Posted on October 6, 2009 by Marcus Eyth

Parties In Privity May Sue in Tort Over Construction Defects

Last month's Oregon Appellate Court decision clarifies that parties in privity with one another MAY sue in tort for construction defects.

Previously, the law seemed relatively straight forward:

Unless parties are in a "special relationship" (eg, physician-client; engineer-client), parties in contract with one another generally may not bring a separate cause of action in tort for construction defects.  Jones v. Emerald Pacific Homes, Inc., 188 Or App 471, 71 P.3d 882 (2003). Instead, parties were limited to the remedies agreed to via contract.

That's no longer the case.

In Abraham v. T. Henry Construction, Inc. et al, Case No. A136228, plaintiff home owners sued their contractors and subcontractors over construction defects (resulting in water damage) based on contract and tort.  While Defendants successfully dismissed the contract claim (based on statute of limitations), Defendants were unable to dismiss the tort claims on summary judgment.

Although the court found that there was no "special relationship" between the parties, the court held that the tort claim survives because violations of building code constitute a breach of duty of care independent of contractual duties.  The court found that plaintiffs had pled the requisite elements (essentially negligence per se) and allowed the claim.

Much to every contractor's chagrin, virtually every alleged construction defect can be categorized as a building code violation.  Ergo, tort claims in this context  will survive summary judgment....unless the Supreme Court overturns the Abraham decision....

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Posted on July 22, 2009 by Marcus Eyth

Oregon False Claims Act Becomes Law

A couple of weeks ago I blogged about the Oregon False Claims Act,  a bill that made its way through the house and the senate and was on its way to the governor's desk for signature.

The large number of inquiries I have received about the bill speaks volumes about the impact this law will have on contsruction contractors and how seriously folks in the industry need to take this piece of legislation.

Indeed, the governor signed the bill.  So Oregon now has a state version of the Federal False Claims Act.  

The law goes into effect January 1, 2010 and can be found at OR Laws Chapter 292.

So contractors (and subcontractors) that do public procurement work beware....

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Posted on July 22, 2009 by Marcus Eyth

No Damages For Delay Provisions

Are No Damages for Delay Provisions enforceable in Oregon?  That depends (favorite lawyer's response, but true)...

In summary, these provisions are:

  • enforceable on private projects
  • unenforceable in public procurement prime contracts
  • probably enforceable (but TBD) in public procurement subcontracts

In essence, these provisions limit a contractor's remedy in the event of a delay to a time extension, but no dollars.

For almost 100 years, no damages for delay provisions were enforceable in Oregon in all construction contracts.  See Manerud v. City of Eugene, 62 Or 196, 205, 124 P 662 (1912).

Then, in 2005, the Oregon legislature enacted ORS 279C.315 (previously ORS 279.063), making these provisions void as against public policy and unenforceable in public prime contracts. 

But what about subcontracts on public procurment projects? 

The law there is unsettled since the legislature was silent on subcontracts.  Since general contractors typically include such provisions in their subcontracts, I'm sure it's just a matter of time before that case makes its way through the courts...

 

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Posted on July 1, 2009 by Marcus Eyth

The Construction Contractors Board: A Viable Option

No doubt, the economic downturn has affected the construction industry in many ways.

One problem is that some overstretched contractors are not paying their subs from the money they receive from building owners.  Not surprisingly, subcontractors have been busy filing liens, and usually recovering on them.  

What can owners do who are forced to pay twice (to the sub and the contractor) other than engaging in lengthy and expensive litigation?

Try filing a Complaint with Construction Contractors Board (CCB), which offers attractive benefits, including:

  • limited filing fees
  • possible recovery of attorneys fees and costs
  • quicker resolution (no protracted litigation)
  • simpler and less formal hearing procedures (hearsay evidence admissible)
  • $20,000 recovery through contractor's bond if successful

Yes, there IS a pot of money  if you win, even if the overstretched contractor is on the brink of going belly-up.  In Oregon, succesful CCB claimants simply submit the CCB decision to the surety and get paid.

Not a bad option, at least when your claim is not too far in excess of  the $20,000 bond requirement. 

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Posted on June 26, 2009 by Marcus Eyth

False Claims Act For Oregon

Construction contractors working on Oregon procurement projects beware (including general contractors, subcontractors and suppliers).  Oregon is on the verge of passing the state equivalent of the federal False Claims Act (31 USC 3729).

The Oregon bill essentially mimics the federal act, penalizing contractors who "knowingly" present false claims to the government.  This includes construction contractors who "exaggerate" their percentage completion on payment applications.  What qualifies as "knowing" has been debated ad nauseam in federal government contracts case law where Oregon courts will look for guidance as needed.

Note that "no harm, no foul" does not apply because a contractor triggers the violation upon submission of a problematic payment application.  No payment need be received from the agency.

Penalties are not as severe as under federal law ... yet.  The bill addresses civil liability only.  That means company executives won't go to jail, but fines of $10,000 per violation (for example, for each pay app) can add up quickly.

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Posted on June 26, 2009 by Marcus Eyth

Owner Payment To Contractor Still No Defense To Subcontractor Lien Claim

Lien laws in most jurisdictions provide the Building Owner with a defense to a subcontractor lien if the Owner has paid the contractor for that subcontractor's work.  But not in Oregon.  Here, Owners may end up paying twice if the general contractor fails to pay its sub from funds the Owner has already paid to the general contractor.

Not fair?  Certainly not from an Owner's perspective.

A bill amending Oregon lien law circulated in the legislature over the last couple of months addressing this issue.  The new law would require a court to:

dissallow the lien if the owner proves that the owner paid the contractor for materials, equipment, labor, or services that are the basis for the lien

(See page 4). 

But subcontractors breathed a big sigh of relief when the bill died in the Oregon Senate.   The status quo remains: Owners continue to have no legal defense to subcontractor liens even if the Owner has already paid the general contractor.

Reminder of the day for Owners:  get proper lien and claim waivers from general contractors and subcontractors for all payments.

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Posted on May 28, 2009 by Marcus Eyth

No Discovery Rule For Construction Defect Claims

Much to the delight of original builders and/or building owners (and the chagrin of some subsequent ones), the discovery rule is not recognized in Oregon in breach of contract cases involving construction defects.  The statute of limitations in those situations runs 6 years from the time of breach.  If shoddy work is not discovered within that 6 year window, the subsequent owner is a different kind of SOL.

The discovery rule typically applies in negligence cases.  As such, the time to file suit doesn't begin (or accrue) until a person realizes it has been injured.  So why not try that argument in a breach of contract context?

Plaintiff in Waxman v. Waxman & Associates, Inc., 224 Or App 499, gave it a shot with the help of a somewhat ambiguous statute addressing the accrual of negligence and contract actions.  Unfortunately for Plaintiff, the Court squarely put to rest any prior debate over whether the discovery rule applies in this context.  The rule is yes for negligence, no for contract actions.

This ruling might be good incentive for subsequent builing owners to purchase appropriate insurance and/or warranties for any construction defects that might be discovered beyond the 6 year window....

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