Lansing v. John Does 1-5 , 300 Or. App. 803 ( 2019 )

803
544
Lansing v. John Does 1-5 30027,
November Or2019
App
Argued and submitted July 3, 2018; general judgment reversed and remanded,
supplemental judgment reversed November 27, 2019
Mark LANSING,
dba Mal Joco, LLC,
Plaintiff-Appellant,
v.
JOHN DOES 1-5,
Defendants,
and
CR SERVICES, INC.
and CR Services, LLC,
Defendants-Respondents.
Josephine County Circuit Court
14CV1395; A164239
455 P3d 541
Plaintiff, the owner of a house, filed a negligence claim against defendant,
a contractor, related to work done at the house before plaintiff purchased the
house. Plaintiff alleged that defendant was negligent in replacing certain dry-
wall without first ascertaining and repairing the source of the water leak that
had damaged the drywall in the first place. Applying the “economic loss doc-
trine,” the trial court dismissed plaintiff’s negligence claim for failure to state
a claim under ORCP 21 A(8). The court entered a general judgment, based on
that ruling, as well as a supplemental judgment awarding attorney fees to defen-
dant. Plaintiff appeals both judgments. Held: The trial court erred in dismissing
plaintiff’s claim based on the economic loss doctrine. Accepting as true all well-
pleaded factual allegations in the complaint and favorable inferences therefrom,
plaintiff alleged property damage, which took the claim outside the application
of the economic loss doctrine. The judgment is therefore reversed, and, because
the supplemental judgment relates to the general judgment, it too is reversed.
General judgment reversed and remanded; supplemental judgment reversed.
Frances Elaine Burge, Judge.
Mark Lansing argued the cause and filed the briefs for
appellant.
Clark E. Rasche argued the cause for respondents. Also
on the briefs was Watkinson Laird Rubenstein, P.C.
Before DeHoog, Presiding Judge, and Egan, Chief Judge,
and Aoyagi, Judge.*
______________
* Egan, C. J., vice Hadlock, J. pro tempore.
804 Lansing v. John Does 1-5
AOYAGI, J.
General judgment reversed and remanded; supplemental
judgment reversed.
Cite as 300 Or App 803 (2019) 805
AOYAGI, J.
Plaintiff, the owner of a house, filed a negligence
claim against defendant, a contractor,1 based on defendant’s
alleged negligence in replacing drywall in the house without
first ascertaining and repairing the source of the water leak
that had damaged the drywall in the first place. The work
was done before plaintiff purchased the house. Applying the
“economic loss doctrine,” the trial court dismissed plain-
tiff’s claim for failure to state a claim. The court entered
a general judgment, based on that ruling, as well as a sup-
plemental judgment awarding attorney fees to defendant.
Plaintiff appeals both judgments. Because we agree with
plaintiff that the trial court erred in dismissing his claim
on the basis that it did, we reverse and remand the general
judgment, and we reverse the supplemental judgment.
On review of the grant of a motion to dismiss under
ORCP 21 A(8), “[w]e accept as true all well-pleaded fac-
tual allegations and give plaintiff[ ] the benefit of all favor-
able inferences that may be drawn from the facts alleged.”
Yanney v. Koehler, 147 Or App 269, 272, 272 n 1, 935 P2d
1235, rev den, 325 Or 368 (1997). We discuss only the opera-
tive complaint, which is the second amended complaint. See
Kastle v. Salem Hospital, 284 Or App 342, 344, 392 P3d 374
(2017) (on review of an order granting a motion to dismiss,
“our review is limited to the face of the operative complaint”).
In the summer of 2013, a credit union hired defen-
dant to do some work on a foreclosed house owned by the
credit union. The exact scope of defendant’s work is not
alleged, but, at a minimum, defendant repaired and replaced
certain drywall in the house.2 Some of the drywall that
defendant repaired or replaced was water damaged.
Around October 2013, the credit union sold the
house to plaintiff. Plaintiff inspected the house before buying
1
We refer to defendants-respondents collectively as “defendant.” According
to the complaint, one did actual work at the house, and the other is a related
company.
2
Plaintiff argues that it is reasonable to infer from the allegations in the
complaint that he is alleging that defendant was hired as a general contractor,
rather than a drywall contractor. We disagree—the complaint is simply silent as
to defendant’s scope of work.
806 Lansing v. John Does 1-5
it. The inspection revealed the new drywall. It was plain-
tiff’s understanding that any leaks would have been fixed
before new drywall was installed.
Plaintiff moved into the house around May 2014.
At that time, he discovered water damage to the new dry-
wall and ceiling. Plaintiff filed a negligence claim against
defendant. He alleged that defendant was negligent in “fail-
ing to ascertain the source of the original water damage
and repair it, prior to replacing the drywall and ceiling.”
He alleged that defendant knew or should have known that
the water damage was “caused by something, most likely a
water leak,” which “needed to be fixed before the drywall
and ceiling were replaced (otherwise they would suffer sim-
ilar water damage during the next rainy season).” And he
alleged that defendant’s negligence had damaged him “to
the extent of the cost of drywall replacement and water-leak
repair,” i.e., $2,806.
At a pretrial hearing, the trial court dismissed
plaintiff’s negligence claim for failure to state a claim, pur-
suant to ORCP 21 A(8). Relying on the economic loss doc-
trine, the court concluded that, to state a negligence claim
for “purely economic losses,” plaintiff needed to allege a
special relationship between the parties. The court offered
plaintiff an opportunity to amend his complaint for that pur-
pose, but plaintiff acknowledged that he could not allege a
special relationship, at which point the court dismissed the
negligence claim. That is, the court concluded that, given
the economic loss doctrine, plaintiff could not prevail on
his only claim, as pleaded. Based on that ruling, the court
entered a general judgment and, later, a supplemental judg-
ment awarding attorney fees to defendant. Plaintiff appeals
both judgments.
On appeal of the general judgment, plaintiff assigns
error to the trial court’s dismissal of his negligence claim for
failure to state a claim. We address that issue first.
The economic loss doctrine is a common-law doc-
trine that “bars a party that has suffered a purely economic
loss from bringing a negligence action against the party
that caused the loss, unless there is a special relationship
between the parties.” Harris v. Suniga, 344 Or 301, 305, 180
Cite as 300 Or App 803 (2019) 807
P3d 12 (2008); see also Hettle v. Construction Contractors
Board, 260 Or App 135, 147, 316 P3d 344 (2013) (“[U]nder
the common-law ‘economic loss’ doctrine, economic damages
* * * are recoverable in negligence only if the defendant is
subject to a heightened standard of care, such as one arising
out of a special relationship.” (Emphasis omitted.)). Under
the doctrine, “one ordinarily is not liable for negligently
causing a stranger’s purely economic loss without injuring
his person or property; rather, some source of duty outside
the common law of negligence is required.” FountainCourt
Homeowners v. FountainCourt Develop., 264 Or App 468,
484 n 11, 334 P3d 973 (2014) (internal quotation marks and
alteration omitted).
The issue here is whether the trial court was wrong
in viewing plaintiff’s claim as alleging “a purely economic
loss.” Harris, 344 Or at 305. It is undisputed that plaintiff
has not alleged the existence of a special relationship, so
plaintiff effectively concedes that, if the economic loss doc-
trine applies, the trial court did not err in dismissing his
claim. But plaintiff argues that the doctrine does not apply,
because he has alleged property damage as a result of defen-
dant’s negligence, specifically water damage to the new
drywall on the walls and ceiling of his house, which is not
a purely economic loss. In response, defendant argues that
the court properly dismissed plaintiff’s claim because plain-
tiff has not alleged that the work defendant did—the repair
and replacement of drywall—was performed negligently. In
defendant’s view, “[p]laintiff seeks to hold [d]efendant liable
not for work negligently performed, but for a failure to exer-
cise judgment in such a manner that allegedly would have
prevented [p]laintiff” from having to replace the drywall
and repair the leak.
Accepting as true all well-pleaded factual allega-
tions and favorable inferences therefrom, Yanney, 147 Or
App at 272, we conclude that the trial court erred in dis-
missing the complaint based on the economic loss doctrine.
For purposes of the economic loss doctrine, “economic losses”
means “financial losses,” as distinguished from “damages for
injury to person or property.” Harris, 344 Or at 306 (citation
omitted). Some examples of purely economic losses include a
reduced stock price, a monetary gift to a beneficiary, a debt
808 Lansing v. John Does 1-5
incurred, and return of monies paid. Id. at 310. By contrast,
when negligence results in personal injury or property dam-
age, the loss is not “purely economic”—and the economic loss
doctrine does not apply—even though the plaintiff may seek
compensation for resulting economic losses, such as medical
expenses or repair costs. See id. (“Every physical injury to
property can be characterized as a species of ‘economic loss’
for the property owner, because every injury diminishes the
financial value of the property owner’s assets,” but “the law
ordinarily allows the owner of [a] damaged car or residence
to recover in negligence from the person who caused the
damage.”).
When a plaintiff alleges that a contractor’s negli-
gence resulted in physical damage to building components,
including water damage, the plaintiff is alleging property
damage, not a purely economic loss. Harris is particularly on
point. In that case, the plaintiffs owned an apartment build-
ing that had been built by the defendants. Id. The plaintiffs
alleged that the defendants’ negligence had caused construc-
tion defects, which, in turn, resulted in water damage that
required repairs. Id. at 310-11. Given those allegations, the
Supreme Court held that the trial court had erred in dis-
missing plaintiffs’ negligence claim based on the economic
loss doctrine, because the plaintiffs were alleging property
damage. Id. at 310. Similarly, albeit in a different context, in
FountainCourt Homeowners, we referenced the economic loss
doctrine in concluding that, where the plaintiff alleged that
the defendant’s negligence had caused water intrusion into
a building, resulting in physical damage to building compo-
nents, the plaintiff was seeking and received damages for
“physical property damage.” 264 Or App at 484 (emphasis
omitted).
Defendant seeks to distinguish Harris. It points
out that the plaintiffs in Harris specifically alleged that
the defendants’ work was performed in a negligent man-
ner. See Harris, 344 Or at 310 (“[P]laintiffs seek recovery
because defendants’ negligence caused dry rot in the apart-
ment building that plaintiffs own.”). By contrast, defendant
argues, plaintiff has not alleged in this case that there
was anything negligent about the manner in which defen-
dant installed the drywall. We reject defendant’s narrow
Cite as 300 Or App 803 (2019) 809
reading of the complaint. As previously noted, in deter-
mining whether a complaint states a claim for purposes
of ORCP 21 A(8), the court must accept as true all well-
pleaded factual allegations and favorable inferences there-
from. Applying that standard here, we understand plain-
tiff’s complaint to allege that defendant’s failure to identify
the source of the water leak and repair it before replacing
the drywall was negligent and resulted in property dam-
age. As in Harris, such allegations are sufficient to state a
claim that is not subject to dismissal based on the economic
loss doctrine.
Defendant argues that Hettle, which the trial
court cited, counsels a different result, but we disagree. In
Hettle, the seller of a house hired a contractor to clean the
roof and gutters. 260 Or App at 138. When the contractor’s
corporate president stopped by to check the work, the com-
plainant, who was negotiating to buy the house, asked him
to examine two windows for water damage. Id. The pres-
ident did so and opined that there was no water damage.
Id. at 140. The complainant bought the house and, when
he moved in, discovered water damage in certain windows.
Id. at 139. He filed an administrative complaint, alleg-
ing improper and negligent work, which the Construction
Contractors Board dismissed for failure to state a claim. Id.We affirmed, in part based on the economic loss doctrine
and the lack of a special relationship. Id. at 153. However,
we expressly noted that neither party was contending that
the damages were not economic, and, “[b]ecause the par-
ties do not raise this issue, we do not address it.” Id. at 143
n 5. As such, Hettle has no precedential value as to what
constitutes economic losses, as distinct from property dam-
age or a personal injury, for purposes of the economic loss
doctrine.3
3
In Hettle, 260 Or App at 137-38, 140, 145, the complainant’s alleged dam-
ages appear to have related to existing water damage that the contractor failed
to identify, not later water damage from the ongoing water intrusion, which may
explain why no one contested that the complainant was alleging purely economic
losses. Defendant also cites Meininger v. Henris Roofing & Supply, 137 Or App
451, 905 P2d 861 (1995), rev den, 322 Or 489 (1996). In that case as well, no one
contested on appeal that the damages caused by a roofing company’s alleged neg-
ligence in failing to identify an existing leak were purely economic losses. Id. at
453, 455.
810 Lansing v. John Does 1-5
On remand, plaintiff may or may not be able to
prove that defendant’s duty of care included an obligation
to “ascertain the source of the original water damage and
repair it, prior to replacing the drywall and ceiling.” But
whether plaintiff can prove that defendant was negligent is
a different question from whether plaintiff has alleged that
defendant was negligent and that such negligence caused
property damage. Because plaintiff has done the latter, the
trial court erred in relying on the economic loss doctrine
to dismiss his negligence claim for failure to state a claim.
Accordingly, we reverse and remand the general judgment.
Plaintiff also appeals the supplemental judgment,
asserting that the trial court erred in awarding attorney
fees to defendant. “When an appeal is taken from a judg-
ment under ORS 19.205 to which an award of attorney
fees or costs and disbursements relates[, and] the appel-
late court reverses the judgment, the award of attorney
fees or costs and disbursements shall be deemed reversed.”
ORS 20.220(3)(a); see also PNC Multifamily Capital v. AOH-
Regent Ltd. Partnership, 262 Or App 503, 518, 329 P3d 773
(2014) (“[B]ecause the supplemental judgment awarding
attorney fees was predicated on the general judgment of dis-
missal, we reverse that as well.”); ZRZ Realty v. Beneficial
Fire and Casualty Ins., 257 Or App 180, 187, 306 P3d 661
(2013) (“[T]he legal effect of reversing the underlying attor-
ney fee award in the general judgment was to reverse the
supplemental judgment for attorney fees as well[.]”).
The attorney fee award in this case involves an
unusual procedural twist, in that defendant requested
attorney fees pursuant to ORS 20.080, which provides for
a mandatory fee award to a successful plaintiff or counter-
claimant in certain small claims actions. See ORS 20.080(1)
(providing for an attorney fee award to a prevailing plaintiff
“[i]n any action for damages for an injury or wrong to the
person or property, or both, of another where the amount
pleaded is $10,000 or less”); ORS 20.080(2) (“If the defen-
dant pleads a counterclaim, not to exceed $10,000, and the
defendant prevails in the action, there shall be taxed and
allowed to the defendant, at trial and on appeal, a reason-
able amount to be fixed by the court as attorney fees for the
Cite as 300 Or App 803 (2019) 811
prosecution of the counterclaim.”).4 What is unusual about
defendant’s reliance on ORS 20.080(2) is that defendant’s
only “counterclaim” is a counterclaim for attorney fees. That
is, defendant asserts that it is entitled to attorney fees for
prosecuting a counterclaim for attorney fees. The trial court
accepted that circular logic and awarded attorney fees of
$9,999 to defendant, along with a “principal” award of “$0”
on the “counterclaim.”
Notwithstanding the odd procedural posture, there
is no question on this record that the attorney fee award
in the supplemental judgment “relates” to the general judg-
ment that we have now reversed. ORS 20.220(3)(a). Among
other things, the general judgment expressly states that
attorney fees will be awarded pursuant to a supplemental
judgment, which is what occurred. We therefore reverse the
supplemental judgment as a matter of course, see id., and
we decline to address the merits of whether the trial court
erred in awarding attorney fees to defendant under ORS
20.080(2), based on defendant’s counterclaim for attorney
fees. Our skepticism about the propriety of the fee award
may be apparent, but it is an issue that we ultimately need
not resolve, given the more fundamental reason to reverse
the supplemental judgment, and we are disinclined to do so
when the issue may not arise again on remand.
General judgment reversed and remanded; supple-
mental judgment reversed.
4
ORS 20.080 only provides for attorney fees in “an action for damages for
an injury or wrong to the person or property.” As such, defendant appears to
view this case as an action for property damage when it comes to attorney fees,
even though it contests that it is such an action for purposes of the economic loss
doctrine.