YU Contemporary, Inc. II v. Dept. of Rev. ( 2017 )

No. 45 December 29, 2017 511
IN THE OREGON TAX COURT
REGULAR DIVISION
YU CONTEMPORARY, INC.,
Plaintiff,
v.
DEPARTMENT OF REVENUE,
Defendant,
and
MULTNOMAH COUNTY ASSESSOR,
Defendant-Intervenor.
(TC 5245)
Following litigation of Plaintiff’s claims for relief regarding exemption from
property tax for certain property owned by an art museum pursuant to ORS
307.130, Plaintiff (taxpayer) submitted a request for attorney fees, costs and dis-
bursements. The court found that under the eight statutory factors regarding
award of attorney fees, factors B, F, and H supported an award of attorney fees
in this case. Factor C weighed against an award of attorney fees, and factors A,
D, E, and G either did not apply or did not support an award of attorney fees.
The court in its discretion concluded that on the basis of factors B, F, and H,
or any one of them independently, that an award of attorney fees was appropri-
ate. Neither the department nor the county had objected to the amount of fees
requested by taxpayer, and the court was not inclined sua sponte to consider the
reasonableness of the amount of those fees requested.
Submitted on Plaintiff’s Statement for Attorney fees,
Costs and Disbursements.
Michael J. Millender, Tonkon Torp, LLP, Portland, filed
the request for Plaintiff (taxpayer).
Daniel Paul, Assistant Attorney General, Department of
Justice, Salem, filed the response for Defendant Department
of Revenue (the department).
Carlos A. Rasch, Assistant Multnomah County Counsel,
Portland, joined Defendant’s response for Defendant-
Intervenor Multnomah County Assessor (the county).
Decision for Plaintiff rendered December 29, 2017.
512 YU Contemporary, Inc. II v. Dept. of Rev.
HENRY C. BREITHAUPT, Judge.
I. INTRODUCTION
This matter is before the court on the request for
attorney fees, costs, and disbursements made by Plaintiff
YU Contemporary, Inc. (taxpayer). Defendant Department
of Revenue (the department) has filed objections to the
request, to which Defendant-Intervenor Multnomah County
Assessor (the county) has joined. Taxpayer has responded to
those objections.
II. BACKGROUND
This case concerned taxpayer’s request for exemp-
tion from property tax for certain property owned by an art
museum pursuant to ORS 307.130.1
The county denied taxpayer’s request based in
part on a visit that the court described as “cursory at best.”
YU Contemporary, Inc. I v. Dept. of Rev., 22 OTR 349, 367
(2017). The county determined that taxpayer “is not * * *
the kind of entity that satisfies the various tests for qual-
ifying for exemption under ORS 307.130,” and, even if it is,
“several aspects of the mixed-use of the property prevent
this property from qualifying for exemption.” Among those
nonexempt or mixed uses was the perceived use of portions
of taxpayer’s property as a temporary residence for visiting
artists.
Taxpayer appealed the county’s denial to the
Magistrate Division of the court, and then petitioned for spe-
cial designation to the Regular Division. That petition was
granted, as was the county’s subsequent motion to intervene
as a defendant.
Before the case proceeded to trial, the parties stip-
ulated to a number of facts. These facts related to various
aspects about taxpayer, the property at issue, taxpayer’s
activities on the property, and relevant nonparties associ-
ated or previously associated with the property.
1
Unless otherwise noted, all references to the Oregon Revised Statutes
(ORS) are to the 2013 edition.
Cite as 22 OTR 511 (2017) 513
At trial, the court received testimony and exhib-
its concerning the nature of taxpayer’s operations and the
county’s investigation. After considering the matter, the
court found that the majority of taxpayer’s property at issue
was subject to exemption.2 Certain facts will be introduced
as necessary in the analysis portion of this order.
III. ISSUES
The first issue is whether taxpayer is entitled to
costs and disbursements under ORS 305.490(2). The second
issue is whether taxpayer is entitled to attorney fees under
ORS 305.490(4)(a).
IV. ANALYSIS
Taxpayer makes two separate requests. The
first request is for costs and disbursements under ORS
305.490(2). The second request is for attorney fees under
ORS 305.490(4)(a).
A. Costs and Disbursements
As explained in Tax Court Rule (TCR) 68, costs
and disbursements are “reasonable and necessary expenses
incurred in the prosecution or defense of an action other
than for legal services.” TCR 68 A(2). The court is autho-
rized to award costs and disbursements by ORS 305.490(2).
That statute provides, in relevant part:
“The party entitled to costs and disbursements on such
appeal [to this court] shall recover from the opponent of
the party the amount so paid upon order of the court, as in
equity suits in the circuit court.”
ORS 305.490(2).
TCR 68 B provides that “costs and disbursements
will be allowed to the prevailing party unless these rules or
any other rule or statute direct that in the particular case
costs and disbursements will not be allowed to the prevail-
ing party or will be allowed to some other party, or unless
the court otherwise directs.” (Emphasis added.)
2
Taxpayer did not challenge denial of exemption for portions of the property
that were leased out to commercial tenants.
514 YU Contemporary, Inc. II v. Dept. of Rev.
1. Prevailing party
Neither party claims that taxpayer is not the pre-
vailing party in this case. The record shows that taxpayer
prevailed on showing that the majority of the square footage
of the property at issue in this case is exempt from property
taxation. The court finds that taxpayer is the prevailing
party.
2. Reasonable and necessary
In addition, the department does not argue that tax-
payer is not entitled to costs and disbursements under any
rule, statute, or case, or that such costs and disbursements
are not reasonable or necessary. The department limited its
objections to attorney fees.
The county, however, appears to also object to tax-
payer’s request for costs and disbursements. In its joinder to
the department’s objections, the county stated:
“For the reasons set forth in Defendant Department of
Revenue’s Objections to Plaintiff’s Statement for Attorney
Fees, Costs and Disbursements, the County respectfully
requests that the Court deny Plaintiff’s requests for attor-
ney fees, costs and disbursements as both the Department
and the County’s actions and positions were reasonable
and an award of attorney fees, costs and disbursements is
not merited under ORS 20.075 and ORS 305.490. This is
further evidenced by Plaintiff’s counsel’s representation at
trial that it was not seeking attorney fees and costs when
counsel for the parties were brought into chambers by your
honor.”
(Emphases added.)
Assuming that the county does object to taxpayer’s
request for costs and disbursements, such objection is not
well taken.
First, the county has cited no rule or statute or case
directing that an award of costs and disbursements is not
appropriate in this case. See TCR 68 B. Any reliance by the
county on ORS 20.075 and ORS 305.490 as to costs is mis-
placed. Those statutes concern the availability or appropri-
ateness of an award of attorney fees. They do not govern
whether costs and disbursements are allowed.
Cite as 22 OTR 511 (2017) 515
Second, the county has not explained why the
nature or amount of costs requested by taxpayer is not “rea-
sonable” or “necessary” to the litigation in this case. See
TCR 68 B. Taxpayer requests approximately $1,700 in costs
for the filing fee, enlargement of exhibits for display at trial,
and taxpayer’s portion of transcript fees. The court finds
that these costs were both “reasonable” and “necessary” to
the litigation in this case.
Third, as will be addressed below in the discussion
of whether attorney fees are appropriate, the court does not
conclude that taxpayer’s counsel intended his unrecorded
statement in chambers to permanently waive taxpayer’s
rights to attorney fees or costs and disbursements.
3. Conclusion as to costs and disbursements
Taxpayer is the prevailing party in this case.
Taxpayer’s requested costs and disbursements were reason-
able and necessary to the litigation in this case. The court
grants taxpayer’s request for costs and disbursements.
B. Attorney Fees
Having concluded that taxpayer’s request for costs
and disbursements is granted, the court now considers tax-
payer’s request for attorney fees. The court is authorized
to award attorney fees to the prevailing party by ORS
305.490(4)(a). That statute provides:
“If, in any proceeding before the tax court judge involv-
ing ad valorem property taxation, exemptions, special
assessments or omitted property, the court finds in favor of
the taxpayer, the court may allow the taxpayer, in addition
to costs and disbursements, the following:
“(A) Reasonable attorney fees for the proceeding under
this subsection and for the prior proceeding in the matter,
if any, before the magistrate; and
“(B) Reasonable expenses as determined by the court.
Expenses include fees of experts incurred by the individual
taxpayer in preparing for and conducting the proceeding
before the tax court judge and the prior proceeding in the
matter, if any, before the magistrate.”
ORS 305.490(4)(a).
516 YU Contemporary, Inc. II v. Dept. of Rev.
As discussed in the analysis concerning costs and
disbursements, taxpayer is the prevailing party in this case.
Accordingly, the court is authorized to award attorney fees.
However, the court must still evaluate whether an
award of attorney fees is appropriate. In doing so, the court
considers the factors contained in ORS 20.075(1). Preble v.
Dept. of Rev., 331 Or 599, 602, 19 P3d 335 (2001). Those fac-
tors are addressed below.
1. Factor A
The first factor the court considers is “[t]he 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.” ORS
20.075(1)(a).
Taxpayer argues that the conduct of the county
in this case was reckless for two reasons.3 First, taxpayer
argues that the county recklessly denied taxpayer’s exemp-
tion request based on “Belinda Delow’s unannounced inspec-
tion of the property on July 1, 2014 and superficial research
on YU.”
Second, taxpayer argues the county was reckless
when it “maintained its position even after entering into an
extensive set of stipulated facts covering YU’s cultural offer-
ings, donor base, grants from prestigious foundations, and
relatively limited use of the building for event rentals.”
Considering the latter reason first, the court notes
that this factor by its very terms concerns the pre-litigation
conduct of the parties. ORS 20.075(1)(a) (concerning conduct
that “gave rise to the litigation”); see also Ellison v. Dept.
of Rev., 362 Or 148, 170, 404 P3d 933 (2017). Accordingly,
the county’s actions during the litigation in this case are
irrelevant to this factor. They are, however, relevant to other
factors, and will be addressed accordingly in the analysis
under those factors.
3
In taxpayer’s memorandum in support of its request for attorney fees, one of
taxpayer’s headings is entitled “Recklessness and Bad Faith.” However, taxpayer
never argued that the county acted in bad faith. To the contrary, taxpayer stated,
“There has never been any suggestion that the Assessor or the Department acted
maliciously, illegally or in bad faith.” (Emphasis added.)
Cite as 22 OTR 511 (2017) 517
The court now turns to taxpayer’s first argument
under this factor, that the county’s denial of taxpayer’s
request for exemption was recklessly based on an unan-
nounced inspection and inadequate research. Taxpayer
chiefly relies upon the following language found in the
court’s opinion:
“The inspection done by the county before its decision on
exemption was cursory at best and the witness for the
county concluded that not much of the space in the prop-
erty was being used. That witness did not take into account
the fact that the date of the visit occurred just after com-
pletion of one exhibit and in what are significant periods
of time between exhibits. The witness also did not take
into account that taxpayer is in its organizational and
operational infancy, or that on the day of the visit tax-
payer was in the process of making major moves of activ-
ity areas due to repositioning of exempt and nonexempt
activities.”
YU Contemporary, Inc. I, 22 OTR at 367-68 (emphasis added).
The court declines to make a finding that the county
acted recklessly in this regard. As previously mentioned,
taxpayer represented at trial, in chambers, that it was not
seeking an award of attorney fees. Because this representa-
tion was not on the record, the court reproduces the parties’
recollections of the discussion below.
In the department’s objection to taxpayer’s fee
request, to which the county joined, it noted:
“During Ms. [Belinda] Deglow’s testimony, the court
summoned counsel for all parties to chambers and dis-
cussed the relevance of the actions of the county assessor to
the tax court’s de novo review of the property’s qualifications
for exemption, and how the assessor’s actions might only be
relevant in a request for attorney fee awards. Counsel for
the plaintiff indicated that the plaintiff was not seeking
an award of attorney fees. It is not clear whether plaintiff
intended to permanently waive its right to seek attorney
fees, but in any event plaintiff should not be allowed to now
base its request for attorney fees on Ms. Deglow’s actions in
denying the exemption, given its previous assertion during
her testimony.”
518 YU Contemporary, Inc. II v. Dept. of Rev.
In response, taxpayer submitted the following dec-
laration from its counsel:
“During the trial of this case, I participated in an
in-chambers discussion with Judge Breithaupt, my
co-counsel and opposing counsel during the examination
for Belinda Deglow by the Assessor’s counsel. My memory
of the discussion is as follows: The Assessor’s counsel had
just started on a line of questions concerning the general
practices of the Assessor’s office. Judge Breithaupt noted
that Ms. Deglow’s testimony on this topic would only be rel-
evant if YU was seeking attorney fees. I responded in the
negative because, at this stage of the case, I had no inten-
tion of seeking attorney fees on YU’s behalf. However, I
had no intention of permanently waiving YU’s right to seek
fees. YU decided to petition for fees and costs in February
of 2017. The decision was based on the Court’s opinion and
the entire record of the case, including the rejection of YU’s
post-trial settlement offer.”
Taxpayer relied on that declaration and made
the following argument regarding the recklessness of the
county:
“In any event, the Department was not prejudiced by
Mr. Millender’s statement or the Court’s directions that
may have been based on his statement. Before the Court
called the parties into chambers, Ms. Deglow had started to
testify on the Assessor’s general standards and procedures
for reviewing applications for property tax exemption. After
discussion in chambers, [the county’s counsel’s] questions
focused more closely on Ms. Deglow’s investigation into YU.
Ms. Deglow had a full opportunity to discuss her handling of
YU’s application for exemption, both on direct examination
and cross examination. The Department was not prejudiced
by this narrower focus, because YU is not asserting that
there are systemic problems with how the Assessor’s office
handles exemption applications. Instead, YU is relying on
the Court’s finding—based on Ms. Deglow’s testimony—
that her investigation of YU was ‘cursory at best.’ ” 4
(Emphasis added.)
4
Taxpayer in its response also commented on the actions of the county and
its maintenance of its defense during the discovery phase of this case. However,
this again is conduct that occurred during litigation, and is therefore irrelevant
under this factor.
Cite as 22 OTR 511 (2017) 519
On these recollections the court makes a few
comments.
First, both parties agree that the discussion in
chambers concerned whether the general practices and pro-
cedures of the county in evaluating exemption requests were
relevant to the court’s determination of whether exemption
was appropriate. Those general practices and procedures
are, of course, generally irrelevant under this court’s de novo
standard of review. ORS 305.425.
Second, the parties appear to disagree, or at least
the department questions, whether taxpayer intended to
permanently waive its ability to request attorney fees or
costs. Having reviewed and considered the parties’ recol-
lections of the in-chambers discussion, the court does not
find that taxpayer’s counsel did waive or intended to waive
taxpayer’s ability to request attorney fees or costs during an
unrecorded in-chambers discussion regarding the relevancy
of the line of questioning.
Third, taxpayer appears to admit that its repre-
sentations changed the substance of the testimony solicited
from Belinda Deglow. On that basis, and the court’s review
of the transcript, the court finds that the testimony solic-
ited from the witness on direct examination—and therefore
cross-examination—was materially altered as a result of
the representations of taxpayer’s counsel in chambers.
With that context, the court now explains why it
declines to make a finding on this factor.
The court’s opinion makes clear that it has concerns
regarding the extent of the county’s investigation in this
matter. However, based on taxpayer’s representations, the
court lacks the context necessary to determine whether the
county’s denial, based in part on an inspection found to be
“cursory at best” is, in fact, reckless.
The record indicates that Belinda Deglow was the
only person for the county evaluating exemption requests on
a full-time basis, and that she personally handled approxi-
mately 200 exemption requests, many of which she granted.
The witness began to testify regarding how the county
520 YU Contemporary, Inc. II v. Dept. of Rev.
generally handles exemption requests, but that testimony
was narrowed to her actual investigation in this case after
discussion in chambers with counsel.
The court is not aware of precisely how much time
Deglow had to evaluate the 200 exemption requests. The
court is also not aware of whether the county has put cer-
tain policies in place restricting the scope of investigations
so as to adequately administer the resources it has.
These missing facts could give meaningful con-
text to the investigation and ultimate denial of the county.
Additional evidence could show that a denial based upon a
“cursory at best” inspection is not reckless when that inspec-
tion is coupled with the additional research and investi-
gation done by the county, based upon the administrative
resources it has at its disposal.
Of course, such additional evidence could show that
Belinda Deglow’s inspection and investigation in this case
was reckless, or that the county’s standards themselves are
insufficient to guide assessors through a legitimate evalua-
tion of an exemption request. However, that record was not
made by taxpayer, and the county’s attempt to introduce
such contextual information was thwarted by taxpayer’s
representations in chambers.
On a record made limited by taxpayer, the court
declines to find that the county’s conduct was reckless.
Therefore, the court concludes that factor does not weigh in
favor of an award of attorney fees. However, because of the
questions raised by the county’s investigation before denial,
the court also concludes that this factor does not weigh
against an award of attorney fees.
2. Factor B
The second factor the court considers is “[t]he objec-
tive reasonableness of the claims and defenses asserted by
the parties.” ORS 20.075(1)(b).
The court has previously stated that the test of
objective reasonableness is whether a claim or defense is
“ ‘entirely devoid of legal or factual support.’ ” Patton II v.
Dept. of Rev., 18 OTR 256, 259 (2005) (quoting Patton I v.
Cite as 22 OTR 511 (2017) 521
Dept. of Rev., 18 OTR 111, 126 (2004)). That test applies both
“when the claim is filed and then on an ongoing basis,” as
the reasonableness of a party’s position may change given
certain factual developments or changes in the law. Id.In evaluating that test, the court applies the stan-
dard of whether “ ‘a reasonable lawyer would know that each
of the arguments * * * is not well grounded in fact or is not
warranted either by existing law or by a reasonable argu-
ment for the extension, modification, or reversal of existing
law.’ ” Id. at 261 (quoting McCarthy v. Oregon Freeze Dry,
Inc., 334 Or 77, 87, 46 P3d 721 (2002)).
Taxpayer claimed exemption under ORS 307.130.
The relevant portions of that statute are reproduced below:
“(1) As used in this section:
“(a) ‘Art museum’ means a nonprofit corporation orga-
nized to display works of art to the public.
“* * * * *
“(2) Upon compliance with ORS 307.162, the following
property owned or being purchased by art museums, volun-
teer fire departments, or incorporated literary, benevolent,
charitable and scientific institutions shall be exempt from
taxation:
“* * * * *
“(f) The real and personal property of an art museum
that is used in conjunction with the public display of works
of art or used to educate the public about art, but not
including any portion of the art museum’s real or personal
property that is used to sell, or hold out for sale, works of
art, reproductions of works of art or other items to be sold
to the public.”
ORS 307.130.
Taxpayer argues that both the legal and factual
positions of the department and county (Defendants) were
objectively unreasonable. Defendants did not dispute that
taxpayer is a nonprofit corporation for purposes of ORS
307.130(1)(a). However, they did advance at least four pri-
mary theories as to why taxpayer was not entitled to an
exemption from property tax.
522 YU Contemporary, Inc. II v. Dept. of Rev.
The first theory advanced was that taxpayer is not
an art museum because taxpayer is not primarily “orga-
nized to display works of art to the public.” ORS 307.130
(1)(a). Essentially, Defendants argued in various ways that
taxpayer was an organization designed to benefit its mem-
bers and its artists, not the public at large.
The court notes that taxpayer’s organization is
unusual, and accordingly it would not be unreasonable
to initially question whether it is the type of organization
subject to exemption as an art museum. However, after
trial, the record on taxpayer’s purpose was conclusive. YU
Contemporary, Inc. I, 22 OTR at 364. Argument to the con-
trary was objectively unreasonable.
The second theory advanced was that the appropri-
ate standard to be applied was that only so much of tax-
payer’s property as was actually and exclusively used for the
purposes contained in ORS 307.130 is subject to exemption.5
This theory comprises classic statutory interpreta-
tion questions: (1) whether and to what extent the “in con-
junction with” language found in ORS 307.130(2)(f) creates
a lower bar for art museums to claim exemption for their
property, and (2) whether that language was limited only to
property used for “the public display of works of art” or also
to property “used to educate the public about art.”
The court declined to resolve the interpretation
issue in its opinion, and instead determined that taxpay-
er’s property, with some exceptions, satisfied the actual and
exclusive standard of use. Without implying, one way or the
other, whether the department’s or taxpayer’s interpreta-
tion is correct or in what regard, the court concludes that
the department’s interpretive argument was not objectively
unreasonable.
The third theory advanced was that days of nonuse—
i.e., days in which exhibitions were not being displayed—
should be counted against taxpayer in determining the
primary use of the property, similar to days of renting out
taxpayer’s property for private events. As determined by
5
The relevance being that Defendants also argued that taxpayer’s property
was not actually and exclusively used for approved statutory purposes.
Cite as 22 OTR 511 (2017) 523
the court in its opinion, “That assertion finds no basis in
the statutes, any rule of the department, or any case.” YU
Contemporary, Inc. I, 22 OTR at 367.
In considering the reasonableness of this argument,
the court first considers it in the abstract. Hypothetically,
consider a property that is used exactly and only one day per
tax period for an exempt purpose, and remains not in use
for the remainder of that tax period. Regardless of whether
exemption would in fact be appropriate in such a situation,
the court cannot state that an argument against exemption
based on the extreme nonuse of the property would be an
unreasonable “ ‘argument for extension, modification, or
reversal of existing law.’ ” Patton II, 18 OTR at 261 (quoting
McCarthy, 334 Or at 87).
However, extreme nonuse was not the record before
the court. There was more than ample evidence that tax-
payer worked towards the setting up and taking down of
exhibits in the periods of “nonuse.” That work was directly
related to taxpayer’s purpose of displaying art to the pub-
lic. In addition, taxpayer conclusively demonstrated that the
days of use—i.e., exhibitions or private events—were signif-
icant in number and were primarily used for exempt pur-
poses. Accordingly, on this record, any argument that peri-
ods of “nonuse” in-between exhibitions should count against
exemption was not an objectively reasonable “ ‘argument for
extension, modification, or reversal of existing law.’ ” Id.The fourth and final major theory advanced, which
is related to, but distinct from, the other theories advanced,6
is that taxpayer’s primary use of the property was not the
type of use subject to exemption under the statute. As just
stated, the record in this case conclusively demonstrated
that days of exempt use heavily outweighed days of nonex-
empt use.
Except for the statutory construction issue in this
case, the court finds that the arguments of Defendants
were objectively unreasonable. The arguments made by
6
The first theory looked at the primary organizational purpose. The second
theory looked to the legal standard with which to consider the use of the property.
The third theory focused on periods of perceived nonuse of the property. This the-
ory concerns the use of the property.
524 YU Contemporary, Inc. II v. Dept. of Rev.
Defendants were not based upon any reasonable application
of the facts of this case to the law, but rather to an idio-
syncratic belief that taxpayer is not worthy of a property
tax exemption as an organization that displays works of art
to the public because it acquires art differently from other
organizations that collect art for the purposes of display.
This factor weighs in favor of an award of attorney
fees.
3. Factor C
The third factor the court considers is “[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 simi-
lar cases.” ORS 20.075(1)(c).
Some pertinent findings in this case were based on
evidence that was introduced at trial. Therefore, although
the record in this case was conclusive at the culmination
of this case, it was not as definitive at the time the county
denied the exemption request or at the time taxpayer filed
its complaint in this court.
Of course, as previously discussed, there is a loom-
ing question on whether the county’s investigation was suf-
ficient in this case. If it was not, the failure to know certain
facts may be attributable to the insufficiency of the investi-
gation, which may cast a shadow on the good faith nature of
the defense.
However, it is conceivable that an award of attorney
fees in this case could deter county assessors in the future
from denying exemption requests of art museums and
defending those denials in this court. At the time taxpayer
filed its complaint, the county was entitled to let taxpayer
prove its case.
The court concludes that this factor weighs against
an award of attorney fees in this case.
4. Factor D
The fourth factor the court considers is “[t]he extent
to which an award of an attorney fee in the case would deter
others from asserting meritless claims and defenses.” ORS
20.075(1)(d).
Cite as 22 OTR 511 (2017) 525
This court does not find that the county’s defense
was meritless at the start of this litigation. Accordingly, this
factor does not apply.
5. Factor E
The fifth factor the court considers is “[t]he objec-
tive reasonableness of the parties and the diligence of the
parties and their attorneys during the proceedings.” ORS
20.075(1)(e).
Taxpayer argues that the department was not dil-
igent in this case because it did not take a more active role
in the trial or the stipulation of facts. The court is not con-
vinced that the apparent agreement between the depart-
ment and the county as to which party would assert which
issue or issues is evidence of a lack of diligence on the part
of either defendant. The court concludes that this factor does
not support an award of attorney fees.
6. Factor F
The sixth factor the court considers is “[t]he objec-
tive reasonableness of the parties and the diligence of the
parties in pursuing settlement of the dispute.” ORS 20.075
(1)(f).
The record establishes that taxpayer attempted to
settle this case three times on reasonable terms. Each of
those offers was rejected by the county with no counteroffer.
The first offer was made before this case was spe-
cially designated to the Regular Division. Taxpayer proposed
a settlement based on information that it had obtained from
the county regarding how other art museums treat private
event rentals of museum space.
That offer was rejected because the county was
concerned that the primary use of the property was not in
accordance with the statute on exemptions, ORS 307.130.
No counteroffer was made.
The second offer was made about a month before
trial, and before the parties had filed their stipulation of
facts in this court. Taxpayer’s second offer proposed a settle-
ment based on taxability of the print shop and the studios
on the mezzanine and upper level.
526 YU Contemporary, Inc. II v. Dept. of Rev.
That offer was rejected without explanation or
counteroffer, but the county’s counsel suggested that tax-
payer revise the offer to include taxability of the space used
for private events. In doing so, county counsel cautioned that
it was not certain whether such a revision would change the
county’s position on settlement.
Taxpayer accordingly authorized its counsel to
expand its second offer to include taxability of spaces used
for private events in accordance with how other art museums
treat such space. Taxpayer believed that taxation on such
spaces for the time used for private events was not required
under the statute, and made that known to the county. (“In
other words, the county would be getting the opportunity to
tax square footage that would not otherwise be taxable as
long as YU is using it for art display purposes.”)
Taxpayer’s modified second offer was also rejected.
The county believed that taxpayer simply did not qualify as
an exempt organization, and stated through its counsel that
it “would prefer to have the court decide.”
After trial, taxpayer made a third settlement offer.
Taxpayer proposed taxation of the print shop and the stu-
dios. That settlement offer was also rejected by the county
with no counteroffer.
Having summarized taxpayer’s attempts to settle
this case, the court may now address whether an award
of attorney fees is appropriate under this factor. Taxpayer
appears to argue that the county was unreasonable during
settlement negotiations in part because the county could
have settled on better terms and in a better position than
the results at trial.
The court does not find the specific outcome at trial
particularly relevant when considering the terms of settle-
ment offered by taxpayer. That outcome was unknowable
at the time the parties were engaging in settlement nego-
tiations. Rather than reviewing whether the terms of each
settlement offer were better or worse than the outcome at
trial, the court considers whether the terms of the settle-
ment offers were reasonably crafted based on the knowledge
of the parties at the time.
Cite as 22 OTR 511 (2017) 527
The court finds that the terms upon which taxpayer
was willing to settle this case were reasonably crafted. They
were based on information obtained from the county, and
they were crafted to respond to the concerns of the county
as to mixed or nonexempt uses.
The county’s rejection of these offers appears to
the court to have been almost entirely based on its belief
that taxpayer is not the type of organization entitled to an
exemption for property of art museums. Otherwise, the
county would have settled with taxpayer because taxpayer’s
offers addressed the mixed use or perceived residential use
of taxpayer’s property. As previously explained, the county’s
belief that taxpayer is not an art museum for purposes of
ORS 307.130 was objectively unreasonable after the parties
had filed their stipulation of facts and the trial in this mat-
ter had concluded.
A taxing authority is not required to accept a pro-
posed settlement agreement to avoid an award of attorney
fees. However, failure to do so must be taken into account,
particularly when such proposed agreements were reason-
able in nature and were calculated to alleviate the concerns
of the county as to certain uses of the property.
This court concludes that this factor weighs in favor
of an award of attorney fees.
7. Factor G
The seventh factor does not apply to this court. See
St. Mary Star of the Sea II v. Dept. of Rev., 22 OTR 496,
508-09 (2017).
8. Factor H
The eighth and final factor the court considers is
“[s]uch other factors as the court may consider appropriate
under the circumstances of the case.” ORS 20.075(1)(h).
Some of the reasons supporting an award of attor-
ney fees in this case relate to multiple factors. In an attempt
to give due effect to each factor, the court has attempted
to limit discussion of those reasons in the analysis above.
However, at this time it is appropriate to comment more
generally upon the litigation in this case.
528 YU Contemporary, Inc. II v. Dept. of Rev.
The county’s conduct in this case is very problem-
atic.7 It appears to the court that from the very start the
county has taken an unduly narrow view of what the leg-
islature intended when it exempted certain property of art
museums from property taxation. It also appears to the court
that the county adopted its initial view of whether exemp-
tion was appropriate and thereafter stubbornly refused to
reconsider that view even in light of the evidence that was
introduced by taxpayer.
As explained in taxpayer’s request for attorney fees
and response to Defendants’ objections, there was no need
to go through to trial to litigate the majority of the issues in
this case. The uses of the property that were questionable,
such as the print shop or the studios, were taxable under
taxpayer’s proposed settlement agreements.
The question of whether individuals were living in
the studio portions of the property—which the court found
not to be the case—was made moot by taxpayer offering to
agree to taxation of those portions of the property.
The question of how to treat private rentals of art
museum property was addressed by two of the proposed set-
tlement agreements made by taxpayer.
Nevertheless, the county rejected each of these
overtures, without any counteroffer, and therefore forced
taxpayer to fully litigate this case on those issues.
In reviewing the totality of the factors, the inter-
play between them, and the stubbornness of the county in its
attempt to prove that taxpayer is not entitled to an exemp-
tion for any portion of taxpayer’s property, the court finds
this factor weighs strongly in favor of an award of attorney
fees. If a county forces a taxpayer through to trial and then
loses soundly, it puts itself in a position whereby its actions
may well be the basis of a fee award.
It must also be noted that, where the depart-
ment sees a county on a crusade to prove an exemption is
not proper, the department has an interest in considering
whether that crusade is objectively reasonable. If it is not,
7
And by extension, the department’s acquiescence to the county’s conduct.
Cite as 22 OTR 511 (2017) 529
the department may consider using its supervisory author-
ity to effect a settlement. Otherwise, the department will
be required to pay the eventual fee award. ORS 305.490
(4)(b). As this court has previously stated, “Crusades can be
costly.” Angel II v. Dept. of Rev., 22 OTR 106, 112 (2015).
9. Conclusion as to attorney fees
Factors B, F, and H support an award of attorney
fees in this case. Factor C weighs against an award of attor-
ney fees in this case. Factors A, D, E, and G either do not
apply or do not support an award of attorney fees in this
case.
The court in its discretion concludes that on the basis
of factors B, F, and H, or any one of them independently, that
an award of attorney fees is appropriate in this case. Neither
the department nor the county has objected to the amount of
fees requested by taxpayer, and the court is not inclined sua
sponte to consider the reasonableness of the amount of those
fees requested.
Accordingly, taxpayer’s request for attorney fees is
granted.
V. CONCLUSION
The court has considered taxpayer’s requests for
attorney fees, costs, and disbursements, and the objec-
tions thereto. The court grants taxpayer’s requests, includ-
ing taxpayer’s supplemental statement of attorney fees for
work related to securing its award of fees and costs, except
as to taxpayer’s anticipatory request of $2,500 for “efforts
that will be undertaken if the Court convenes a hearing on
Plaintiff’s Statement.”8 Now, therefore,
IT IS ORDERED that Plaintiff’s requests for attor-
ney fees, costs and disbursements are granted, except as to
the $2,500 amount requested in anticipation of a hearing on
this matter.
IT IS FURTHER ORDERED that Plaintiff will pre-
pare and submit a form of supplemental judgment.
8
No hearing was held on this matter. Plaintiff moved for leave to file a sup-
plemental statement; to the extent necessary, that motion is granted.