Brownstone Homes Condo. Ass'n v. Brownstone Forest Heights, LLC

• Decision Date: 27 February 2013
• Docket Number: A145740.,060606804
• Citation: 255 Or.App. 390,298 P.3d 1228
• Parties: BROWNSTONE HOMES CONDOMINIUM ASSOCIATION, an Oregon non-profit corporation, Plaintiff–Appellant, v. BROWNSTONE FOREST HEIGHTS, LLC, an Oregon limited liability company, et al., Defendants, and Capitol Speciality Insurance Co., Garnishee–Respondent.
• Court: Oregon Court of Appeals

255 Or.App. 390

298 P.3d 1228

BROWNSTONE HOMES CONDOMINIUM ASSOCIATION, an Oregon non-profit corporation, Plaintiff–Appellant,

v.BROWNSTONE FOREST HEIGHTS, LLC, an Oregon limited liability company, et al., Defendants,andCapitol Speciality Insurance Co., Garnishee–Respondent.

060606804; A145740.

Court of Appeals of Oregon.

Argued and Submitted Nov. 8, 2011.

Decided Feb. 27, 2013.

Thomas W. Brown, Portland, argued the cause for appellant. With him on the briefs was Cosgrave Vergeer Kester LLP.

Brian C. Hickman, Portland, argued the cause and filed the brief for respondent.

Before ARMSTRONG, Presiding Judge, and HASELTON, Chief Judge, and DUNCAN, Judge.

HASELTON, C.J.

This case involves an insurance-related dispute arising out of construction defect litigation. Plaintiff Brownstone Homes Condominium Association, an assignee of the insured defendant, A & T Siding, Inc. (A & T), appeals, challenging the trial court's determination that plaintiff was not entitled to garnish the proceeds of an insurance policy issued by A & T's insurer, Capitol Specialty Insurance Co. (Capitol). The trial court's ruling was based on an application of the holding in Stubblefield v. St. Paul Fire & Marine, 267 Or. 397, 400–01, 517 P.2d 262 (1973) (“the Stubblefield rule”).¹ Plaintiff appeals, contending, variously, that (1) the Stubblefield rule is inapposite in a garnishment proceeding pursuant to ORS 18.352 and ORS 742.031; (2) in the circumstances presented here, ORS 31.825 abrogates the operation of the Stubblefield rule; and (3) the Stubblefield rule is inapposite because the settlement agreement did not “unambiguously and unconditionally” relieve A & T from its obligation to pay the judgment. For the reasons amplified below, we reject each of plaintiff's arguments. Accordingly, we affirm.

Where, as here, the material facts are undisputed, we review the trial court's grant of summary judgment for legal error. Povey v. City of Mosier, 220 Or.App. 552, 554, 188 P.3d 321,rev. den.,345 Or. 460, 200 P.3d 146 (2008). We also review the trial court's construction of ORS 31.825 for legal error. Horton v. Western Protector Ins. Co., 217 Or.App. 443, 448, 176 P.3d 419 (2008).

This case derives from construction defect litigation, in which the plaintiff association filed claims against defendant A & T, a siding subcontractor, for breach of contract and negligence. A & T was insured by two companies, Zurich and Capitol. A & T's policy with Capitol provided, in relevant part:

“[Capitol] will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”

(Emphasis added.)

On March 14, 2008, plaintiff, A & T, and Zurich entered into a settlement agreement. A & T agreed to stipulate to a judgment against it in favor of plaintiff for $2 million. Zurich agreed to pay plaintiff $900,000 on behalf of A & T. Plaintiff agreed that

“in no event will it execute upon or permit the execution of the stipulated judgment against A & T or its assets or [Zurich]. [Plaintiff] shall be entitled to seek recovery of the unexecuted portion of [the stipulated judgment] against [Capitol] * * *.”

A & T assigned to plaintiff any claims that A & T had against Capitol under the above-quoted policy. In addition, A & T agreed to “reasonably and in good faith cooperate with [plaintiff] in pursuing the rights and claims assigned.”

A stipulated general judgment and money award was entered on November 13, 2008. Plaintiff subsequently served a writ of garnishment on Capitol pursuant to ORS 18.352,² alleging that Capitol was liable for the unpaid portion of the stipulated judgment—approximately $1.1 million. Capitol disputed liability and eventually moved for summary judgment, arguing, as pertinent here, that, under the Stubblefield rule the settlement agreement extinguished Capitol's potential liability because Zurich had already satisfied what A & T was “legally obligated to pay.” Capitol argued that ORS 31.825³ did not abrogate the application of the Stubblefield rule because that statute requires that the assignment occur after entry of judgment and A & T had assigned its rights to plaintiff before a judgment “had been entered.”

The trial court agreed with Capitol and granted the motion for summary judgment in a post-judgment order and letter opinion. The court reasoned that the Stubblefield rule was “fatal to plaintiff's claims,” and that ORS 31.825 was inapplicable because the assignment here “occurred long before the judgment was entered.”

Plaintiff appeals,⁴ contending, variously, that (1) the Stubblefield rule is inapposite in a garnishment proceeding pursuant to ORS 18.352 and ORS 742.031; ⁵ (2) in the circumstancespresented here, ORS 31.825 abrogates the operation of the Stubblefield rule; and (3) the Stubblefield rule is inapposite because the settlement agreement did not “unambiguously and unconditionally” relieve A & T from its obligation to pay the judgment.

Capitol remonstrates that the Stubblefield rule applies to garnishment actions because plaintiff, as a judgment creditor, “steps into the shoes” of the judgment debtor, A & T, for purposes of prosecuting claims against Capitol and, thus, remains subject to Stubblefield 's constraints.⁶ Capitol further reiterates its assertion that ORS 31.825 is inapposite here because plaintiff's covenant not to execute the stipulated judgment against A & T antedated the entry of the stipulated judgment. Finally, Capitol asserts that, contrary to plaintiff's characterization, the nonexecution covenant was unambiguously unconditional.

We address each of plaintiff's alternative arguments in turn, and ultimately conclude that plaintiff does not have any enforceable claims against Capitol. Accordingly, the trial court properly granted summary judgment.

We begin with Stubblefield. There, the plaintiff and the insured defendant entered into a settlement agreement in a tort action, which included a stipulated judgment against the defendant in the amount of $50,000. 267 Or. at 398, 517 P.2d 262. As part of the settlement, the plaintiff also agreed to a covenant not to execute the judgment against the insured for any amount over $5,000, which the insured agreed to pay. In return, the insured assigned to the plaintiff all claims against his insurance company in excess of $5,000 arising out of his policy—a policy that provided that “the Company will indemnify the Insured for all sums which the Insured shall be legally obligated to pay as damages and expenses * * *.” Id. at 400, 517 P.2d 262 (emphasis added). The plaintiff then filed an action against the insurer. The insurer prevailed in the trial court, and the plaintiff appealed. Id. at 398–99, 517 P.2d 262.

The Supreme Court affirmed, concluding that the result of the nonexecution covenant was that the only sum that the insured was “legally obligated to pay” was $5,000. Id. at 400, 517 P.2d 262. That amount was expressly excluded from the assignment. Consequently, the court determined that, under the terms of the assignment, “plaintiff acquired no rights which [were] enforceable” against the insurer. Id. at 400–01, 517 P.2d 262.See also Lancaster v. Royal Ins. Co. of America, 302 Or. 62, 726 P.2d 371 (1986) (reversing the allowance of summary judgment for the insurer, which had been based on Stubblefield, because ambiguity in the predicate nonexecution covenant gave rise to material issues of fact as to whether the insured remained liable under the agreement); Oregon Mutual Ins. Co. v. Gibson, 88 Or.App. 574, 746 P.2d 245 (1987) (applying Stubblefield, in a declaratory relief action, concluding that the nonexecution covenant unconditionally insulated the assignor insured from liability and, as a result, the insurer was not liable to the assignee).

While forthrightly acknowledging Stubblefield 's is reasoning and result, plaintiff first asserts that Stubblefield is not controlling here because its rationale is categorically inapposite to garnishment proceedings. Specifically, plaintiff posits that, because plaintiff may proceed directly against Capitol under ORS 18.352 and ORS 742.031, plaintiff's claim against Capitol is dependent neither on A & T's rights against Capitol nor on the viability of the assignment of those rights to plaintiff. In response, Capitol invokes State Farm Fire & Cas. Co. v. Reuter, 299 Or. 155, 700 P.2d 236 (1985).

In Reuter, after concluding that the defendant insured had no enforceable claims under the terms of his insurance policy, the court considered whether the plaintiff in a tort action against the insured would similarly be barred from asserting coverage. 299 Or. at 164, 700 P.2d 236. The court reasoned that, if the plaintiff eventually prevailed in her tort action, “two avenues against [the insurer] would be open to her. She could garnish [the insurer], [ former ] ORS 23.230 [ renumbered asORS 18.352 (2003) ], or she could sue [the insurer] under [ former ] ORS 736.320 [ renumbered asORS 742.031 (1989) ].” Id. The court concluded that “[a] garnishment gives the judgment creditor plaintiff no greater rights against the garnishee than the judgment debtor defendant has.” Id. Thus, the court concluded:

“Whether [the plaintiff] would proceed against [the insurer] under ORS [742.031] or under ORS [18.352], either as garnishor or subrogee, [the plaintiff's] rights against [the insurer] are no greater than those of [the defendant insured]. As garnishor [the plaintiff] stands in the shoes of the subrogor.”

Id. at 166, 700 P.2d 236.

We agree with Capitol that Reuter preempts and precludes plaintiff's garnishment-based distinction of Stubblefield. Consistently with Reuter, plaintiff's rights as a garnishor against Capitol are, at most, no greater than those of its judgment debtor, A & T, under the terms of the insurance policy. As noted, under the policy, Capitol is liable to A & T only for “those sums that [A & T] becomes legally obligated to pay”—and,...