Portland Development Com'n v. CH2M Hill Northwest, Inc.

• Citation: 758 P.2d 353,92 Or.App. 43
• Parties: PORTLAND DEVELOPMENT COMMISSION The Duly Designated and Acting Urban Renewal Agency for the City of Portland, Appellant, v. CH2M HILL NORTHWEST, INC., an Oregon corporation, Defendant, and Western Pacific Foundation Co., a division of Riedel International, Inc., Respondent. A8508-04965; CA A42840.
• Decision Date: 02 September 1988
• Court: Court of Appeals of Oregon

Page 353

758 P.2d 353

92 Or.App. 43

PORTLAND DEVELOPMENT COMMISSION The Duly Designated and

Acting Urban Renewal Agency for the City of

Portland, Appellant, v. CH2M HILL NORTHWEST, INC., an Oregon corporation, Defendant, and Western Pacific Foundation Co., a division of Riedel

International, Inc., Respondent.

A8508-04965; CA A42840.

Court of Appeals of Oregon.

Argued and Submitted March 18, 1988.

Decided July 6, 1988.

Reconsideration Denied Sept. 2, 1988.

Preston C. Hiefield, Jr., Portland, argued the cause and submitted the briefs for appellant.

Arthur D. McGarry, Portland, argued the cause for respondent. On the brief was Mitchell C. Wall and Wall & Wall, P.C., Portland.

Before BUTTLER, P.J., and WARREN and ROSSMAN, JJ.

WARREN, Judge.

Plaintiff Portland Development Commission appeals a judgment in favor of Riedel International, Inc. (Riedel), for attorney fees of $167,830.25, purportedly awarded pursuant to ORS 20.105(1).

In 1979, plaintiff contracted with defendant CH2M Hill Northwest (CH2M) to provide design services, plans and specifications for construction of a breakwater for plaintiff's South Downtown Development Project. In June, 1984, Riedel was awarded the construction contract. ¹ In the summer or early fall, Riedel notified plaintiff that the plans and specifications provided by CH2M were not final and were not sufficient for construction of the breakwater. CH2M took the position that it had performed its contract with plaintiff and that the plans required Riedel to design and build the breakwater. Riedel proceeded to build the breakwater. In the spring of 1985, blowouts and cracks became evident in the breakwater units. Plaintiff engaged an engineering firm to determine the cause of the failures. Riedel claimed additional costs and had ongoing negotiations with plaintiff regarding the claims.

On August 9, 1985, plaintiff filed this declaratory judgment action against CH2M and Riedel. Plaintiff alleged that it construed its contract with CH2M to provide that CH2M was to prepare final plans, that Riedel contended that the plans were not final and that, because of that, Riedel had asserted a claim for damages of $400,000 against plaintiff. Plaintiff prayed for a declaration that its contract with CH2M required CH2M to provide final plans, that the plans provided by CH2M were not final and that the plans did not require the contractor to design the breakwater.

On September 24, after the action had been filed, Hayford, of the engineering firm retained by plaintiff, sent a letter to plaintiff which detailed the problems and possible solutions for the failures in the concrete units. He concluded that there were design difficulties and that the units did not have adequate concrete cover on the "rebar"; plaintiff blamed the latter deficiency on inadequate workmanship by Riedel. On January 28, 1986, Hayford confirmed by letter to plaintiff that it would take $55,320 to maintain the units because of the inadequate concrete cover, and plaintiff withheld that amount from its contract payment to Riedel.

The declaratory judgment action proceeded in three phases. The first concluded on June 23, 1986, when all the parties stipulated that, under the contract with plaintiff, CH2M was to provide final design plans and specifications for the breakwater. Judgment was entered on the stipulation, reserving for trial the issue of whether CH2M had fulfilled its responsibility. Also unresolved was plaintiff's claim for damages from Riedel for inadequate workmanship. ² Riedel filed an amended answer and counterclaim, alleging that plaintiff had no basis for asserting inadequate workmanship and that plaintiff had involved Riedel in litigation to avoid paying the contract balance. Riedel alleged that plaintiff's conduct justified an award of attorney fees. The second phase of the proceeding concluded after a trial in August. The court found that CH2M had not provided final design plans or specifications. The third phase of the proceeding determined damages. The court dismissed plaintiff's claim against Riedel for $55,320 for failure of proof and ordered CH2M to indemnify plaintiff for Riedel's claims against plaintiff. The court also allowed Riedel's claim for attorney fees.

The bifurcated nature of the proceeding apparently led the trial court to conclude that attorney fees were warranted under ORS 20.105(1). The court held that, although plaintiff had an "understandable position" at the time it filed the proceeding, its refusal to pay the $55,320 after receiving Hayford's September letter was "inexplicable." The court apparently concluded that plaintiff should have proved its case against CH2M, using Riedel personnel as witnesses instead of joining it as a party. Apparently because plaintiff pursued its damages claim against Riedel, the trial court concluded that attorney fees should be awarded to Riedel. ³

ORS 20.105(1) provides:

"In any civil action, suit or other proceeding in a district court, a circuit court or the Oregon Tax Court, or in any civil appeal to or review by the Court of Appeals or Supreme Court, the court may, in its discretion, award reasonable attorney fees appropriate in the circumstances to a party against whom a claim, defense or ground for appeal or review is asserted, if that party is a prevailing party in the proceeding and to be paid by the party asserting the claim, defense or ground, upon a finding by the court that the party wilfully disobeyed a court order or acted in bad faith, wantonly or solely for oppressive reasons."

We have not previously examined the standards under ORS 20.105, ⁴ apart from suggesting its applicability to "frivolous" and "malicious" claims. See Kling v. Exxon Corp., 74 Or.App. 399, 404, 703 P.2d 1021 (1985). The terminology "bad faith, wantonly or solely for oppressive reasons" was adopted from Alyeska Pipeline Co. v. Wilderness Soc., 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975), and reflects the standards used in federal cases. ⁵ However, Alyeska ⁶ did not define "bad faith," ⁷ nor did the cases on which it relied. Later federal cases have made it clear that a finding of "bad faith" requires clear evidence that a claim has been made entirely without any basis in fact or law. See Browning Debenture Holders' Committee v. DASA Corp., 560 F.2d 1078, 1088 (2nd Cir.1977). Nemeroff v. Abelson, 620 F.2d 339, 348 (2nd Cir.1980), defined a colorable claim, for the purpose of the bad faith exception, as one which

"has some legal and factual support, considered in light of the reasonable beliefs of the individual making the claim. The question is whether a reasonable attorney could have concluded that facts supporting the claim might be established, not whether such facts actually had been established." (Footnote omitted; emphasis deleted.)

Riedel argues that plaintiff's actions were taken in bad faith, because there was never any reason to involve Riedel in a judicial determination of any of the issues. ⁸ Riedel contends that plaintiff always claimed that CH2M was obligated to provide final plans and did not do so and that the declaratory judgment proceeding was a tactic to avoid paying Riedel under the contract between it and plaintiff until plaintiff could compel CH2M to pay. ⁹

The relationship of the parties does not support the conclusion that plaintiff's action against Riedel was undertaken solely for oppressive reasons or in bad faith. When plaintiff began the proceeding against Riedel and CH2M, a reasonable attorney could have concluded that a declaratory judgment proceeding was appropriate to resolve the conflicting positions. At that time plaintiff knew that the breakwater units were flawed. It also knew that Riedel was contending that the units could not be properly built because the design plans were not final and that CH2M was taking the position that it was not responsible for final designs or, alternatively, that it had provided them. Riedel was claiming additional costs. If CH2M was correct in its position, the failures in the breakwater could be due to Riedel's workmanship. To resolve the conflicting positions, it was proper to join Riedel as a party.

In State Farm Fire & Cas. v. Reuter, 294 Or. 446, 657 P.2d 1231 (1983), the Supreme Court approved joining a potential third-party claimant in a declaratory judgment proceeding to determine rights under a policy issued by the plaintiff to the defendant Reuter. The court noted that the third party would not be bound by the declaration if it were not joined. The situation in Reuter is analogous to that here. The obligations and liabilities of the parties were interrelated. If the failure of the breakwater units was due to CH2M's faulty design, then CH2M was potentially obligated to Riedel for its claims; if CH2M was not responsible, then Riedel's claim against plaintiff was possibly invalid.

That Riedel was a proper party was recognized by the trial court. In November, Riedel moved to be...