Moore Excavating, Inc. v. Consol. Supply Co.

• Decision Date: 12 February 2003
• Citation: 186 Or. App. 324,63 P.3d 592
• Parties: MOORE EXCAVATING, INC., an Oregon corporation, Appellant, v. CONSOLIDATED SUPPLY CO., an Oregon corporation, Respondent.
• Court: Oregon Court of Appeals

63 P.3d 592

186 Or. App. 324

MOORE EXCAVATING, INC., an Oregon corporation, Appellant, v. CONSOLIDATED SUPPLY CO., an Oregon corporation, Respondent.

9906-05896; A112636.

Court of Appeals of Oregon.

Argued and Submitted May 23, 2002.

Decided February 12, 2003.

Thomas W. Brown, Portland, argued the cause for appellant. With him on the briefs were Christine Coers-Mitchell and Cosgrave, Vergeer & Kester LLP.

Thomas W. Sondag, Portland, argued the cause for respondent. With him on the brief was Lane Powell Spears Lubersky LLP.

Before HASELTON, Presiding Judge, and LINDER and WOLLHEIM, Judges.

LINDER, J.

Plaintiff Moore Excavating, Inc., brought this action seeking common-law indemnity and damages for negligence from defendant Consolidated Supply Co. The trial court granted defendant's motion for summary judgment on both claims and entered judgment for defendant. Plaintiff's appeal requires us to resolve two unrelated issues. The first is whether the discharge element of the claim for common-law indemnity can be satisfied based on plaintiff's settlement of a claim with a third party on which defendant is also liable when the settlement did not legally extinguish defendant's liability on the claim. The second issue is whether the terms of the contract between plaintiff and defendant create the kind of special relationship that can be a basis for a duty on defendant's part to further plaintiff's economic interests. For the following reasons, we agree with the trial court's resolution of both issues and affirm.

On review of a grant of summary judgment, we view the facts and all reasonable inferences that may be drawn from them in the light most favorable to the nonmoving party—in this case, plaintiff. ORCP 47 C; Robinson v. Lamb's Wilsonville Thriftway, 332 Or. 453, 455, 31 P.3d 421 (2001). Because it had the burden of proving all the elements of its claims at trial, plaintiff was required to produce evidence to establish a material issue of fact to avoid summary judgment. ORCP 47 C.

Plaintiff entered into an agreement with Aspen Meadows, LLC, (Aspen) to install a domestic water system in a manufactured home development. Plaintiff purchased the pipe and glue for that project from defendant. According to what plaintiff characterizes as "the standard of practice of contractors and suppliers in the industry and the area," plaintiff relied on defendant to select the appropriate glue for the system "based upon the pipe specifications, the time of year for installation and other factors." Plaintiff also relied on defendant's expertise in carrying out that selection.

Plaintiff installed the water system, using the pipes and glue that it received from defendant. After the installation, Aspen discovered that the water system was leaking and, based on that discovery, asserted claims against plaintiff. Plaintiff and Aspen entered into a settlement agreement pursuant to which plaintiff paid Aspen $37,000 and installed a new water system. Also pursuant to that settlement agreement, Aspen released all claims that it had against plaintiff. Plaintiff, for its part, reserved all of its claims against defendant. The settlement agreement did not release Aspen's claims against defendant.

Defendant moved for summary judgment on plaintiff's indemnity claim on the ground that plaintiff could not prove that it had discharged defendant's liability to Aspen. Plaintiff responded by producing its settlement agreement with Aspen as well as the affidavit of plaintiff's president, Roy Moore. That affidavit simply stated that Aspen asserted claims against plaintiff resulting from leaks in the water system and that Moore incurred costs and expenses in defending against and satisfying those claims.

In reply, defendant argued that, because plaintiff's settlement agreement with Aspen did not demonstrate that Aspen released its claims against defendant, plaintiff could not prove that it had discharged defendant's liability to Aspen. Shortly after defendant filed its reply, plaintiff submitted the affidavit of Jeffrey Payne, Aspen's managing member, which indicated through the following averments that Aspen had no intention of pursuing any claims against defendant:

"5. Neither Aspen nor I have ever pursued or contemplated pursuing any claim against Consolidated Supply Co. arising out of the leaks in the water lines at the Project, or any other issues related to the Project.

"6. Neither Aspen nor I have any intention of pursuing any claim against Consolidated Supply Co. now or at any time in the future related to the water line leaks at the Project.

"7. As a result of the performance by Moore pursuant to the Mutual Release and Settlement Agreement between Aspen and Moore, Aspen is satisfied that it has received adequate compensation for all damages resulting from the leaks in the domestic water line system at the Project discussed above and the domestic water line system at the Project has been replaced."

In ruling on defendant's motion for summary judgment on the indemnity claim, the trial court concluded that, because the settlement agreement did not expressly release Aspen's claims against defendant, and notwithstanding the averments in the Payne affidavit, those claims survived. The trial court therefore determined that plaintiff produced no evidence to create a material issue of fact as to whether plaintiff had discharged defendant's liability to Aspen. Thus, as a matter of law, plaintiff was not entitled to indemnity.

Plaintiff's primary argument on appeal is that the trial court erred in concluding that it was required to obtain a release of Aspen's claims against defendant.¹ Specifically, plaintiff argues that the Supreme Court's decision in Savelich Logging v. Preston Mill Co., 265 Or. 456, 509 P.2d 1179 (1973), does not require a release, that the trial court erred in relying on the law of contribution to support its reasoning, and that this court's decisions require only proof that an indemnity plaintiff incurred reasonable costs in defending or satisfying a claim. Plaintiff also argues that the evidence it submitted in opposition to defendant's motion is sufficient to create a triable issue of fact about whether it discharged defendant's liability. Defendant responds that, regardless of whether the trial court was correct about the necessity of a release, the central issue is whether plaintiff was able to "prove that it discharged a liability owed jointly by plaintiff and defendant to Aspen." According to defendant, plaintiff did not produce sufficient evidence to create a jury question on that element of its claim.

In an action for indemnity, a plaintiff must plead and prove that (1) it has discharged a legal obligation owed to a third party; (2) the defendant was also liable to the third party; and (3) as between the plaintiff and the defendant, the obligation ought to be discharged by the defendant. Fulton Ins. v. White Motor Corp., 261 Or. 206, 210, 493 P.2d 138 (1972), overruled in part on other grounds by Waddill v. Anchor Hocking, Inc., 330 Or. 376, 8 P.3d 200 (2000). As stated above, the issue here is whether plaintiff has discharged a legal obligation owed to a third party. To prove that element, plaintiff must show that it discharged the obligation owed to Aspen "so as to extinguish both its own and defendants' liability." Savelich Logging, 265 Or. at 460, 509 P.2d 1179. Thus, the question we must answer is not whether, as a factual matter, Aspen is content with plaintiff's performance under their settlement. Rather, consistently with Savelich Logging, the question is whether plaintiff has extinguished defendant's liability to Aspen. In other words, we must determine whether, in settling with Aspen, plaintiff took steps to preclude Aspen, as a matter of law, from seeking damages from defendant for the leaking pipe. Because this case was disposed of on defendant's motion for summary judgment, the precise question is whether plaintiff adduced sufficient evidence to create an issue of material fact as to whether it extinguished defendant's liability.

As earlier described, plaintiff offered three pieces of evidence in support of its position: the settlement agreement with Aspen, the Moore affidavit, and the Payne affidavit. The settlement agreement merely indicated that Aspen released its claims against plaintiff and that plaintiff reserved its claims against defendant. Nowhere did the settlement agreement indicate that Aspen released its claims against defendant. The Moore affidavit was similarly unavailing. Moore simply averred that Aspen asserted claims against plaintiff and that plaintiff incurred costs and expenses in defending against and satisfying those claims. Finally, the Payne affidavit simply stated that Aspen received adequate compensation for its damages and has no intention of pursuing any claims against defendant.

But an indemnity plaintiff must do more than show that the third party is content with a settlement and does not wish to exercise its legal rights against the indemnity defendant. Here, to borrow from the Supreme Court's discussion of the discharge element in Savelich Logging, plaintiff's agreement with Aspen must "operate to protect * * * defendant against a claim" by Aspen that defendant is also liable for the damages that Aspen sustained as a result of the leaking pipes. 265 Or. at 466, 509 P.2d 1179. In other words, before defendant will be on the hook for indemnity to plaintiff, plaintiff must show that it has "bought peace" for defendant in a way that is legally binding on the third party. The trial court concluded that such protection had to be in the form of a full and formal release. We believe that the form of the protection is less important than its substance. Whether the protection for the indemnity defendant is obtained through a formal release or is accomplished through some other mechanism, the important point is that, in a subsequent proceeding brought by the third party...