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October 2012

Oregon Supreme Court: A Controversial Footnote

By Julie Haddon and Christopher Hawk of the Portland Office

Abraham v. T. Henry Constr., Inc., 350 Or 29, 249 P3d 534 (2011), recons. denied (May 5, 2011). 

In 2011, the Oregon Supreme Court decided a pivotal construction law case that validated an action for construction defect based on negligence by a homeowner against a general contractor, absent a “special relationship.”  Although the court was not asked to decide the statute of limitations issue, it went on (via a mere footnote) to assign a two-year statute of limitations to such a cause of action.  

In Abraham, the plaintiffs contracted with the defendants for the construction of a single family residence, which was completed in 1998.  The plaintiffs discovered water damage more than six years after substantial completion of the residence and brought claims against the defendants for breach of contract and “negligent construction,” alleging that the damage was caused by the defendants’ faulty work and their failure to comply with the Oregon Building Code. 
The defendants moved for summary judgment against the breach of contract claim based upon the six-year statute of limitations codified in ORS 12.080(1) and against the negligence claim because there was no “special relationship” between the plaintiffs and the defendants that implicated a standard of care independent of the contract.  The trial court granted the defendants’ motions.  On appeal, the court affirmed the trial court’s ruling on the contract claim and reversed the grant of summary judgment on the negligence claim, reasoning that the Oregon Building Code provided a standard of care independent of the terms of the contract. 

The Oregon Supreme Court affirmed the Court of Appeals’ decision, although on different grounds.  The court held that the plaintiffs could proceed on their negligence theory – that the defendants’ conduct unreasonably created foreseeable risk of harm and caused injury to property – because tort liability imposed by common law exists unless it is eliminated or altered by the terms of a contract. 

The court in this decision was not asked to determine the statute of limitations for the negligence cause of action it recognized, but went ahead to add a footnote that stated “(t)ort claims arising out of the construction of a house must be brought within two years of the date that the cause of action accrues,” pursuant to ORS 12.110.  The plaintiffs in this action immediately moved for reconsideration of the footnote on the basis that the court was not asked to decide it, and based on an assertion that the effect of the mere footnote could prevent application of the six-year statute of limitations prescribed by ORS 12.080(3) (the injury of the interest of another in real property).  The court refused to reconsider its decision on that issue and did not remove the footnote. 

Before the footnote in Abraham, the generally accepted statute of limitations in Oregon for construction defect claims was six years.  ORS 12.080 assigns a six-year statute of limitations to any action arising out of a contract (ORS 12.080(1)), and to an action arising from an injury to real property (ORS 12.080(3)).  Case law in Oregon decided  prior to Abraham, and containing extensive analysis, arguably concludes that claims based on construction defects and damage to real property, regardless of whether they are based in contract or tort, are governed by the six-year statute of limitations found in ORS 12.080.

The Abraham footnote, totally void of any analysis or explanation, undermines this prior authority and creates a new statute of limitations defense (which is drastically different than the previously accepted statute of limitations) to construction defect claims.  This new defense was exponentially strengthened by the plaintiffs in the Abraham case, when they called extra attention to the footnote by seeking reconsideration from the court.  The court denied reconsideration, and by doing so, essentially affirmed that it intended, after careful consideration, to assign a two-year statute of limitations to tort claims arising out of construction defects.  By seeking reconsideration, the plaintiffs have made it harder to “gloss over” the impact of this footnote. 

Since Abraham, Oregon courts have not treated this new argument for defendants with any consistency.  The Portland office of Gordon & Rees, in fact, has been faced with opposite rulings on the issue.  In two “sister” cases in which Gordon & Rees Portland defended the developer in two separate actions for construction defects brought by two separate homeowners’ associations located in the same county, this office filed motions for summary judgment based on the two-year statute of limitations, and relying on the Abraham footnote as authority for application of that statute.  The same counsel represented both of the plaintiffs, and identical briefing was submitted in both cases.  Two different judges in the same county heard the motions. 

In both actions, the plaintiffs argued against application of the two-year statute of limitations, reasoning that the Abraham footnote was dictum and, therefore, did not constitute legal authority, and that the footnote did not contain any statutory analysis or examination of case law.  In one of the cases, the judge granted the defendant’s motion for summary judgment and barred the plaintiff’s negligence claims.  Next door, a different judge ruled that the six-year statute applied and denied the motion, allowing the plaintiff to proceed with its negligence claims. 

This inconsistent application of the two statutes of limitations demonstrates the controversy that the Abraham footnote has created.

Julie Bardacke Haddon
Christopher E. Hawk