Opinion
Civil No. 02-496-JE.
May 25, 2004.
Everett W. Jack, Davis Wright Tremaine LLP, Portland, OR.
Patrick J. Richard, Katrina J. Lee, Nossaman, Guthner, Knox Elliott, LLP, San Francisco, CA, Attorneys for Plaintiff.
Heather L. McNamee, Jeffrey K. Hanson, Joseph A. Yazbech, Yazbeck, Cloran Hanson, LLC, Portland, OR, Attorneys for Defendants TCR Northwest 1993, Inc. and TCR Oregon Construction, Inc.
Todd S. Baran, Portland, OR.
William Kelly Olson, Mitchell Lang Smith, Portland, OR, Attorneys for Defendant Northwest Builders Group, Inc.
Jill Schneider, Stephen C. Voorhees, Kilmer Voorhees Laurick, P.C., Portland, OR, Attorneys for Defendant INEX Painting, Inc.
Anthony W. Furniss, Furniss Shearer, et al, Portland, OR, Attorneys for Defendant Shupe Roofing, Inc.
Joel Wilson, Matthew C. Casey, Todd M. Peck, William R. Joseph, Bullivant Houser Bailey, P.C., Portland, OR, Attorneys for Defendants Stalcup Roofing Construction, Inc.; TWC Construction, Inc.; Mr. Mike's Framing Roofing Co.; and AA Rite Way Roofing, Inc.
John S. Knowles, William A. Davis, Abbott, Davis, Rothwell, Mullin Earle, Portland, OR, Attorneys for Defendants Alpine Windows, Inc.; Capp Heating Sheet Metal; and West Coast Gutter.
George W. Mead, Portland, OR, Attorney for Defendant GGLO LLC.
FINDINGS AND RECOMMENDATION/ORDER
Plaintiff International Paper Company (IP) brings this action seeking indemnity or contribution from the general contractors and several subcontractors who worked on several apartment complexes in the Portland, Oregon area. Six of the subcontractor defendants move for summary judgment. The motion should be granted.
Defendant Northwest Builders Group, Inc., moves to strike the affidavit of Dennis Govan. I deny the motion.
BACKGROUND
This action arises from the construction of several apartment complexes in the Portland, Oregon, area during 1994 and 1995. Exterior siding supplied by Masonite, a former subsidiary of plaintiff IP, was used in the complexes.In 1999, the owners of the complexes brought an action against Masonite in the Multnomah County Circuit Court alleging that defective Masonite siding had caused massive property damage at the complexes. The owners brought claims for breach of express warranties, breach of an implied warranty of fitness for a particular purpose, breach of an implied warranty of merchantability, fraud and deceit, misrepresentation, unlawful trade practices, and strict products liability. The owners brought no claims against the general contractors or the subcontractors named as defendants here. They did not allege that the siding was improperly installed or that the damage to their buildings was caused by any construction defects or flaws.
In the State court action, Masonite brought third-party claims for indemnity and contribution against the general contractors, subcontractors, and the architect. Those claims were dismissed without prejudice on the grounds that their inclusion would delay the trial. That dispute was settled in November 2001. IP agreed to pay the owners $12 million, and the owners agreed to "release and forever discharge" the entities named as defendants in the present action from liability for any losses "arising out of or resulting from" work on the complexes, "to the extent arising by reason of damages to property proximately caused by water penetration from any source at the Projects. . . ." Schedule 2, Release of Claims, at Paragraph 1. The release specifically excluded any rights or claims arising from personal injury.
In the present action, plaintiff IP alleges that "construction and design defects created massive water leaks throughout the Projects." IP alleges that the general contractors permitted deviations from approved plans and made numerous serious errors in directing the construction operations that contributed to the deterioration of a number of structures. It also alleges that the defendant subcontractors whose motions for summary judgment are pending negligently performed framing, roofing, gutter, and painting work, resulting in significant damage to the buildings. IP alleges that, though it paid a reasonable amount to resolve claims asserted in the state court action, it paid "well beyond" its proportional liability for a "common liability."
In the present action, plaintiff IP brought claims for indemnity, "statutory contribution," and "equitable apportionment." Several defendants, including some of those whose motions for summary judgment are now pending, moved to dismiss plaintiff's entire complaint for failure to state claims upon which relief could be granted.
In a Findings and Recommendation filed on January 15, 2003, I recommended granting the motion to dismiss the claims for indemnity and equitable apportionment and denying the motion to dismiss the contribution claim. In recommending that the motions to dismiss the contribution claim be denied, I noted that, though there did not appear to be any Oregon decisions directly on point, the Oregon Supreme Court had observed that builders have "frequently been held liable for negligence when the construction has not been performed with reasonable care."International Paper Co. v. TCR Northwest, CV No. 02-496-JE,slip op. at 19 (D. Or. Jan. 15, 2003) (citing Beri, Inc. v. Salishan Properties, 282 Or. 569, 578, 580 P.2d 173 (1978)).
That recommendation was adopted on March 10, 2003.
The general contractors' subsequent motion for summary judgment on the remaining contribution claim required me to revisit the issue of potential liability for negligent construction. In a second Findings and Recommendation, filed on November 26, 2003, I noted that the portion of the Beri decision on which I had relied cited only decisions from other jurisdictions, and that, since the filing of the first Findings and Recommendation, the Oregon Court of Appeals had "clarified that the circumstances under which a building contractor might incur tort liability to a client with whom it has a contractual relationship are quite limited and exceptional." International Paper Co. v. TCR Northwest, CV No. 02-496-JE, slip op. at 9 (D. Or. Nov. 26, 2003) (citing Jones v. Emerald Pacific Homes, Inc., 188 Or. App. 471, 71 P.3d 574, rev. denied, 336 Or. 125 (2003)). Examining the relationship between the general contractors and the owners in light of Jones, I concluded that the record would not support the conclusion that the general contractors could be liable to the owners in tort.
My recommendation that the general contractors' motion for summary judgment be granted was adopted in an Order filed on January 27, 2004.
Several subcontractors now move for summary judgment on grounds similar to those raised by the general contractors. The moving parties are In-Ex Painting, Inc., a painting contractor; Shupe Roofing, Inc.; Stalcup Roofing Construction, Inc., and AA Rite-Way, roofing contractors; West Coast Gutter Service, a gutter installer; and Northwest Builders Group, Inc., a framing contractor that installed the siding produced by Masonite.
STANDARDS FOR EVALUATING MOTIONS FOR SUMMARY JUDGMENT
Federal Rule of Civil Procedure 56(c) authorizes summary judgment if no genuine issue exists regarding any material fact and the moving party is entitled to judgment as a matter of law. The moving party must show the absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The moving party may discharge this burden by showing that there is an absence of evidence to support the nonmoving party's case.Id. When the moving party shows the absence of an issue of material fact, the nonmoving party must go beyond the pleadings and show that there is a genuine issue for trial. Id. at 324.
The substantive law governing a claim or defense determines whether a fact is material. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). Reasonable doubts concerning the existence of a factual issue should be resolved against the moving party. Id. at 630-31. The evidence of the nonmoving party is to be believed, and all justifiable inferences are to be drawn in the nonmoving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1985). No genuine issue for trial exists, however, where the record as a whole could not lead the trier of fact to find for the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
DISCUSSION
Plaintiff's claim for statutory contribution is based upon Or. Rev. Stat. § 31.800(1). This section provides, in pertinent part, that:
Formerly appearing at § 18.440, this section was renumbered in 2003.
where two or more persons become jointly or severally liable in tort for the same injury to person or property . . . there is a right of contribution among them even though judgment has not been recovered against all or any of them. There is no right of contribution from a person who is not liable in tort to the claimant.
As I noted above, my earlier recommendation that a motion to dismiss the contribution claim be denied was based in part on theBeri Court's observation that builders have "frequently" been held liable in negligence for failing to perform their work with reasonable care. That observation was not made in an action against a builder, but in an action involving a claim that a land developer had failed to use reasonable care to determine whether lots it sold were fit for their intended use.
In Jones v. Emerald Pacific Homes, Inc., 188 Or. App. 471, 71 P.3d 574, review denied, 336 Or. 125 (2003), the Oregon Court of Appeals more squarely addressed the question of a building contractor's potential liability to a client. There, homeowners brought claims for breach of contract and negligence against the contractor that built a house for them. Plaintiffs alleged that poor workmanship for which the contractor was responsible caused water leaks that damaged the house. Id. at 473.
In affirming the trial court's dismissal of the plaintiff's negligence claim, the Jones court thoroughly reviewed the circumstances under which a breach of contract can give rise to tort liability. The court noted that
a tort action between parties to a contract can arise when the plaintiff's damages result from breach of an obligation that is independent of the terms of the contract, that is, an obligation that the law imposes on the defendant because of his or her relationship to the plaintiff, regardless of the terms of the contract between them.Id. at 476 (citing Conway v. Pacific University, 324 Or. 231, 237, 924 P.2d 818 (1996); Georgetown Realty, Inc. v. Home Ins. Co., 313 Or. 97, 106, 831 P.2d 7 (1992);Securities-Intermountain v. Sunset Fuel Co., 289 Or. 243, 259, 611 P.2d 1158 (1980); Kisle v. St. Paul Fire Marine Ins. Co., 262 Or. 1, 6-7, 495 P.2d 1198 (1972)). Summarizing its review of relevant Oregon decisions, the Jones court concluded that parties to a contract have the kind of "special relationship" that imposes a "heightened duty of care" and creates potential tort liability only "when one party delegates to the other the authority to make important decisions with the understanding that the authority is to be exercised on behalf of and for the benefit of the authorizer." Id. at 478. The court observed that it is "conceivable that the facts in some situations might demonstrate that a building contractor and its client are in a contractual relationship from which tort liability might arise. . . ." However, it found that the builder's contractual obligation to build a house "in a workmanlike manner according to standard practices" did not indicate that the parties were in anything other than the kind of typical "arm's length contractual relationship" that would not support a tort claim. Id. at 479. In the absence of any other evidence that the parties were in a relationship that would support the imposition of tort liability, the Jones court concluded that dismissal of the tort claim was required. Id.
My earlier recommendation that the general contractors' motion for summary judgment be granted was based on two key factors. The first was the Jones court's clarification that a builder is potentially liable to its client in tort only in those exceptional circumstances in which the parties' relationship imposes more duties than those arising from a typical arm's-length contractual relationship between a contractor and the owner for whom the construction work is performed. The second was the absence of evidence from which a reasonable trier of fact could conclude that the general contractors had such a relationship with the owner of the projects.
The defendant subcontractors' pending motions for summary judgment present a somewhat different issue than was presented by the general contractors' motion: Unlike the general contractors, the subcontractors had no contractual relationship with the owners. The subcontractors had a contractual relationship with the general contractors, who in turn had a contractual relationship with the owners. The defendant subcontractors may be liable on a contribution claim only if they could be liable to the owners in tort for negligent work on the projects. The question is therefore whether there is evidence in the record that the subcontractors could be liable in tort to the project owners with whom they had no contractual relationship.
The parties have cited, and I have found, no reported Oregon decisions in which a subcontractor in the building trades like the moving defendants here — roofers, framers, painters, and gutter installers — has been held liable to an owner for negligently performing work that damaged a building on which it worked pursuant to a contract with the general contractor. Plaintiff nevertheless contends that it can prevail on its contribution claim against the subcontractors because Oregon does not predicate potential tort recovery on the existence of a "special relationship" between the owner and the subcontractors. It further contends that, if tort liability did depend on the existence of a special relationship, the defendant subcontractors here had such a relationship with the project owners.
This is perhaps not surprising: Ordinarily an owner who is dissatisfied with the construction brings an action against the general contractor, asserting breach of contract or breach of warranty. A general contractor who is found liable in turn brings an action against the subcontractor that performed the defective work, based upon the contract between the general contractor and the subcontractor.
Whether construction defects gives rise to contract or tort liability depends in part on the nature of the resulting damages. The Oregon Supreme Court has concluded that, where damages arise from an injury "directly contemplated by the contract," such as a decrease in the value of the premises, "it is the contract that has been breached," and recovery is available in a contract action. Cabal v. Donnelly, 302 Or. 115, 121, 727 P.2d 111 (1986) (citing Beveridge v. King, 292 Or. 771, 775 n. 4, 643 P.2d 332 (1982)). In reaching this conclusion, the Cabal Court cited with approval Woodward v. Chirco Construction Co., Inc., 141 Ariz. 514, 687 P.2d 1269 (1984). There, the Court noted that an owner could assert a breach of contract claim to recover from a contractor for structural defects that decreased the value of a building, and could assert a tort claim if a defect resulting from negligent construction caused a personal injury. Id. at 515-16.
This distinction between claims based upon damages arising from personal injuries and damage to the property itself is consistent with the limitation of tort claims under the "economic loss doctrine." This doctrine requires that a claim seeking recovery for a "stranger's purely economic loss" be based upon some duty beyond the common-law duty to exercise reasonable care to prevent foreseeable harm. E.g., Onita Pacific Corp. v. Trustees of Bronson, 315 Or. 149, 159, 843 P.2d 890 (1992). That duty may arise in relationships in which the law imposes on certain parties an obligation to "conduct themselves reasonably, so as to protect the other parties to the relationship." Id. at 160. Relationships such as those between agents and their principals, attorneys and their clients, real estate brokers and their principals, primary insurers and excess insurers, and architects and engineers and their clients may give rise to such a duty.Id. at 160-61. The enhanced duty to exercise reasonable care to avoid foreseeable economic injury may also extend to those who "may be considered intended beneficiaries" of an attorney's duty to a client, and "the intended beneficiaries" of work that engineers and architects perform for their clients. Id.
In assessing the defendant subcontractors' potential tort liability, the first issue is whether damage to a building itself resulting from negligent construction is the kind of property damage that is recoverable in the absence of any special relationship with the owners, or is the kind of "economic loss" that is only recoverable if the subcontractors and the owners have the kind of relationship that gives rise to potential tort liability. The Jones court did not directly address this issue when it affirmed the trial court's conclusion that the contractor and its clients did not have the kind of relationship that would support tort liability. However, as Pro tem Judge Bruce Hamlin correctly observed in a letter opinion in Alizera Abbaki v. Best Investment Ent. Inc., Multnomah County Circuit No. 0209-09532, dated January 16, 2004, the Jones court's "discussion of special relationships would have been unnecessary" if the damage that a leaky roof caused to other parts of the structure was "property damage rather than economic loss. . . ."
The conclusion that the damage defective construction causes to the structure itself is "economic loss" not generally actionable in tort is consistent with the decisions cited above holding that construction defects that cause personal injuries are actionable in tort, while defects reducing the value of the property are actionable in contract. See Cabal, 302 Or. 115, Woodward, 141 Ariz. 514. Based on those decisions, and on the Jones court's implicit conclusion that damage resulting from defective construction is an "economic loss," I conclude that any damage to a building allegedly caused by a subcontractor's negligent work could be recovered through a tort claim only if the subcontractor had a relationship with the owner that would impose the heightened "duty of care" discussed in Onita and related decisions.
The absence of a contractual relationship between the subcontractors and owners here does not negate the theoretical possibility of a subcontractor's liability to a building owner for negligent construction: As noted above, the Oregon Supreme Court has concluded that an attorney's duty to act reasonably in protecting the interest of the client extends "as well, to those who may be considered intended beneficiaries of the duty to the client," and that engineers and architects "may be subject to liability to those who employ ( or are the intended beneficiaries of) their services and who suffer losses caused by professional negligence." Onita, 315 Or. at 161 (emphasis added) (citations omitted). Therefore, accepting that the owners of the projects were the "intended beneficiaries" of their services, the subcontractors could be liable to the owners for negligent construction work if they had the kind of professional relationship that gives rise to potential tort liability. Id.
A "special relationship" imposes a heightened duty of care and creates potential tort liability only if "one party delegates to the other the authority to make important decisions with the understanding that the authority is to be exercised on behalf of and for the benefit of the authorizer." Jones, 188 Or. App. at 478. Though it may be "conceivable that the facts in some situations might demonstrate" such a relationship between a contractor and its client, a contract that simply provides that the work would be completed "in a workmanlike manner according to standard practices" does not evidence such a relationship. Id.
Examining the record in light of the Jones decision, I earlier concluded that the evidence would support only the conclusion that the general contractors and the owners were in an ordinary arm's length contractual relationship which did not give rise to potential tort liability. The present motions, addressing the potential liability of subcontractors to parties with which they had no contract, implicate a relationship that is considerably more attenuated. In the absence of contractual relationships with the owners, the subcontractors may be liable only if their contractual obligations to the general contractors gave rise to "extra-contractual" duties to protect the interests of the owners — the "intended beneficiaries" of the contracts between the general contractors and subcontractors.
Plaintiff contends that the subcontractors may be liable for negligent work because they are licensed "professionals" who exercised substantial judgment and discretion while working on the projects. I disagree. Certainly, the defendant subcontractors — framers, roofers, painters, and gutter installers — are "professionals" in their respective trades, and were licensed to provide "professional" building services. The subcontractors certainly had some discretion in determining just how they would perform their work. However, labeling a relationship as "`professional' does not, by itself, mean that the relationship creates a heightened duty of care," Lewis-Williamson v. Grange Mutual Ins. Co., 179 Or. App. 491, 495, 39 P.3d 947 (2002), and possession of the license required to offer building services does not imply that a subcontractor providing those services has a relationship with the owner that gives rise to extra-contractual duties.
Under their contracts with the general contractors, the defendant subcontractors were required to perform in a "good and workmanlike manner" according to particular plans and detailed specifications. The subcontractors were required to comply with particular codes, and their work was subject to the approval of general contractors and the owners. There is no evidence that the subcontractors could unilaterally deviate from the plans and specifications that governed the scope of their work, or that, in performing the work meticulously detailed in their contracts, they exercised the kind of independent judgment and discretion typical of the kind of professional relationships that give rise to tort liability. See, e.g., Conway v. Pacific University, 324 Or. 231, 240-41, 924 P.2d 818 (1996) (party owed special duty "effectively has authorized the party who owes the duty to exercise independent judgment" on other party's behalf).
There is no evidence that the defendant subcontractors were expected to exercise the kind of independent judgment and apply the kind of special knowledge involved in work performed by professionals like engineers and architects, who may be liable in tort to the intended beneficiaries of their work. Instead, the evidence supports the conclusion that the owners, general contractors, and subcontractors were involved in nothing other than an ordinary construction project, in which the owner enters into a general form contract with the general contractor, which in turn enters into general form contracts with the subcontractors. Nothing in that arrangement or those contracts gave rise to or reflects a "special" extracontractual relationship between the owners and the subcontractors that would support potential tort liability on the part of the subcontractors. The subcontractors' agreement to provide "all labor, materials, equipment, tools, supervision, shop drawings, samples and other things necessary for construction and completion of the work" simply did not require the subcontractors to exercise the kind of discretion and judgment required to support tort liability under Onita, Jones, and related decisions.
As the Jones court observed, there may be circumstances under which a building contractor and its client are in a contractual relationship that gives rise to liability if negligent construction damages the structure. However, the evidence in the record before the court will not support the conclusion that the more attenuated relationship between the owners and the defendant subcontractors here can support such liability. The subcontractors' motions for summary judgment should therefore be granted.
CONCLUSION
The motions for summary judgment filed by defendants Shupe Roofing, Inc. (# 139), IN-EX Painting, Inc. (# 161), Stalcup Roofing Construction, Inc. and AA Rite-Way Roofing, Inc. (# 188), West Coast Gutter Service (# 142), and Northwest Builders Group, Inc. (# 225) should be GRANTED.
Defendant Northwest Builders Group, Inc.'s motion to strike the affidavit of Dennis Govan (# 251) is DENIED.
SCHEDULING ORDER
The above Findings and Recommendation are referred to a United States District Judge for review. Objections, if any, are due June 10, 2004. If no objections are filed, review of the Findings and Recommendation will go under advisement on that date.A party may respond to another party's objections within 10 days after service of a copy of the objection. If objections are filed, review of the Findings and Recommendation will go under advisement upon receipt of the response, or the latest date for filing a response.