McCarthy v. Oregon Freeze Dry, Inc.

• Court: Oregon Supreme Court
• Writing for the Court: DURHAM, J.
• Citation: McCarthy v. Oregon Freeze Dry, Inc., 334 Or 77, 46 P3d 721 (Or. 2002)
• Decision Date: 09 May 2002
• Parties: Terry B. McCARTHY, Petitioner on Review, v. OREGON FREEZE DRY, INC., an Oregon corporation, Respondent on Review.

46 P.3d 721

334 Or. 77

Terry B. McCARTHY, Petitioner on Review, v. OREGON FREEZE DRY, INC., an Oregon corporation, Respondent on Review.

(CC 93-0020; CA A87840; SC S46603).

Supreme Court of Oregon.

Argued and Submitted September 11, 2000.

Decided May 9, 2002.

William G. Wheatley, Jaqua & Wheatley, P.C., Eugene, argued the cause for petitioner on review. With him on the briefs was Nickolas Facaros, Facaros Dugan Rosas, Eugene.

William F. Gary, Harrang Long Gary Rudnick, P.C., Eugene, argued the cause and filed the brief for respondent on review. With him on the briefs were Judith Giers, Karla Alderman, and Brendan C. Dunn, Eugene.

Before CARSON, Chief Justice, and GILLETTE, DURHAM, LEESON, and RIGGS, Justices.²

DURHAM, J.

The issue on review in this case is whether the Court of Appeals erred in awarding attorney fees on appeal to defendant. The Court of Appeals awarded attorney fees, because that court determined that plaintiff's arguments on appeal were frivolous, unreasonable, or without foundation. We disagree with that determination and reverse the order.

Plaintiff brought an action against defendant for, among other things, an unlawful employment practice. Plaintiff alleged that defendant had discriminated against plaintiff for filing a claim for workers' compensation. Under the applicable statute, the prevailing party in such an action was entitled to recover attorney fees at trial and on appeal. Former ORS 659.121(1) (1995), repealed by Or Laws 2001, ch 621, § 90,³ provided in part:

"In any suit brought under this subsection, the court may allow the prevailing party costs and reasonable attorney fees at trial and on appeal."

Before trial, plaintiff filed a notice of voluntary dismissal under ORCP 54 A(1),⁴ and the trial court entered a judgment of dismissal. Plaintiff later filed a motion under ORS 12.220 and ORCP 71 B(1)⁵ to set aside the dismissal and reinstate the action. Plaintiff also filed an amended complaint that restated the claim for an unlawful employment practice. The trial court denied the motion. The court concluded that the judgment of dismissal had resulted from a mistake by plaintiff's lawyer, but that the mistake was not excusable.

Plaintiff appealed from the trial court's order refusing to set aside the judgment of dismissal. The Court of Appeals affirmed, and this court denied review. McCarthy v. Oregon Freeze Dry, Inc., 142 Or.App. 595, 922 P.2d 729, rev. den. 324 Or. 322, 927 P.2d 598 (1996).

Defendant then petitioned the Court of Appeals for attorney fees on appeal, arguing that defendant was the prevailing party and that plaintiff's appeal was frivolous. The Court of Appeals awarded attorney fees to defendant, in the sum of $12,000, and plaintiff petitioned for review. This court vacated the award and remanded the matter to the Court of Appeals for an explanation of the facts and legal criteria that justified the award. McCarthy v. Oregon Freeze Dry, Inc., 327 Or. 84, 957 P.2d 1200, on recons. 327 Or. 185, 957 P.2d 1207 (1998).

On remand, the Court of Appeals noted that it had discretion to award attorney fees on appeal under former ORS 659.121(1) (1995). McCarthy v. Oregon Freeze Dry, Inc., 158 Or.App. 654, 657, 976 P.2d 566 (1999). The court explained that it would exercise that discretion in accordance with the rule acknowledged in the line of cases culminating with Schlumberger Technologies, Inc. v. Tri-Met, 145 Or.App. 12, 21 n. 9, 929 P.2d 331 (1996), modified on other grounds 149 Or. App. 316, 942 P.2d 862 (1997), and it rejected "defendant's invitation to nullify the line of cases." McCarthy, 158 Or.App. at 656-57, 976 P.2d 566. However, the Court of Appeals accepted

"defendant's contention that plaintiff's arguments in favor of the motion to set aside were frivolous, unreasonable, or without foundation. * * *

"* * * Beginning in Dobie v. Liberty Homes, 53 Or.App. 366, 632 P.2d 449 (1981), we have held that the court may award a defendant attorney fees under [former ORS 659.121(1)] only when the `plaintiff's claim was frivolous, unreasonable, or without foundation.' Id. at 373-74, 632 P.2d 449 (relying on Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 98 S.Ct. 694, 54 L.Ed.2d 648 (1978)). See also Schlumberger Technologies, 145 Or.App. at 21 n. 9, 929 P.2d 331; Robinson v. School District No. 1, 92 Or.App. 627, 632, 759 P.2d 1116 (1988); Payne v. American-Strevell, Inc., 65 Or.App. 265, 268, 670 P.2d 1065 (1983)."

McCarthy, 158 Or.App. at 657, 976 P.2d 566. The Court of Appeals concluded that, like plaintiff's argument in the trial court,

"plaintiff's argument on appeal that the trial court abused its discretion in denying that motion [to set aside the judgment of dismissal under ORCP 71 B] was frivolous, unreasonable, or without foundation, because it, too, lacked any legal basis."

Id. at 658-59, 976 P.2d 566.

The Court of Appeals explained why plaintiff's argument on appeal "lacked any legal basis" as follows:

"The decision to set aside or not set aside a judgment based on mistake, inadvertence, surprise, or excusable neglect is committed to the sound discretion of the trial court, but that discretion is controlled by certain fixed legal principles. Financial Indemnity v. Howser, 38 Or.App. 369, 371-72, 590 P.2d 276 (1979). For at least a century, the general rule has been that the professional mistakes, negligence, or inadvertence of an attorney do not constitute the `mistakes, inadvertence, surprise, or inexcusable [sic] neglect' necessary to set aside a judgment. Longyear, Admx. v. Edwards, 217 Or. 314, 319-20, 342 P.2d 762 (1959) (failure of attorneys to file an appearance); Carlson v. Bankers Discount Corp. et. al, 107 Or. 686, 695, 215 P. 986 (1923) (failure of attorney to file an answer); Hicklin v. McClear, 19 Or. 508, 510-11, 24 P. 992 (1890) (failure of attorneys to inform themselves of content of deed); O.R. & N. Co. v. Gates et. al, 10 Or. 514, 518 (1883) (party seeking to set aside a judgment for mistake in failing to raise a particular legal argument must show that his or her failure to make that argument is not due to his or her own negligence or want of diligence)."

McCarthy, 158 Or.App. at 658, 976 P.2d 566 (emphasis in original).

On review, plaintiff argues that the Court of Appeals misapplied the Schlumberger rule. Plaintiff contends that, under the Schlumberger rule, a defendant is entitled to an award of attorney fees only if the court concludes that the plaintiff's claim, i.e., the claim of discrimination, is frivolous, unreasonable, or without foundation. Plaintiff draws our attention to the repeated references to the plaintiff's "claim" in Schlumberger, and other related cases, as the proper focus of the attorney fees inquiry in this context.⁶ According to plaintiff, the Court of Appeals evaded the Schlumberger rule by focusing on the relative merits of plaintiff's argument on appeal regarding the trial court's refusal to set aside the judgment of dismissal and failed to inquire, let alone decide, whether defendant's petition for attorney fees demonstrated that plaintiff's claim of discrimination was frivolous, unreasonable, or without foundation.

Former ORS 659.121(1) (1995), quoted above, is the source of the Court of Appeals' authority to award attorney fees on appeal in this case. The word "may" in that statute signifies that the legislature has granted discretion to that court to award attorney fees on appeal, including to a prevailing defendant. The Court of Appeals has made it clear that the standard expressed in Schlumberger describes the manner in which that court will exercise its discretion in this context. McCarthy, 158 Or.App. at 657, 976 P.2d 566.

The source of the Schlumberger "frivolous, unreasonable, or without foundation" standard is the United States Supreme Court decision in Christiansburg Garment Co. In Christiansburg, the Equal Employment Opportunity Commission (EEOC), acting in its own name, filed a claim against Christiansburg Garment Co., contending that the company had discriminated against an employee, Rosa Helm, on the basis of her race. The district court dismissed the action, concluding that the pertinent amended federal statute authorized the EEOC to sue in its own name to prosecute only those charges "pending" with the EEOC on the effective date of the statutory amendment, and Helm's charge was not pending with the EEOC when the EEOC filed its action. The district court granted summary judgment to the employer, but declined to award prevailing party attorney fees, reasoning that the EEOC's action in bringing the lawsuit was not unreasonable or meritless. 434 U.S. at 414-15, 98 S.Ct. 694.

On appeal, the parties made almost diametrically opposing arguments. The employer argued that the statute required the court to award attorney fees to a prevailing defendant unless special circumstances would render such an award unjust. The EEOC argued that the court should award attorney fees only if the court found that the EEOC had brought the action in bad faith. Id. at 417-18, 98 S.Ct. 694.

The Supreme Court rejected both of those positions. Instead, the Court adopted an intermediate standard that granted discretion to the trial court to award attorney fees to a prevailing defendant if the plaintiff's action was frivolous, unreasonable, or without foundation, even if it was not filed in bad faith. Id. at 421, 98 S.Ct. 694. The Court emphasized that, in applying those criteria, the trial court should not conclude, from the fact that the plaintiff did not prevail, that the plaintiff had filed or continued the litigation frivolously, unreasonably, or without foundation. Id. at 421-22, 98 S.Ct. 694. The Court acknowledged that a party might have a reasonable basis for bringing an action, even if the law or the facts appear questionable or unfavorable at the outset. Id. at 422, 98 S.Ct. 694. Finally, the Court recognized that decisive facts may emerge, or the law may change or clarify, during...