Eddy v. Anderson

• Decision Date: 21 February 2020
• Docket Number: CC CV15050554 (SC S066301)
• Citation: 366 Or. 176,458 P.3d 678
• Parties: Janet EDDY and Rodger Eddy, Respondents on Review, v. Staci ANDERSON, Petitioner on Review, and James Anderson and Deborah Rocha, Defendants
• Court: Oregon Supreme Court

366 Or. 176

458 P.3d 678

Janet EDDY and Rodger Eddy, Respondents on Review,

v. Staci ANDERSON, Petitioner on Review,andJames Anderson and Deborah Rocha, Defendants,

CC CV15050554 (SC S066301)

Supreme Court of Oregon.

Argued and submitted September 16, 2019.

February 21, 2020

Harry Ainsworth, Portland, argued the cause for petitioner on review. Craig P. Colby, Craig P. Colby, Attorney, LLC, Portland, filed the brief. Also on the brief were Harry Ainsworth and Frank Wall, Portland.

No appearance on behalf of respondents on review.

Emily Rena-Dozier, Legal Aid Services of Oregon, Portland, argued the cause and filed the brief on behalf of amici curiae Legal Aid Services of Oregon and Oregon Law Center.

Before Balmer, Nakamoto, Flynn, Duncan, Nelson, and Garrett, Justices, and Baldwin, Senior Judge, Justice pro tempore.^**

GARRETT, J.

This case requires us to construe the term "good faith" for purposes of the Oregon Residential Landlord and Tenant Act (ORLTA).

ORS 90.130 imposes an obligation of good faith on those who are performing or enforcing either a "duty" or an "act" that is "a condition precedent to the exercise of a right or remedy" under the ORLTA. In this case, after defendants (tenants) were sued for collection of unpaid rent, they alleged a counterclaim for damages under ORS 90.360(2) on the ground that plaintiffs (landlords) had not maintained the premises in a habitable condition. The trial court dismissed that counterclaim, reasoning that tenants had failed to provide landlords with written notice of the alleged violation and had acted with "unclean hands." The Court of Appeals affirmed on somewhat different grounds, concluding that, in light of the trial court's findings, tenants had failed to act in good faith for purposes of ORS 90.130 and that their counterclaim was therefore barred. Eddy v. Anderson , 294 Or. App. 163, 178, 430 P.3d 1100 (2018). We allowed review and, for the reasons that follow, reverse.

STATUTORY OVERVIEW

We begin with a brief overview of pertinent provisions of the ORLTA. The ORLTA was enacted in 1973 "to clarify and restate the rights and obligations of tenants and landlords."¹ L & M Investment Co. v. Morrison , 286 Or. 397, 405, 594 P.2d 1238 (1979). Beginning with provisions of general applicability ( ORS 90.100 - 90.148 ), the ORLTA imposes obligations on both landlords and tenants ( ORS 90.303 - 90.340 ), and it spells out their respective remedies ( ORS 90.360 - 90.440 ). One of the basic requirements imposed on landlords is the obligation to maintain premises in a "habitable condition," as provided by ORS 90.320. Davis v. Campbell , 327 Or. 584, 587-88, 965 P.2d 1017 (1998).

Provisions for a tenant's remedies "are found both in the general and in the more specific sections" of the ORLTA. Brewer v. Erwin , 287 Or. 435, 439, 600 P.2d 398 (1979), overruled on other grounds by McGanty v. Staudenraus , 321 Or. 532, 901 P.2d 841 (1995). The general provisions set forth the actions by which a tenant can seek to remedy a landlord's violation of the ORLTA; they also impose obligations on a tenant who brings such an action. For example, ORS 90.125(2) explains that any "right or obligation" under the ORLTA is enforceable by an "action," which ORS 90.100(2)² defines to include "recoupment, counterclaim, setoff, suit in equity and any other proceeding in which rights are determined, including an action for possession."

The more specific provisions of the ORLTA explain which remedies are available to a tenant when enforcing a landlord's obligations. As relevant to this case, ORS 90.360 provides a tenant with "two separate and independent remedies" to address a landlord's failure to comply with either the rental agreement or the statutory obligation to maintain the premises in a habitable condition under ORS 90.320. See L & M Investment Co. , 286 Or. at 406-08, 594 P.2d 1238 (so stating under former ORS 91.800 (1979), renumbered as ORS 90.360 (1989) ); ORS 90.360(3) ("The remedy provided in [ ORS 90.360(2) ] is in addition to any right of the tenant arising under [ ORS 90.360(1)(a) ].").

First, ORS 90.360(1)(a) allows a tenant to terminate a lease after giving the landlord written "fix or I leave" notice and an opportunity to cure the defect. See L & M Investment Co. , 286 Or. at 405, 594 P.2d 1238 (so stating under former ORS 91.800(1) (1979) ). Second, ORS 90.360(2) allows a tenant to "recover damages and obtain injunctive relief" for any noncompliance by the landlord with the rental agreement or habitability requirements. However, if the "landlord neither knew nor reasonably should have known of the condition that constituted the noncompliance," and the "tenant knew or reasonably should have known of the condition and failed to give actual notice to the landlord in a reasonable time prior" to the damage, the tenant is not "entitled to recover damages" for the landlord's noncompliance with the habitability requirements. ORS 90.360(2).

Thus, whereas paragraph (1)(a) of ORS 90.360 allows a tenant to terminate the rental agreement but expressly requires written notice as a prerequisite for that remedy, subsection (2) addresses different remedies and is framed in terms of whether a landlord knew or reasonably should have known of the problem leading to the dispute.

The ORLTA also provides two remedies, depending on the circumstances, for a landlord's failure to supply "essential services."³ First, under ORS 90.365(1), if a landlord "intentionally or negligently fails to supply any essential service," then the tenant may give "written notice to the landlord specifying the breach and that the tenant may seek substitute services, diminution in rent damages or substitute housing." See L & M Investment Co. , 286 Or. at 405, 594 P.2d 1238 (that statute allows a tenant to either sue for damages based on a diminution in the fair rental value or take advantage of various "self-help" remedies, such as securing alternative housing or services, or repairing the problem and deducting the cost from the rent). Second, under ORS 90.365(2), if a landlord fails to supply an essential service, "the lack of which poses an imminent and serious threat to the tenant's health, safety or property," then the tenant may give the landlord a written "fix or I leave" notice, stating that the rental agreement will terminate in 48 hours unless the breach is remedied within that period.

More specific provisions of the ORLTA also set forth additional requirements for a tenant who is asserting a counterclaim in a landlord's action for possession or rent. See ORS 90.370. As relevant to this case, ORS 90.370(1)(a) requires a tenant to "prove that[,] prior to the filing of the landlord's action[,] the landlord reasonably had or should have had knowledge or had received actual notice of the facts that constitute the tenant's counterclaim." See ORS 90.370(2) (making the requirements of paragraph (1)(a) applicable when a tenant asserts a counterclaim in a landlord's action for rent).

As this court has previously noted, a "net effect" of the foregoing statutes is the creation of an "implicit withholding remedy: if the landlord is in noncompliance with his obligations under the ORLTA to the monetary damage of the tenant, the tenant can withhold rent, and if the landlord commences an FED action, the tenant can counterclaim" for diminished rental value damages. Napolski v. Champney , 295 Or. 408, 418, 667 P.2d 1013 (1983). With that background in mind, we turn to the facts of this case.

FACTS AND PROCEDURAL BACKGROUND

In November 2013, landlords and tenants entered into a rental agreement for a residential property. At trial, evidence was presented that, within a few days of moving in, tenants gave landlords a written list of items that they thought needed repair. One item on that list was "water backup in [the] bathroom drain downstairs." Shortly after receiving the list, landlords repaired the drain.

Several months into the tenancy, around March 2014, tenants notified landlords that the bathroom drain was clogged again. Landlords fixed the drain and gave tenants a plumbing tool to use if the problem recurred.

In May 2014, tenants tendered landlords a late rent payment that was less than the full $1,400 that was due. In an accompanying letter, tenants stated that the rent was very expensive and asked landlords to lower the rent "to a more reasonable cost since there is so much repair to be done" in terms of "leaks and flooding in the basement." Landlords replied that they would not consider lowering the rent until tenants paid amounts due for unpaid move-in charges, back rent, and unpaid utility bills. From May to December, tenants continued to tender late partial rental payments.

In mid-December 2014, tenants wrote landlords and left a phone message informing them that the bathroom drain had backed up again. In the letter, tenants said that "this will make it about the 6th or 7th time this has happened since we have lived here." Landlords returned the phone call and sent a letter acknowledging tenants' letter and phone message. In the letter, landlords wrote that they had spoken to a member of tenants' family, who said that the plumbing tool supplied by landlords "immediately broke up some blockage in the line." In that letter, landlords also stated that they were "not aware that [tenants] report[ed] 6 or 7 blockages" during their tenancy.

Tenants defaulted on their rent payments, and landlords brought an eviction action against them. In that proceeding, tenants agreed to vacate the premises. After they did so, landlords brought this action for unpaid rent and other damages. Tenants asserted a counterclaim under ORS 90.360(2) for damages based on landlords' alleged failure to maintain the premises in a habitable condition. According to tenants, the residence was not habitable because, among other things, the sewer had backed up several times, causing damage to their personal property and diminishing the rental value of the premises.

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