JH Kelly, LLC v. Quality Plus Servs., Inc.

CourtCourt of Appeals of Oregon
Citation305 Or.App. 565,472 P.3d 280
Docket NumberA163205
Parties JH KELLY, LLC, a Washington limited liability company, Plaintiff, v. QUALITY PLUS SERVICES, INC., a Virginia corporation, Defendant. Quality Plus Services, Inc., a Virginia corporation, Third-Party Plaintiff-Respondent Cross-Appellant, v. Georg Fischer, LLC, a Delaware corporation, Third-Party Defendant-Appellant Cross-Respondent, and Plastic Services Northwest, Inc., an Oregon corporation, Third-Party Defendant.
Decision Date22 July 2020

Michael T. Stone, Hillsboro, argued the cause and filed the briefs for appellant-cross-respondent.

Elizabeth D. MacGregor argued the cause and filed the briefs for respondent-cross-appellant. Also on the reply and cross-answering brief were Jeannette L. Moore and Lorber, Greenfield, & Polito, LLP. On the answering and cross-opening brief were Rachel C. Nies and L. Benjamin Allen.

Before Lagesen, Presiding Judge, and DeVore, Judge, and James, Judge.

JAMES, J.

This appeal arises out of litigation resulting from welding work that Quality Plus Services, Inc., performed as part of a large construction project at Intel. Quality Plus, a subcontractor on the project, had been hired to fabricate piping to be installed on the project. As it turned out, hundreds of those pipes needed to be removed and replaced when it was discovered that one of the settings on the machine used to weld the pipes had been mistakenly recalibrated during a service call, which potentially compromised the welds.

Quality Plus was sued as a result and, in turn, sued the manufacturer of the welding machine, Georg Fischer, LLC, and the company that performed the service call, Plastic Services Northwest, Inc. A jury returned a verdict in favor of Quality Plus, finding that Georg Fischer and Plastic Services were negligent and allocating fault among the three parties. Georg Fischer now appeals the resulting judgment. Generally speaking, its assignments of error assert that the trial court misapplied the economic loss doctrine, agency principles, and the law regarding lost profits and prejudgment interest. Quality Plus cross-appeals, assigning error to the trial court's grant of a directed verdict against its claim for attorney fees and costs that it incurred defending itself against claims by a settling party. As explained below, we affirm on the appeal and cross-appeal.

I. BACKGROUND

For purposes of background, we begin with an overview of the underlying construction dispute and its procedural history, which we later supplement when discussing particular assignments of error.

During 2013 and 2014, Hoffman Construction served as the general contractor for a large construction project on Intel's campus in Hillsboro. Hoffman hired JH Kelly, LLC, to supply and install process-waste piping on portions of the project. JH Kelly, in turn, contracted with Quality Plus to perform welds on polypropylene and polyvinylidene fluoride piping.

Beginning in December 2013, Quality Plus performed fabrication services in its shop using a Georg Fischer IR-225 fusion welding machine. That machine melts the two faces of the pipes to be fused, and it requires controlled tolerances for the respective distances between the source of the heat and the pipe faces. To ensure those tolerances, the IR-225 machine must be periodically inspected and serviced. After 2,500 fusions or after a period of 18 months in initial service, a message will appear on the machine that alerts the user that it needs to be serviced.

In January 2014, that service message appeared on the welding machine. At that time, Georg Fisher had a "field extension program" in place that allowed users like Quality Plus to extend the number of welds that the machine could perform before it was necessary to send the machine back to Georg Fischer's service center. Under that program, a service technician with "Level II" training from Georg Fischer would first visually inspect the machine, take measurements, and then perform a test weld (called a "coupon") that was sent to Georg Fischer for testing. If the machine and the test weld were in good order, Georg Fischer would approve the field maintenance, called a calibration extension. At that point, a service technician with "Level III" training would use a special key from Georg Fischer (referred to as the +GF+ key) to access the machine's computer system to extend the weld cycle. The technician would then perform another test weld following the completion of the extension, which would then be sent to Georg Fischer.

After the service message appeared on its machine, Quality Plus contacted Plastic Services, a distributor for Georg Fischer, to perform a field extension. On January 14, 2014, Plastic Services sent one of its employees, Brandon Westbrook, to the Quality Plus shop, and he inspected the machine and performed a test weld ("weld 903"). Westbrook, who was a Level II technician, then returned to Plastic Services, where his supervisor, Craig McCormack, sent the appropriate paperwork and test weld to Georg Fischer in California for review. Shortly thereafter, Georg Fischer informed McCormack that the weld was good, and it approved an extension of the weld cycle for another six months and 1,000 welds.

McCormack was certified as a Level III technician and had a +GF+ key from Georg Fisher. However, rather than complete the field extension himself, he gave his +GF+ key to Westbrook and directed him to return to Quality Plus to access the machine's computer system and extend the cycle.

On January 16, Westbrook returned to Quality Plus and used the +GF+ key to change the weld count and the calibration date. However, during the process, Westbrook also unwittingly changed the reference point on the machine from 10.32 to 9.13—a critical difference because of the potential effect on the relative distances between the heat source and pipe faces.1 Westbrook did not perform a subsequent test weld to send to Georg Fischer.

Quality Plus's welders immediately recognized that the machine was working differently after the work was completed by Westbrook. One of the welders, Joe Odell, had been trained through Georg Fischer to use two fingers of pressure to move a lever during a critical stage of the weld process to "zero out" the machine. After the service work, Odell could no longer zero out the machine using two fingers of pressure. He notified his supervisor, Rod Wilcke, but Wilcke told him that the machine had just been serviced and to continue his welding. From that point, Odell continued to make welds with the machine by using additional pressure at that stage of the process. Other Quality Plus welders had the same problems as Odell, and one of them even tried to adjust the machine by removing some of the shims, but no one from Quality Plus followed up with Plastic Services or Georg Fischer about the way the machine was functioning. The welds made with the IR-225 machine continued to pass visual inspections, and none of the machine's printouts indicated that any of the welds were compromised.

Between January 16, 2014 and July 11, 2014, the extended service date, Quality Plus made more than 900 welds with the machine in that condition. The machine was then shipped to the Georg Fischer service center, at which point Georg Fischer discovered that the reference point on the machine had been changed. Georg Fischer notified all interested parties that the welds made by Quality Plus with the altered reference point could be defective and should be investigated.

Ultimately, all of those nonconforming welds needed to be replaced, and JH Kelly, Hoffman Mechanical (a subsidiary of Hoffman Construction), and Quality Plus all incurred costs removing and replacing them. Hoffman Mechanical expended approximately $840,000 in labor and materials, and it withheld payment owed to Quality Plus on other parts of the job to recoup that loss. JH Kelly pursued litigation, filing a complaint against Quality Plus seeking $450,000 in damages.

Quality Plus answered and filed a third-party complaint against Plastic Services and Georg Fischer. As relevant to the issues before us, the operative third-party complaint alleged: (1) a claim against Plastic Services and Georg Fischer to recover the attorney fees and costs Quality Plus incurred to defend itself against JH Kelly's claims; (2) a negligence claim against Plastic Services and Georg Fischer; and (3) a breach-of-contract claim against Plastic Services and Georg Fischer.

Quality Plus eventually settled with JH Kelly, and the third-party claims against Plastic Services and Georg Fischer proceeded. At the close of the evidence, the court directed a verdict on Quality Plus's claim for attorney fees, but the negligence and breach-of-contract claims went to the jury, which found in favor of Quality Plus. With regard to negligence, Quality Plus advanced two theories as to Georg Fischer: (1) that Georg Fischer was liable for its own negligence surrounding the field extension; and (2) that Georg Fischer was liable on a vicarious liability theory, because Plastic Services was Georg Fischer's agent and was acting within the scope of authority during the relevant time. On the negligence claim, the jury returned a verdict finding that Plastic Services and Georg Fischer were both at fault in the ways alleged by plaintiff, but that Quality Plus was also at fault; it assigned 46 percent fault to Plastic Services, 35 percent fault to Georg Fischer, and 19 percent fault to Quality Plus. With regard to damages, the jury returned a verdict of $2,024,715.44.

On the breach-of-contract claim, the jury found that Quality Plus entered into a contract with Plastic Services to perform the field extension, that Plastic Services was acting as Georg Fischer's agent to perform the field extension, and that Plastic Services breached the contract, resulting in $350 in damages.

After the jury's verdict, Quality Plus sought and was awarded post-judgment interest on a portion of...

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