Harris v. Suniga

• Decision Date: 06 December 2006
• Docket Number: A125316.,03C-16648.
• Citation: 209 Or. App. 410,149 P.3d 224
• Parties: Charles HARRIS and Kary A. Harris, co-trustees of the Harris Family Trust, Appellants, v. George R. SUNIGA and George R. Suniga, Inc., an Oregon corporation, Respondents. George R. Suniga and George R. Suniga, Inc., an Oregon corporation, Third-Party Plaintiffs, v. Harvey Cain Construction, Inc., an Oregon corporation; Color Flow Painting, Inc.; Paul Allport, dba Triple J Remodeling and Roofing; and Scott A. Boyd, dba Boyd's Painting, Third-Party Defendants.
• Court: Oregon Court of Appeals

149 P.3d 224

209 Or. App. 410

Charles HARRIS and Kary A. Harris, co-trustees of the Harris Family Trust, Appellants, v. George R. SUNIGA and George R. Suniga, Inc., an Oregon corporation, Respondents.

George R. Suniga and George R. Suniga, Inc., an Oregon corporation, Third-Party Plaintiffs, v. Harvey Cain Construction, Inc., an Oregon corporation; Color Flow Painting, Inc.; Paul Allport, dba Triple J Remodeling and Roofing; and Scott A. Boyd, dba Boyd's Painting, Third-Party Defendants.

03C-16648.

A125316.

Court of Appeals of Oregon.

Argued and submitted April 20, 2006.

Decided December 6, 2006.

Norman R. Hill argued the cause for appellants. With him on the briefs was Webb, Martinis & Hill.

Bruce R. Gilbert, Portland, argued the cause for respondents. With him on the brief were Graham M. Sweitzer and Smith Freed & Eberhard, PC.

Dean E. Aldrich argued the cause and filed the brief amicus curiae for Murrey and JoAnn Albers; Richard and Gwynne Christle; Elizabeth Christopherson and Marjorie Kim Kelley; Frances Matson; the Denney Road Rowhomes Owners Association, Inc.; and Orenco Place Owners Association. With him on the brief were J. Lee Street, Sarah E. Greenley, Portland, and The Aldrich Law Office, P.C. Phillip E. Joseph, Portland, argued the cause and filed the brief amicus curiae for Unit Owners of Prescott Condominiums; Association of Unit Owners of Lakewood Lofts and Condominiums; Chinh and Tam Tran; Daniel and Stephanie Harmond; and Brian and Janet Mattson. With him on the brief were James T. McDermott, James C. Prichard, Robert W. Wilkinson, Portland, and Ball Janik LLP.

Thomas M. Christ, Portland, argued the cause and filed the brief amicus curiae for Mutual of Enumclaw Insurance Company. With him on the brief were Thomas W. Brown, Portland, and Cosgrave Vergeer Kester LLP.

Todd S. Baran and Todd S. Baran, P.C., and Kenneth Hobbs and Stafford Frey Cooper, Seattle, jointly filed the brief amicus curiae for Degussa Wall Systems, Sto Corp., and Dryvit Systems, Inc.

Frederic E. Cann, Portland, and Cann Lawyers filed the brief amicus curiae for Northridge Remodeling Company.

Before LANDAU, Presiding Judge, and ORTEGA, Judge, and WILSON, Judge pro tempore.

LANDAU, P.J.

Plaintiffs are the trustees of a trust that owns an apartment building that defendants built. The trust, however, is not the first owner and has no contractual relationship with defendants. When plaintiffs discovered defects in the construction of the apartment building, they initiated this action against defendants for negligent construction. Defendants moved for summary judgment, arguing that plaintiffs' negligence claim is barred by the "economic loss" doctrine; that is, because the damage to the apartment building is in the nature of purely economic loss, a claim for negligence will not lie in the absence of a special relationship between the parties. The trial court agreed with defendants and entered judgment dismissing plaintiffs' claim. Plaintiffs appeal, arguing that the trial court erred, because their claim is based on damage to their property and is not therefore barred by the economic loss doctrine. We agree with plaintiffs and reverse and remand.

The relevant facts are uncontested, at least for the purposes of the issues on appeal. Defendants were the general contractors of an apartment complex in Salem, known as the Cascade View Apartments. They built the complex for a California investment company. In 2002, the investment company sold the apartment complex to the Harris Family Trust, of which plaintiffs are the trustees. Shortly after purchasing the complex, plaintiffs discovered certain defects in the construction.

Plaintiffs filed a complaint against defendants alleging that defendants had negligently built the apartment complex. Specifically, plaintiffs alleged that defendants had failed to install required flashings on the decks, concrete walkways, landings, gutters, laminates, and bellybands. They further alleged that defendants had failed to install properly certain wall caps, to fasten properly two-by-fours to trim the outside of windows, and to paint the siding. Plaintiffs alleged that, as a result of those defects in construction, the buildings have suffered significant dry rot, which will cost approximately $376,000 to repair.

After answering, defendants moved for summary judgment contending that, among other things, plaintiffs' claim is barred by the economic loss doctrine. According to defendants, Oregon law permits a claim for purely economic loss only against a defendant who is in a special relationship with the plaintiff. In this case, defendants argued, the damage to the apartment buildings is, in effect, an economic loss to plaintiffs' investment. As a result, in the absence of a special relation between the parties, their claim cannot be maintained. Because there is no such special relationship in this case, defendants concluded, the claim must be dismissed.

Plaintiffs did not dispute that Oregon courts recognize the economic loss doctrine. They did dispute its applicability. According to plaintiffs, the doctrine applies to economic loss to intangibles, such as damage to reputation, lost profits, decline in stock value, and the like and does not apply to claims based on damage to tangible physical structures. In this case, they argued, their claim is based on the existence of extensive dry rot, which physically damaged the wood with which the buildings were negligently constructed. That, plaintiffs concluded, is a cognizable negligence claim under Oregon law.

The trial court granted defendants' motion. The trial court reasoned that, although there appeared to be some Supreme Court precedent supporting plaintiffs' right to recover damages in negligence under the circumstances of this case, more recent case law appears implicitly to have overruled that earlier precedent.

On appeal, plaintiffs contend that the trial court erred, while defendants assert that the trial court ruled correctly. In support of those contentions, the parties essentially resort to the same arguments that they advanced to the trial court—defendants, that the damage at issue is mere economic loss, and plaintiffs, that their claim is predicated on damage to physical property.

On review of the trial court's decision on summary judgment, we review the record to determine whether there are genuine issues of material fact and whether the moving party was entitled to judgment as a matter of law. ORCP 47 C. In this case, as we have noted, the relevant facts are not in contention; the sole issue before us is the legal issue whether plaintiffs' negligence claim is barred by the economic loss doctrine.

We begin with the general rule that all persons are liable in negligence if their conduct unreasonably creates a foreseeable risk of harm to others. Slogowski v. Lyness, 324 Or. 436, 441, 927 P.2d 587 (1996). Ordinarily, establishing a duty is not an element of a negligence claim in Oregon law. As the Oregon Supreme Court explained in Fazzolari v. Portland School Dist. No. 1J, 303 Or. 1, 17, 734 P.2d 1326 (1987),

"unless the parties invoke a status, a relationship, or a particular standard of conduct that creates, defines, or limits the defendant's duty, the issue of liability for harm actually resulting from defendant's conduct properly depends on whether that conduct unreasonably created a foreseeable risk to a protected interest of the kind of harm that befell the plaintiff."

The foregoing statement of the general rule is subject to some exceptions. In Fazzolari itself, for example, the court acknowledged that "common-law negligence traditionally has excluded some categories of quite predictable injuries and claimants." Id. at 7, 734 P.2d 1326. The court cited, among others, the example of claims for "economic" injuries. Id.

The common-law "economic loss doctrine" to which the court referred dates back at least to the mid-nineteenth century and the concern of courts at that time with the potential for indeterminate liability and burdensome litigation if economic losses could be pursued in tort. See, e.g., Connecticut Mut. Life Ins. Co. v. N.Y. & N.H.R. Co., 25 Conn. 265, 65 A.D. 571 (1856); see also Sidney R. Barrett, Jr., Recovery of Economic Loss in Tort for Construction Defects: A Critical Analysis, 40 SC L Rev 891 (1989) (tracing history of economic loss doctrine).

The rule found recognition in Oregon case law at least as early as the mid-1960s. In Snow v. West, 250 Or. 114, 440 P.2d 864 (1968), the Supreme Court did not mention the economic loss rule as such, but it held that an employer could not maintain an action against a third person for loss of services of an employee whose injury or death was caused by the third person's negligence. Id. at 115-18, 440 P.2d 864.

In Ore-Ida Foods v. Indian Head, 290 Or. 909, 627 P.2d 469 (1981), the court considered another case involving an action by an employer against a third-party tortfeasor for economic losses arising out of the death of an employee. This time, the court more explicitly —and expansively—relied on the economic loss doctrine. Citing, among other things, its opinion in Snow, the court commented that "[t]he prevailing rule in the United States and England is that a plaintiff may not recover for economic loss resulting from negligent infliction of bodily harm to a third person." Id. at 916, 627 P.2d 469. The court listed as possible justifications for the rule that damages for economic loss are too remote, that such damages are unforeseeable, and that permitting such damages has the potential of leading to "limitless recoveries and * * * ruinous consequences." Id. at 916-17, 627 P.2d 469. The court found especially persuasive the latter justification. Id. at 917-18, 627 P.2d 469. Finding no meaningful distinction between the case before it and Snow, the court concluded that the employer's action could not be maintained.

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