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WSHB Oregon Case Update: Appellate Court Limits Settlement Options in Construction Lawsuits

January 27, 2015

Liberty Oaks Homeowner’s Ass’n v. Liberty Oaks, LLC, 2014 Ore. App. LEXIS 1696.

The Oregon Court of Appeals issued an opinion on December 3, 2014, precluding a homeowner’s association from prosecuting claims against subcontractors assigned to it by developers, where the viability of those claims was dependent upon claims against the developers, which had been dismissed.

HOLDING

In light of the procedural posture of the case, the court held that the liability of the subcontractors was entirely contingent upon the developers being found liable to the Association, a finding that was precluded by the finality of the dismissal of the Association’s claims after the appeal of that issue was abandoned.  The court pointed out that there was no legal authority for the proposition that the settlement of the dispute between the Association and the developers post-judgment somehow changes the effect of the dismissal of the claim against the developers.

WHY THIS CASE IS IMPORTANT

This case presents a limitation of the settlement options in complex construction defect litigation and illustrates that homeowner’s associations cannot, through language in a settlement agreement, create claims against subcontractors where none exist under operation of law.  Builders attempting to resolve claims and creatively push liability to implicated trades will need to be cognizant of the procedural limitation set out by the Appellate court.

FACTS OF THE CASE

In a common configuration of parties in a construction defect case, the Liberty Oaks Homeowner’s Association sued the developers who, in turn, sued implicated subcontractors under ORCP 22 C for indemnity and contribution.  The developers’ claims against the subcontractors were derivative of the Association’s claims, holding them liable “to the extent” the developers were found liable to the Association.

The trial court dismissed the Association’s claims based on a statute of limitations defense and dismissed the claims against the subcontractors on the same basis.  The Association appealed the judgment dismissing the primary complaint.  The developers, in turn, appealed the dismissal of its claims against the subcontractors (as the court noted, presumably to protect their rights in the event that the dismissal of claims against them was reversed on appeal).

While the appeal was pending, the Association settled with the developers, receiving in part an assignment of the developers’ rights on appeal against the subcontractors, and dismissed its appeal.  This left in place the trial court’s judgment dismissing with prejudice the Association’s claims against the developer.  The Association, standing in the shoes of the developers, continued with its appeal of the dismissal of the claims against the subcontractors.  However, as the court pointed out, such claims were viable only to the extent the developers were liable to the Association, which they were not after they prevailed on summary judgment.  The Association relied upon an allocation of settlement amounts to subcontractors contained within its settlement agreement with the developers.

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