Diamond Heating, Inc. v. Clackamas County , 316 Or. App. 579 ( 2021 )

579
Argued and submitted August 29, 2019, affirmed December 29, 2021, petition
for review denied May 5, 2022 (369 Or 705)
DIAMOND HEATING, INC.,
Plaintiff-Appellant,
v.
CLACKAMAS COUNTY
and Dawn Penberthy,
Defendants-Respondents.
Clackamas County Circuit Court
17CV16465; A166975
505 P3d 4
Plaintiff appeals the dismissal of its negligence claim against defendants.
Plaintiff’s claim was based on allegations that defendants negligently supervised
a probationer, who had embezzled money from plaintiff while on probation for
previous embezzlement convictions. Plaintiff argued that special conditions of
probation that were placed on the probationer created a duty of care that defen-
dants owed to plaintiff, such that the economic loss doctrine did not bar plain-
tiff’s claim. Held: Plaintiff did not allege facts in the complaint that established
a basis for imposing an additional duty on defendants from a source other than
the common-law duty of reasonable care. The trial court did not err in dismissing
plaintiff’s negligence claim based on the economic loss doctrine.
Affirmed.
Roderick A. Boutin, Judge pro tempore.
Kathryn H. Clarke argued the cause and filed the reply
brief for appellant. Also on the opening brief was Jess M.
Glaeser. On the supplemental brief was Kathryn H. Clarke.
Scott C. Ciecko argued the cause for respondents. Also
on the brief was Stephen L. Madkour. On the supplemental
brief was Scott C. Ciecko.
Before Ortega, Presiding Judge, and Shorr, Judge, and
James, Judge.
ORTEGA, P. J.
Affirmed.
James, J., dissenting.
580 Diamond Heating, Inc. v. Clackamas County
ORTEGA, P. J.
Plaintiff Diamond Heating, Inc., appeals the dis-
missal of its negligence claim against defendants. Its com-
plaint alleges that, more than three years after hiring
Deana Freauff as a financial manager and bookkeeper in
Seaside, plaintiff discovered that Freauff had embezzled
significant sums of money during her employment. In the
resulting criminal prosecution of Freauff, plaintiff learned
that, when she was hired, Freauff was serving a sentence
of probation imposed by the Multnomah County Circuit
Court and was under the supervision of the Clackamas
County Community Corrections Department for previous
convictions of embezzlement. Plaintiff’s resulting negligence
action against Clackamas County and a probation officer
employed in its Community Corrections Department alleges
that defendants failed to take reasonable steps to monitor
and enforce Freauff’s compliance with court-ordered special
conditions of probation.
Defendants moved to dismiss under ORCP 21 A(8),
arguing that, on the alleged facts, the “economic loss rule”
barred plaintiff’s negligence claim, and the trial court
agreed and granted the motion. Plaintiff appeals, arguing,
as it did in the trial court, that the special conditions of pro-
bation imposed by the Multnomah County Circuit Court,
which prohibited Freauff from undertaking employment
duties like those she assumed for plaintiff without written
permission from her probation officer, and which required
Freauff to make “full disclosure” to the employer, created
duties for defendants that allow plaintiff to recover its eco-
nomic losses. Like the trial court, we conclude that the pro-
bation conditions that governed Freauff’s conduct did not
impose duties on defendants that avoid the economic loss
rule. Accordingly, we affirm the judgment of dismissal.
We review the trial court’s ruling dismissing the
claim for legal error, assuming the truth of all well-pleaded
facts alleged in the complaint. Doe v. Lake Oswego School
District, 353 Or 321, 323, 297 P3d 1287 (2013). As noted,
plaintiff’s amended complaint alleges that, more than three
years after plaintiff hired Freauff as its financial manager
and bookkeeper, it learned that she had embezzled more
Cite as 316 Or App 579 (2021) 581
than $200,000 from plaintiff’s business. During the crim-
inal investigation of Freauff, plaintiff learned that she had
previously pled guilty to multiple counts of embezzlement
from one former employer and had been convicted of embez-
zlement from another former employer. After those con-
victions, the Multnomah County Circuit Court sentenced
Freauff and allegedly imposed special probation conditions
requiring Freauff to “advise * * * any future employer * * *
of this probation and nature of the crime” and to provide
her probation officer with employment information for pur-
poses of monitoring her compliance with the probation con-
ditions.1 The conditions allegedly also provided that Freauff
was “prohibited from taking any employment involving the
handling of money or negotiable instruments without the
written permission of the probation officer and after making
full disclosure” to the employer. Defendants were responsi-
ble for supervision of Freauff’s probation.
Plaintiff further alleged that “[t]he primary pur-
pose of each of these special conditions of probation were [sic]
for the protection of the financial interests of any employer
or potential employer” from Freauff and that, once plaintiff
became Freauff’s employer, “the purposes of the special con-
ditions of the probation were to protect plaintiff’s financial
interests.” Plaintiff alleged that defendants were negligent
in performing their duties of supervising Freauff’s employ-
ment and sought over $200,000 for “direct cash loss” as a
result of Freauff’s theft, plus more than $23,000 for account-
ing and legal fees, and significant additional damages total-
ing $750,000.
The parties agree that the central question on
appeal is whether plaintiff’s negligence claim is barred by
the economic loss doctrine, a common-law doctrine created
in response to pragmatic concerns over unbounded liability.
See JH Kelly, LLC v. Quality Plus Services, Inc., 305 Or App
565, 572, 472 P3d 280 (2020) (citation omitted). In general,
Oregon law imposes liability for negligence if one’s conduct
1
Plaintiff also alleged that it learned that Freauff had forged the signature
of the president of plaintiff on a letter that “falsely advis[ed] [Freauff’s probation
officer] that plaintiff knew of her criminal record and that she was currently on
probation[.]”
582 Diamond Heating, Inc. v. Clackamas County
unreasonably creates a foreseeable risk of harm to others.
Id. (citing Slogowski v. Lyness, 324 Or 436, 441, 927 P2d
587 (1996)). However, where purely economic loss is alleged,
the plaintiff must also allege facts sufficient to establish
that the defendants owed a duty of care to the plaintiff
beyond the common-law duty of reasonable care. Paul v.
Providence Health System-Oregon, 351 Or 587, 591, 273 P3d
106 (2012) (“To recover damages for purely economic harm,
liability ‘must be predicated on some duty of the negligent
actor to the injured party beyond the common law duty
to exercise reasonable care to prevent foreseeable harm.’ ”
(Quoting Oregon Steel Mills, Inc. v. Coopers & Lybrand,
LLP, 336 Or 329, 341, 83 P3d 322 (2004), and Onita Pacific
Corp. v. Trustees of Bronson, 315 Or 149, 159, 843 P2d 890(1992).)).
Plaintiff urges that the necessary additional duty
arose from the special conditions of probation imposed on
Freauff. It argues that the prohibition on Freauff taking
employment involving the handling of money without writ-
ten permission from the probation officer, and the require-
ment that she provide her probation officer with employment
information to monitor her compliance, gave rise to a duty
owed by defendants to any of Freauff’s future employers to
monitor her compliance with those conditions, and argues
that that duty was specifically owed to plaintiff.
The first problem with plaintiff’s argument is that
the probation conditions impose duties only on Freauff and
make no reference to duties imposed on the person supervis-
ing Freauff. Further, plaintiff does not plead (and apparently
cannot establish) that defendants were parties to the court
order imposing conditions of probation on Freauff, who was
not sentenced either in Clackamas County or in the county
where plaintiff is located. Unlike the situation in McEvoy
v. Helikson, 277 Or 781, 785, 562 P2d 540 (1977), on which
plaintiff relies, there is no court order directing defendants
to act for the benefit of plaintiff. Compare id. (concluding
that a court order directing an attorney to refrain from cer-
tain action gave rise to a duty that supported the imposition
of damages for emotional distress suffered by an intended
beneficiary of that order).
Cite as 316 Or App 579 (2021) 583
In addition, plaintiff’s allegations in the amended
complaint that the probation conditions had the purpose of
protecting plaintiff are not allegations of fact that we must
accept as true. As with any written instrument, an interpre-
tation of the meaning of the probation conditions is an issue
of law for us to determine based on the document’s text, and
plaintiff cannot, through artful pleading, turn that into an
issue of fact. See State v. Langford, 260 Or App 61, 68, 317
P3d 905 (2013) (an appeal from punitive contempt, where
the central dispute was what a court order required, raised
an issue of law); see also Gafur v. Legacy Good Samaritan
Hospital, 344 Or 525, 529, 185 P3d 446 (2008) (“[W]e dis-
regard any allegations that state conclusions of law.”).
Plaintiff’s bare allegation about the purpose of the proba-
tion conditions does not provide a factual basis for imposi-
tion of a duty that would avoid operation of the economic
loss rule. Plaintiff has not alleged facts that would impose a
duty on defendants beyond the common-law duty to exercise
reasonable care to prevent foreseeable harm.
Plaintiff’s reliance on Brennan v. City of Eugene,
285 Or 401, 591 P2d 719 (1979), is misplaced. In that case,
the Supreme Court held that an ordinance imposed on a
municipality a duty to exercise reasonable care regarding
the licensing of taxicabs, so as to avoid creating a foresee-
able risk of harm to others. Id. at 411. The duty alleged to
have been breached in Brennan arose from a specific obliga-
tion stated in the ordinance, in contrast to the generalized
duty of a probation officer to stay informed about a proba-
tioner’s activities, as alleged by plaintiff here. In all events,
the plaintiff in Brennan had suffered physical injury, and
the opinion does not address applicability of the economic
loss rule.
The dissent raises ORS 137.630 as the source of
a duty in addition to the common-law duty. But we may
not simply declare that a statutory duty exists without
undertaking the necessary steps of statutory construction.
Additionally, plaintiff has not cited that statute in the com-
plaint or in the briefs as the source of a duty or offered any
statutory analysis, and we will not undertake that advocacy
on plaintiff’s behalf.
584 Diamond Heating, Inc. v. Clackamas County
As we recently said in JH Kelly, LLC, 305 Or App at
575,
“the economic loss rule emerged as a bar on a plaintiff’s
recovery for ‘purely economic loss’ caused by a third per-
son, absent the plaintiff establishing the presence of a fact
or circumstance that conceptually removed the case from
the realm of the concerns for unbounded litigation that
gave rise to the rule—that is, the plaintiff must establish
a limiter. Hale v. Groce, 304 Or 281, 284, 744 P2d 1289(1987).”
The dissent believes that the pleaded facts—alleging dam-
ages based on theft—provide such a “limiter.” We conclude
that conditions of probation imposing duties on a person
while under supervision are not a sufficient “limiter” to
allow imposition of liability on a supervising agency for
purely economic loss. If that were true, then, there would
be no bar to claims against a supervising agency for every
economic loss caused by a person under supervision. A rule
creating such potentially broad liability would increase the
burdens of supervision beyond the ability to sustain it and
create the type of unbounded litigation and liability that the
economic loss rule is designed to prevent. See JH Kelly, LLC,
305 Or App at 572.
The pleadings in this case do not allege a basis for
imposing an additional duty on defendants from a source
other than the common-law duty of reasonable care that
would support liability for plaintiff’s economic losses.2
Affirmed.
JAMES, J., dissenting.
Plaintiff hired Deana Freauff as a financial man-
ager and bookkeeper, then later discovered that Freauff had
embezzled significant sums of money throughout the course
of her employment. Embezzlement is a specific form of
theft—a property crime. In tort, it is known as conversion.
2
The dissent spends significant time explaining that the economic loss doc-
trine does not apply in this case because plaintiff’s loss was not merely “eco-
nomic.” The parties, however, never raised or briefed such a theory, and we there-
fore do not address it.
Cite as 316 Or App 579 (2021) 585
In the resulting criminal prosecution of Freauff, plaintiff
learned that, at the time of her hiring, Freauff had been
convicted of the same type of theft from not one, but two,
previous employers. Also, plaintiff learned that Freauff was
on probation, and subject to specific conditions of proba-
tion concerning her employment, to be enforced and mon-
itored by the Clackamas County Community Corrections
Department. Accordingly, plaintiff sued for negligent super-
vision, seeking direct losses of $214,235.98—the amount of
property (currency) stolen by Freauff—as well as consequen-
tial damages of $325,000.00 for the business, and “personal
loans from Dan Nelson and his wife, totaling $97,200.00”
needed to keep the business afloat as a result of the theft.
In response, defendants moved to dismiss under
ORCP 21 A(8), making the singular argument before us
on appeal—that plaintiff failed to state a claim under
the “economic loss rule.” In JH Kelly, LLC v. Quality Plus
Services, Inc., 305 Or App 565, 572, 472 P3d 280 (2020), we
discussed that the economic loss rule was “created by courts
in response to pragmatic concerns over unbounded liability.”
We emphasized that “the application of the rule cannot be
divorced from the pragmatic concerns that birthed it.” Id. at
575. As such, in determining whether the economic loss rule
precludes the assertion of a claim, a court looks for “the pres-
ence of a fact or circumstance that conceptually remove[s]
the case from the realm of the concerns for unbounded liti-
gation that gave rise to the rule—that is, the plaintiff must
establish a limiter.” Id. at 573-74. The pragmatic concerns
over unbounded liability are not present in this case. There
certainly may be hurdles to this litigation on summary
judgment, but they are not grounded in the economic loss
rule. I respectfully dissent.
In general, in Oregon, all persons are liable in neg-
ligence if their conduct unreasonably creates a foreseeable
risk of harm to others. Slogowski v. Lyness, 324 Or 436, 441,
927 P2d 587 (1996). Ordinarily, it is not the establishment
of a duty that limits the potential reach of negligence lit-
igation. Establishing a duty is not typically an element of
a negligence claim in Oregon law. Rather, negligence in
Oregon extends to the limits of the general principles of
586 Diamond Heating, Inc. v. Clackamas County
foreseeability articulated in Fazzolari v. Portland School
Dist. No. 1J, 303 Or 1, 17, 734 P2d 1326 (1987), where the
court stated:
“[U]nless the parties invoke a status, a relationship, or a
particular standard of conduct that creates, defines, or lim-
its the defendant’s duty, the issue of liability for harm actu-
ally resulting from defendant’s conduct properly depends
on whether that conduct unreasonably created a foresee-
able risk to a protected interest of the kind of harm that
befell the plaintiff.”
However, there are certain instances where some-
thing more than general foreseeability must be established.
In Ore-Ida Foods v. Indian Head, 290 Or 909, 627 P2d 469(1980), the court considered an action by an employer against
a third-party tortfeasor for economic losses arising out of
the death of an employee. The court held that “[t]he prevail-
ing 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. As
justification for the rule, the court discussed that permit-
ting such damages has the potential of leading to “limit-
less recoveries and * * * ruinous consequences.” Id. at 916-17.
Later, in Onita Pacific Corp. v. Trustees of Bronson, 315 Or
149, 158, 843 P2d 890 (1992), the court quoted with approval
the rationale articulated by Judge Cardozo in Ultramares v.
Touche, 255 NY 170, 179-80, 174 NE 441 (1931):
“ ‘If liability for negligence exists, a thoughtless slip or
blunder, the failure to detect a theft or forgery beneath the
cover of deceptive entries, may expose accountants to a lia-
bility in an indeterminate amount for an indeterminate time
to an indeterminate class. The hazards of a business con-
ducted on these terms are so extreme as to enkindle doubt
whether a flaw may not exist in the implication of a duty
that exposes to these consequences.’ ”
(Emphasis added.)
This rule—known as the “economic loss” rule—
states that, generally, a person “is not liable for negligently
causing a stranger’s purely economic loss without injuring
his person or property.” Hale v. Groce, 304 Or 281, 284, 744
Cite as 316 Or App 579 (2021) 587
P2d 1289 (1987) (citing Ore-Ida Foods, 290 Or 909). Purely
economic losses are “financial losses to intangibles.” Harris
v. Suniga, 209 Or App 410, 418, 149 P3d 224 (2006), aff’d,
344 Or 301, 180 P3d 12 (2008). Such harm typically comes
in the form of lost profits, lost insurance proceeds, lost mar-
ket share, etc. See, e.g., Indian Creek Development Co. v. City
of Hood River, 203 Or App 231, 125 P3d 50 (2005), rev den,
340 Or 158 (2006) (lost profits); Miller v. Mill Creek Homes,
Inc., 195 Or App 310, 97 P3d 687 (2004) (loss of flood insur-
ance proceeds); SFG Income Fund, LP v. May, 189 Or App
269, 75 P3d 470 (2003) (loss of expected proceeds resulting
from negligent misinformation that property was build-
able); Lewis-Williamson v. Grange Mutual Ins. Co., 179 Or
App 491, 39 P3d 947 (2002) (undervaluation of the plain-
tiff’s residence in a homeowners insurance policy); Portland
Trailer & Equipment v. A-1 Freeman Moving, 166 Or App
651, 5 P3d 604, adh’d to as modified on recons, 168 Or App
654, 4 P3d 741 (2000) (attorney fees incurred as a result
of the defendants’ initiation of the predicate civil proceed-
ing); Roberts v. Fearey, 162 Or App 546, 986 P2d 690 (1999)
(failed loan transactions); Oregon Life and Health v. Inter-
Regional Financial, 156 Or App 485, 967 P2d 880 (1998)
(loss of investment); Allstate Ins. Co. v. Tenant Screening
Services, Inc., 140 Or App 41, 914 P2d 16 (1996) (money paid
in settlement of personal injury claim).
When seeking recovery for purely economic losses,
it is incumbent on the plaintiff, to establish “the presence of
a fact or circumstance that conceptually removed the case
from the realm of the concerns for unbounded litigation.”
JH Kelly, LLC, 305 Or App at 573-74. Damage to a person
or property, however, provides “an obvious boundary to con-
cerns of unbounded liability.” Id. at 574. “Accordingly, the
doctrine is inapplicable when the damage is one to person or
property.” Id.And that is the first, and most obvious, reason why
the economic loss rule is inapplicable in this case: this case
involves the clear and obvious limiter of theft of property.1
1
The majority is correct that, on appeal, the parties have largely assumed
that this case involved purely economic losses and focused their argument on
whether there was a source of duty outside the common law. But unlike the
majority, I do not so easily dispose of this essential element of the analysis. The
588 Diamond Heating, Inc. v. Clackamas County
As the Supreme Court noted in Harris, economic losses are
often intertwined with property damage.
“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. Damage to a car reduces the value of the
car—one of the owner’s assets. A tree falling on a person’s
residence is damage to property, but also can be charac-
terized as a financial loss because it reduces the value of
the residence, which the owner may properly view as an
asset or financial investment as well as a residence. Yet the
law ordinarily allows the owner of the damaged car or res-
idence to recover in negligence from the person who caused
the damage.”
Harris, 344 Or at 310. Similarly, we recently noted that,
“when negligence results in personal injury or property
damage, the loss is not ‘purely economic’ * * * even though
the plaintiff may seek compensation for resulting eco-
nomic losses, such as medical expenses or repair costs.”
Lansing v. John Does 1-5, 300 Or App 803, 808, 455 P3d 541
(2019).
Here, Freauff’s conduct involved embezzlement. In
terms of criminal law, such conduct falls under the defini-
tion of theft, a property crime. In terms of tort, such conduct
traditionally is described as conversion. Conversion is the
“intentional exercise of dominion or control over a chattel
which so seriously interferes with the right of another to
control it that the actor may justly be required to pay the
other the full value of the chattel.” Mustola v. Toddy, 253
Or 658, 663, 456 P2d 1004 (1969) (adopting the definition of
conversion found in Restatement (Second) of Torts § 222A(1)
(1965)). “A chattel is ‘[m]ovable or transferable property;
personal property; esp. a physical object capable of manual
delivery and not the subject matter of real property.” Black’s
Law Dictionary 268 (9th ed 2009). For the purposes of the
tort of conversion, therefore, physical money is chattel, and
therefore property. Cron v. Zimmer, 255 Or App 114, 129,
296 P3d 567 (2013).
issue on appeal is the applicability of the economic loss rule. The parties have
identified that issue and cited all relevant authority.
Cite as 316 Or App 579 (2021) 589
If Freauff had set fire to her employer’s building,
and inside that building was a safe with money, this case
would not be barred by the economic loss rule. Similarly, if
Freauff had simply opened the safe and set fire to the cash
itself, this case would not be barred by the economic loss
rule. If Freauff simply took the cash, rather than setting
fire to it, it is no less properly conceptualized as involving
damage to property. And that should not change if Freauff
stole electronic funds, as opposed to hard cash.
Whether abstract items are chattel, and therefore
property, for purposes of conversion is a somewhat unsettled
question. Courts have observed that the “traditional rule
* * * that conversion will lie only for the taking of tangible
property, or rights embodied in a tangible token necessary
for the enforcement of those rights,” has been “relaxed in
favor of the reasonable proposition that any intangible gen-
erally protected as personal property may be the subject
matter of a suit for conversion.” Pearson v. Dodd, 410 F2d
701, 708 n 34 (DC Cir 1969) (citations omitted). Similarly,
the Ninth Circuit noted that “[v]irtually every jurisdiction”
has, to some degree, discarded the traditional limitation
that applied conversion actions only to tangible goods.”
Kremen v. Cohen, 337 F3d 1024, 1030 (9th Cir 2003) (inter-
preting California law; holding that plaintiff could main-
tain an action for conversion of an internet domain name).
In that same vein, the Oregon Supreme Court found that
an attorney’s misappropriation of money in a client’s trust
account constituted conversion of chattel. In re Martin, 328
Or 177, 184 n 1, 970 P2d 638 (1998).
No Oregon case has previously considered whether
conversion of monies, in particular nonphysical electronic
funds, constitutes harm to property. However, I can conceive
of no logical reason why it would not. Here, the theft of a spe-
cific amount of currency is the core of this case, and all con-
sequential damages flow from that singular sum. In short,
this is a case involving property, the classic and archetypal
limiter that renders the economic loss rule inapplicable.
However, even if this case did not involve the theft
of money, or even if preservation prevented us from deciding
590 Diamond Heating, Inc. v. Clackamas County
the matter on that point, dismissal under ORCP 21 A(8)
for reasons of the economic loss rule would be inappropri-
ate because of the statutory duties at play, as well as the
special conditions of probation that governed the relation-
ship between Clackamas County Community Corrections
Department, Freauff, and the limited class of people that
were her known likely future victims: her employers.
A limiter for purposes of the economic loss rule can
be an additional source of duty beyond the common law. We
have identified a wide array of potential duties. Duty can be
present in “the nature of the parties’ relationship.” Onita,
315 Or at 160. “[T]he crucial aspect of the relationship is not
its name, but the roles that the parties assume.” Strader v.
Grange Mutual Ins. Co., 179 Or App 329, 334, 39 P3d 903,
rev den, 334 Or 190 (2002). We have noted that a contract
can give rise to a duty. See, e.g., Harris, 344 Or at 308; Onita,
315 Or at 160-61. Duty can be created by statute or ordi-
nance when such legislative action was “intended to create
a duty” beyond its goal of simply “protecting the public inter-
est.” Loosli v. City of Salem, 215 Or App 502, 507, 170 P3d
1084 (2007), aff’d, 345 Or 303, 193 P3d 623 (2008); see also
Nearing v. Weaver, 295 Or 702, 712, 670 P2d 137 (1983). And
duty can be created by operation of a court order. McEvoy v.
Helikson, 277 Or 781, 785, 562 P2d 540 (1977). As we noted
in JH Kelly, LLC:
“No Oregon case, however, has sought to foreclose other
potential limiters that might render the economic loss rule
inapplicable. Ultimately, the application of the rule cannot
be divorced from the pragmatic concerns that birthed it.
Ore-Ida Foods, 290 Or at 917 (‘We believe that the denial by
other courts of claims for economic loss arising from injury
to third persons, although phrased in terms of lack of fore-
seeability, duty and proximate cause, actually reflects their
policy decision to limit recovery of such damages.’). ‘Even
if liability for indirect economic consequences of negli-
gence may in some cases be too broad and open-ended to be
endured, care should be taken to see whether that is true
in all types of situations; if it is not true, one must exam-
ine whether a rule may be fashioned to separate the wheat
from the chaff.’ James, 25 Vand L Rev at 50.”
305 Or App at 575.
Cite as 316 Or App 579 (2021) 591
First, probation officers are subject to a duty beyond
the common law—a duty found in statute. ORS 137.630
provides:
“(1) The duties of parole and probation officers * * *
are:
“(a) To make investigations and reports * * * as are
required by the judge of any court * * *.
“* * * * *
“(e) To keep informed concerning the conduct and
condition of persons under their supervision by visiting,
requiring reports and otherwise.
“(f) To use all suitable methods, not inconsistent with
the condition of probation or program participation, to aid
and encourage persons under their supervision and to
effect improvement in their conduct and condition.
“* * * * *
“(h) To perform other duties not inconsistent with the
normal and customary functions of parole and probation
officers as may be required by any court * * *.”
ORS 137.630 is similar to the statutory duty the
Supreme Court recognized in Brennen v. City of Eugene, 285
Or 401, 411, 591 P2d 719 (1979). There, the court considered
a claim of negligence against a city in performing duties
obligated by statute, as opposed to court order. As the court
described:
“[P]laintiff was riding as a paying passenger in a taxicab
operated by Terminal and was injured when the cab col-
lided with the rear end of another automobile. * * *
“Plaintiff then brought the present action against the
City of Eugene, alleging that the City and its employees
were negligent in issuing the license to Terminal when its
application disclosed that it failed to meet the minimum
liability insurance requirements.”
Id. at 404. The court held that the licensing ordinance
created a duty on the part of the city employee to act in
accordance:
592 Diamond Heating, Inc. v. Clackamas County
“The agent had an employment responsibility to process
license applications pursuant to the requirements of the
ordinance. Under general principles of common law negli-
gence, the agent was required to perform this duty so as to
avoid creating a foreseeable risk of harm to others.
“* * * * *
“Defendant argues that despite the provisions of ORS
30.265 it should nevertheless escape liability because the
agent’s duty runs only to the public generally, not to indi-
vidual members of the public. Defendant relies on numer-
ous cases for this proposition * * *. These cases, which
involve a failure on the part of public officials to act at all,
involve considerations quite different from those involved
in a case such as this, where an act is alleged to have been
performed and performed negligently.”
Id. at 407-09. Here, ORS 137.630 imposes a duty, just as did
the statute in Brennen. It is true, Brennen did not address
the economic loss rule. It rather stands, more broadly, for
the uncontroversial notion that statutes can create duties.
The economic loss rule does not require a special kind of
duty, or a duty that is somehow unique. It merely requires
a duty beyond the common law. Onita, 315 Or at 159. In this
case, the statutory duties imposed on probation officers—in
particular the duty “to keep informed concerning the con-
duct and condition of persons under their supervision”—sits
outside the common law, and its presence renders the eco-
nomic loss rule inapplicable in this circumstance.
In addition to those statutory duties, in this case
the court crafted special conditions of probation, pursuant
to its authority under ORS 137.540. Probation, like incarcer-
ation, is a sentence. Holcomb v. Sunderland, 321 Or 99, 104,
894 P2d 457 (1995) (“[I]t can no longer be said that proba-
tion is not a sentence or that probation is an alternative to a
sentence. Presently, probation is a sentence.”). One aspect of
any sentence—probation or incarceration—involves the pro-
tection of future potential victims; the Oregon Constitution
requires it. See Or Const, Art I, § 15 (“Laws for the pun-
ishment of crime shall be founded on these principles: pro-
tection of society, personal responsibility, accountability for
one’s actions and reformation.”); State v. Fudge, 297 Or App
750, 760, 443 P3d 1176, rev den, 365 Or 819 (2019) (although
Cite as 316 Or App 579 (2021) 593
court had erred in failing to account for defendant’s intel-
lectual disability for proportionality purposes, it was not
improper for the trial court to emphasize “the vulnerabil-
ity of the four-year-old victim and the need to incapacitate
defendant and specifically deter him from committing future
crimes against other children”).
A court has authority to impose a variety of sanc-
tions for a failure to abide by special conditions of probation.
See, e.g., ORS 137.540(7) (“Failure to abide by all general and
special conditions of probation may result in arrest, modi-
fication of conditions, revocation of probation or imposition
of structured, intermediate sanctions * * *.”). Additionally, a
court may sanction a failure to abide by special conditions of
probation through punitive contempt, just as any other court
order. State v. Walton, 215 Or App 628, 630, 170 P3d 1122
(2007), rev den, 344 Or 671 (2008) (“[W]e hold that the prose-
cution may charge a defendant with contempt for an act that
also constitutes a violation of a condition of probation.”).
The special conditions of probation in this case are
indistinguishable from the court order involved in McEvoy.
There, the Supreme Court considered a court order that
“[p]etitioner (mother) and her husband shall forthwith
deliver to the attorney for Petitioner (defendant) all pass-
ports in their possession. Said passports shall be delivered
to an attorney for Petitioner in Santa Cruz, California, that
they be returned upon written instructions, approved by
the attorney for Petitioner and the attorney for Respondent,
the same to be returned to Petitioner when the child has
been returned to the Respondent (plaintiff).”
277 Or at 783.
In McEvoy the court concluded two things; first,
that the intent of the court order was a question of fact; sec-
ond, that the presence of the court order was sufficient to
create an issue of fact that would take the matter outside
the confines of the economic loss doctrine:
“[I]t appears from the complaint and from the terms of the
attached stipulation and order that at the time of the stipu-
lation and order all parties to the stipulation knew, as well
as the court, that Susan Lee McEvoy was then a citizen of
594 Diamond Heating, Inc. v. Clackamas County
Switzerland. The finder of facts could properly infer from
all of such facts appearing in the complaint and in the stip-
ulation and order, if supported by evidence on trial, that the
primary purpose of the provisions requiring her to surrender
her passport and requiring that it be returned only ‘when the
child has been returned’ to plaintiff, was to protect plaintiff
against the happening of that very danger—i.e., that it was
foreseeable that she might not return the child, but take it
with her back to Switzerland.”
Id. at 787-88 (emphasis added).
In light of McEvoy’s holding that the “primary pur-
pose” of the court order was inferable by a factfinder, I can-
not join the majority’s conclusion that a “purpose” of a special
condition of probation memorialized in a criminal judgment
has no factual component and is purely a question of law. See
316 Or App at 583. We review the grant of a motion to dis-
miss for legal error, assuming the truth of all well-pleaded
facts alleged in the complaint. Doe v. Lake Oswego School
District, 353 Or 321, 323, 297 P3d 1287 (2013); Hale v. State
of Oregon, 259 Or App 379, 382, 314 P3d 345 (2013), rev den,
354 Or 840 (2014); Becker v. Pieper, 176 Or App 635, 641,
32 P3d 912 (2001). Accordingly, when plaintiff pleaded that
“[t]he primary purpose of each of these special conditions of
probation were for the protection of the financial interests of
any employer or potential employer of Ms. Freauff” that is a
fact—or at least a mixed question of fact and law—that we
must accept as true under our standard of review.
Here, the special conditions of probation are the
equivalent of the court order in McEvoy. Freauff was “pro-
hibited from taking employment involving the handling of
money * * * without the written permission of the probation
officer.” That Freauff was required to “advise current and
any future employer including temporary agencies of this
probation and nature of the crime. Probation officer may dis-
cuss details of the crime of conviction with employer(s).” In
addition, Freauff was to “provide her probation officer with
employment information and allow communication between
the probation officer and employer for purposes of monitoring
compliance with probation conditions.” (Emphasis added.)
A factfinder could reasonably conclude that those special
conditions contemplate the danger Freauff possesses to
Cite as 316 Or App 579 (2021) 595
potential employers and exist for the benefit of protecting
potential future victims, like plaintiff.
Finally, because I would reach a different result
from the majority, I address an additional line of argument
from defendants. Defendants argue that this case is con-
trolled by a series of decisions: Buchler v. Oregon Corrections
Div., 316 Or 499, 853 P2d 798 (1993); Kim v. Multnomah
County, 138 Or App 417, 423-24, 909 P2d 886 (1996), aff’d,
328 Or 140, 970 P2d 631 (1998); and Washa v. DOC, 159
Or App 207, 979 P2d 273 (1999), aff’d by an equally divided
court, 335 Or 403, 69 P3d 1232 (2003). Defendants’ reliance
on those cases is misplaced.
Buchler involved a suit, in negligence, against a
corrections officer who left keys in a work crew van that
was subsequently stolen by a prisoner. That prisoner, upon
escaping, committed violent crimes against persons. Buchler
began by adopting section 315 of the Restatement (Second) of
Torts:
“Section 315 of the Restatement (Second) of Torts (1965)
states the general principle that ‘[t]here is no duty so to
control the conduct of a third person as to prevent him from
causing physical harm to another’ unless there is a special
relationship between the actor (defendant) and an injured
party (plaintiff). That rule of common law described in sec-
tion 315 applies in this case to support exclusion of liability
because the actor is the defendant and plaintiffs are mem-
bers of the general public.”
316 Or at 505 (emphasis in original).
Next, however, the court adopted section 319 of the
Restatement (Second) of Torts:
“Section 319 describes an exception to the rule in sec-
tion 315 declaring liability for one in the status of a jailer.
Section 319 states a duty that may exist between a defen-
dant jailer having custody of a prisoner and third persons
whom the prisoner may harm. That section provides:
“ ‘Duty of Those in Charge of Person Having
Dangerous Propensities
“ ‘One who takes charge of a third person whom he
knows or should know to be likely to cause bodily harm
596 Diamond Heating, Inc. v. Clackamas County
to others if not controlled is under a duty to exercise
reasonable care to control the third person to prevent
him from doing such harm.’ ”
“This court has not previously expressed whether
Oregon law is consonant with section 319. The majority of
jurisdictions appear to apply common-law principles that
are like section 319 in these types of cases. Many jurisdic-
tions simply adopt Restatement section 319, by reference,
as the law of that state. * * * We hold that the common-law
rule, delineated by section 319 to define a custodian’s duty
in modern times, is the law of this state as well. That law
defines a custodian’s duty concerning a prisoner in Oregon.”
Id. at 506.
In Kim, we considered a case involving claims of neg-
ligence by county supervision officers after an offender robbed
and assaulted a couple following his release, specifically:
“Plaintiffs brought negligence and negligence per se
claims against defendants, alleging that defendants were
negligent in failing to inform the judge at the probation
violation hearing that Lawrence ‘had been in custody for
two counts of Robbery I and was still in custody awaiting
arraignment for one count of [UUMV].’ They also allege
that defendants were negligent in failing to inform the
court at Lawrence’s arraignment for UUMV ‘of Lawrence’s
custody on the two counts of Robbery I and his Assault IV
probation violation warrant, arrest and custody.’ Finally,
they argue that defendants were negligent in failing to
issue a detainer warrant against Lawrence which they say
could have kept him in jail for up to 15 days.”
138 Or App at 420. We discussed Buchler, noting the Supreme
Court’s adoption of section 319 of the Restatement, and con-
cluding that
“The policy underlying section 319 is that, because cus-
todians or those who have the ability to control third per-
sons are able to foresee the risk created by the person under
their control, they are required to take precautions accord-
ingly. We think it is more in keeping with the policy under-
lying the rule to require that the third person be in the
defendant’s custody or under its control at the time of the
negligent act before liability under section 319 attaches.”
Id. at 423-24.
Cite as 316 Or App 579 (2021) 597
In Washa, we considered a plaintiff’s claim that the
Department of Corrections failed to adequately supervise a
parolee with a history of violence against women. 159 Or
App at 210, 214. There, defendant argued that Buchler and
Kim prohibited using section 319 of the Restatement as a
basis of duty because the offender was on probation, not in
custody, and accordingly the defendant did not have “the
actual ability to control Brown’s conduct.” Id. at 215-16. We
agreed, holding:
“Given those factors, we conclude that this case is not
materially distinguishable from Kim. Accordingly, we con-
clude that defendant did not ‘take charge’ of Brown within
the meaning of section 319, and that defendant’s relation-
ship to Brown did not create a special duty under section
319.”
Id. at 221.
In this case, defendants argue that Buchler, Kim,
and Washa compel the same result here. As they argue,
“It is clear that Defendants at no point took charge of
Ms. Freauff. In light of the cases discussed above, it is clear
that Defendants had no special status or heightened duty
as to this Plaintiff. Although Defendants likely had a gen-
eral duty to the public to take reasonable steps to prevent
Ms. Freauff from causing foreseeable harm, that general
duty is not, as a matter of law, sufficient to support a negli-
gence claim for purely economic damages.”
Defendants misconstrue the scope of those cases.
Buchler, Kim, and Washa are pertinent only to the extent
that a plaintiff seeks to identify a source of duty, beyond
the common-law duty to exercise reasonable care to prevent
foreseeable harm, in section 319 of the Restatement of Torts,
which Buchler adopted as part of Oregon law. But nothing
in Buchler, Kim, or Washa indicates that section 319 is the
only permissible source of a duty that can give rise to a neg-
ligence claim for a failure to adequately supervise a proba-
tioner. Here, plaintiff is not relying on section 319, but rather
is relying on a wholly separate and independent source: the
court ordered special conditions of probation imposed in
this case. Nothing in Buchler, Kim, or Washa forecloses such
reliance.
598 Diamond Heating, Inc. v. Clackamas County
Ultimately, the sole issue on appeal in this case is a
red herring. That this case involves the theft of identifiable,
specific, monies is more than an adequate limiter, akin to
property damage, so as to render the concerns of unbounded
litigation that underlie the economic loss doctrine non-
existent. Further, even if those concerns were present, there
exists a “duty beyond the common law” in this case in the
form of both statutory duties, as well as specific conditions of
probation. Hale, 304 Or at 284. The majority fears that if the
court ordered special conditions of probation were sufficient
to establish a limiter, “there would be no bar to claims against
a supervising agency for every economic loss caused by a
person under supervision.” 316 Or App at 584. But if Freauff
had punched a person, or stolen his truck, or spray-painted
graffiti on his business, or any innumerable other acts, no one
could ever plausibly argue that the economic loss rule pro-
hibited a claim. In short, there may be barriers to bringing a
claim of negligent supervision against a probation office, but,
under these facts, the economic loss rule is not that barrier.
Whatever merits this litigation might have in further stages
of development, plaintiff properly pleaded a claim for relief,
and the trial court erred in granting dismissal under ORCP
21 A(8).
I respectfully dissent.