Oregon Supreme Court Hears Abraham Appeal
Last month the Oregon Supreme Court heard oral argument in Abraham v. T. Henry Construction, Inc., a residential construction defect case. Shortly after the Oregon Court of Appeals published its opinion in September 2009, Ahead of Schedule authors Eric Grasberger (“Negligence Claims Take Another Twist in Oregon” and Kip Childs (“Oregon Court of Appeals Provides Clarification to Contractor Negligence Claims” commented on the decision. The case pits the homeowners, the Abrahams, against their general contractor, Keith Lucas, and framing contractor, Kevin Mayo.
Unhappy with the result in the Court of Appeals, Lucas and Mayo petitioned the Oregon Supreme Court seeking review on several questions that are described in the Court’s media release. Because the case involved several issues frequently litigated in construction defect cases (economic loss rule, statutes of limitation, building codes as the basis for a negligence claim, etc.), the Oregon Trial Lawyers Association (“OTLA”) and Oregon Home Builders Association (“OHBA”) weighed in and filed amicus curiae (literally, “friend of the court”) briefs. These briefs followed predictable lines of argument. Among other things, OTLA urged the Court to decide in favor of the plaintiffs and hold that, among other things, a discovery rule applies to breach of contract actions. For its part, OHBA suggested that the Court find that, absent a special relationship, one party to a contract (such the plaintiff project owner) should not be permitted to assert a negligence claim against the other party (such as the project’s general contractor).
Whether the Court will take up these important issues remains to be seen. However, until they are addressed by Oregon’s highest court (or legislature), these controversial issues will continue to be the source of much legal wrangling and uncertainty for both plaintiffs and defendants alike.
Negligence Claims Take Another Twist in Oregon
Just when you thought it was safe to go back into the water, the Oregon Court of Appeals strikes again with another iteration of the “economic loss doctrine” which defines when parties can sue each other in negligence for construction defects. In Abraham v. Henry (September 2, 2009) the Court held that parties to a contract can sue each other in negligence if a rule, code or standard “independent of the contract” has been violated. A prime source for independent rules, held the Court, is the Oregon Building Code. From now on, we can expect to see plaintiffs including in their complaints that one or more provisions of the Oregon Building Code have been violated. It will be easy to find such violations in most construction defect claims.
The prior standard, enunciated in the Jones v. Emerald case, held that there must be a “special relationship” between the contracting parties in order to support a negligence claim. No one really knew what a special relationship was, but most believed that alleging in the complaint that the owner relied on the contractor’s expertise was sufficient to create such a relationship and thus a right to sue in negligence. Abraham may have changed that belief by pointing out that, at least in that case, there was nothing “special” about the arms-length owner/contractor relationship, and, with or without reliance on the “expertise” of the contractor, each party was acting on its own behalf and for its own benefit.
Other decisions from Oregon courts support the argument that the economic loss doctrine does not bar negligence claims if there is physical property damage, but this argument was not made or at least not addressed by the Abraham court.
The principal reason – if not the only reason – why the economic loss rule is relevant is that Oregon’s statute of limitations for breach of contract is six years from the date of breach (which, at the latest, is usually the date of substantial completion or failure to honor extended warranties). For claims discovered and/or brought after six years, you must be able to assert a negligence theory for the claim to be viable, because the negligence period runs two years from the date of discovery of the claim (as opposed to the date of breach), capped by the 10 year statute of repose (which states that all claims must be brought regardless of discovery within 10 years from substantial completion). Thus, if you cannot assert a negligence claim, you may have no other claim to assert.
The vast amount of time and fees generated in litigating statute of limitations issues in Oregon construction cases is fueled by (1) disparate limitations periods for breach and negligence claims, (2) disparate limitations periods for claims against designers versus contractors, and (3) the every changing – and arguably inconsistent – decisions from Oregon courts on what the rules of the game really are. Oregon needs a “Construction Defect Reform Act” with one limitations period for all claims against all parties on a construction project, governed by a discovery rule and capped by a statute of respose, with a clear statutory answer to the economic loss rule. Until then, uncertainty and high legal fees will continue to be the norm.
