 permits imposing such an award on the department or the county. Under ORS 305.490, the decision to award attorney fees is discretionary, and the court must consider the mandatory factors in ORS 20.075(1), which include the conduct of the parties, the reasonableness of claims, and deterrent effects of the fee award. The court has historically refrained from awarding fees when a governmental entity has reasonably but erroneously interpreted relevant statutes.
In Preble, the court denied attorney fees to taxpayers who successfully appealed a Tax Court judgment due to the department's reasonable misinterpretation of a validity issue regarding a notice of deficiency lacking certification. Under ORS 20.075(1)(h), the court assessed the reasonableness of the agency's statutory interpretation, despite it being erroneous, noting that the validity question was complex and required comprehensive statutory analysis. Similarly, in Necanicum Investment Co. v. Employment Dept., the court also refused to award attorney fees to a corporation that challenged an unemployment tax assessment because there was no claim that the department's position was objectively unreasonable. The court referenced McKean-Coffman v. Employment Div., emphasizing that even when an agency's position is incorrect, if it is reasonable, an attorney fee award is typically unwarranted to avoid deterring agencies from asserting reasonable legal interpretations. Thus, under ORS 305.490(4)(a)(A), when a government entity's stance is based on a reasonable interpretation, merely being erroneous is insufficient grounds for a discretionary fee award. The Tax Court had awarded fees to Village, stating that Clackamas County Assessor improperly relitigated previous positions, which the court deemed appropriate for relieving the taxpayer of incurred fees. The Tax Court supported this by referencing its previous decision in Wheeler I, where it upheld a magistrate's ruling that a retiree's payment was not taxable Oregon income.
The taxpayer requested attorney fees under ORS 305.490(3), which grants discretionary authority to the court to award fees to a prevailing taxpayer. The Tax Court awarded these fees, noting the department's appeal was based on the same legal theory as previously presented to the magistrate, who had thoroughly considered the arguments without any credible assertion of improper handling. The court highlighted that appealing a well-reasoned magistrate decision may incur reasonable attorney fees for the opposing party, especially when no new legal arguments are presented.
On reconsideration, the Tax Court referenced ORS 20.075(1)(h) to examine whether the government agency was relitigating a position ruled on by the magistrate. However, it concluded that the government’s pursuit of review based on a well-reasoned decision does not justify awarding fees since "well reasoned" does not equate to "reasonable" or "correct." The Tax Court’s rationale was found to conflict with ORS 20.075(1)(b), which focuses on the objective reasonableness of claims or defenses. The appellate court emphasized that a governmental entity may take a position that later proves erroneous without necessarily being deemed objectively unreasonable.
Consequently, the Tax Court's reliance on its previous decision in Wheeler I to award fees was ruled as an abuse of discretion. It was mandated that the Tax Court assess the objective reasonableness of the county's position in the Regular Division, even if that position was ultimately incorrect. The county contended that the site's developments were "omitted" property under ORS 311.216, as it had not assigned any value to those developments in its assessment, thus justifying its argument of omission.
The court rejected the county's interpretation of ORS 311.216, determining it was erroneous but not unreasonable. This conclusion was influenced by the lack of prior construction of the statute by the court, with only the Tax Court having interpreted it in West Foods since 1985. The court noted that the text of ORS 311.216 allows for both parties' interpretations, indicating the dispute was not straightforward. Despite the county's position being incorrect, the court found it objectively reasonable, which disqualified it as a basis for attorney fees under ORS 20.075(1)(b). Village's request for attorney fees relied on criteria that included objective reasonableness and deterrence of meritless claims, but it did not raise other relevant factors from ORS 20.075. Consequently, the court stated that it would only consider the criteria presented by Village, which were based on the assumption that the county's position was unreasonable due to a prior ruling against it by the magistrate. Since the court had already established the county's position as objectively reasonable, it ruled that this criterion could not justify a fee award in this instance.
The court determined that the county's arguments were objectively reasonable, leading to the conclusion that under ORS 20.075(1)(c), a fee award would not deter parties from asserting good faith claims and defenses. Referencing McKean-Coffman, the court noted that awarding fees could discourage administrative agencies from pursuing reasonable legal positions. Additionally, the court found that the county's position was not meritless, which negated the applicability of ORS 20.075(1)(d) regarding deterring meritless claims, as established in Preble. As none of the factors in ORS 20.075(1) supported an attorney fee award, the Tax Court was deemed to have abused its discretion in awarding such fees to Village, resulting in a reversal of that decision.
The document further outlines that county tax assessors are mandated to list real market values of land separately from buildings on assessment rolls per ORS 308.215(1)(e). ORS 311.216(1) requires assessors to notify if any property has been omitted from taxation. The Tax Court had partially granted and partially denied Village’s fee petition based on the county’s objections, but the fee amount was not contested in this court.
The legal arguments raised pointed to issues of statutory interpretation, with Village asserting that the statute makes the department liable for attorney fees whenever the Tax Court finds it appropriate. Conversely, the department argued that the context of the statute indicates ambiguity, suggesting that the legislature did not intend to obligate the department to pay fees when it was not responsible for the litigation. The county also challenged the Tax Court's authority under ORS 305.490 to impose fee liability on it. The court encouraged legislative review of ORS 305.490(4)(b) to clarify its intent regarding such cases. Finally, it reiterated that fee decisions should not be based on incorrect legal premises, referencing Barbara Parmenter Living Trust v. Lemon, and noted procedural requirements for petitions requesting attorney fees per ORAP 13.10(5)(b).
