Montara Owners Assn. v. La Noue Development, LLC
353 P.3d 563
| Or. | 2015Background
- Homeowners sued developer/general contractor La Noue for construction defects in a 35-unit townhome project; La Noue filed third‑party claims against multiple subcontractors, including Sharabarin (siding work).
- La Noue settled with the homeowners for $5 million before trial; settlements with most subcontractors left Sharabarin as the lone third‑party defendant at trial.
- Trial issues submitted to the jury were La Noue’s breach‑of‑contract claims against Sharabarin and two other subcontractors; the jury found Sharabarin breached and awarded $43,711.
- Pretrial, the trial court granted summary judgment for Sharabarin on La Noue’s contractual indemnity claim, reasoning the indemnity clause violated ORS 30.140; the court also held attorney‑fee damages would be decided by the court after trial (not the jury).
- On appeal the Court of Appeals reversed the indemnity summary judgment (holding partial enforceability), found the economic‑waste jury instruction prejudicial, and affirmed denial of attorney fees; the Oregon Supreme Court granted review.
Issues
| Issue | Plaintiff's Argument (La Noue) | Defendant's Argument (Sharabarin) | Held |
|---|---|---|---|
| 1) Effect of ORS 30.140 on overbroad construction indemnity clauses | Subsection (2) is an exception to (1); an indemnity clause that overreaches should be severed and enforced to the extent allowed by (2) | ORS 30.140(1) voids any "provision" that requires indemnity for indemnitee negligence, so an overbroad provision is entirely void | Court: Sever the illegal parts and enforce the clause to the extent permitted by ORS 30.140(2); remand for further proceedings on indemnity |
| 2) Whether economic‑waste instruction was proper when there was no evidence of diminution in value | Instruction was proper; alternative measure applies where repair would be economic waste | Instruction was improper absent evidence of diminution in value | Court: Giving instruction on diminution was erroneous (no evidence of diminution) but error was harmless because jury award matched repair‑cost evidence; affirmed verdict |
| 3) Proper procedure to recover attorney fees incurred defending first‑party claims as consequential damages of third‑party breach (ORCP 68 applicability) | Fees defending homeowners’ claims are consequential damages but are subject to ORCP 68 procedure because they did not "arise prior to the action" | ORCP 68 governs attorney‑fee pleading/proof in all cases; if fees were part of the same action they are subject to ORCP 68 post‑trial procedure | Court: ORCP 68 applies where the fees were incurred in the same action; trial court correctly deferred fee proof to post‑trial ORCP 68 process |
| 4) Substantive right to recover those attorney fees as consequential damages | La Noue may have a substantive right under the third‑party litigation doctrine to recover fees it reasonably incurred because of Sharabarin’s breach | Sharabarin argued such fees are recoverable only if incurred in earlier separate litigation and the doctrine doesn’t apply here | Court: Third‑party litigation doctrine can apply even when fees were incurred in the same action; trial court’s denial of fees on that ground reversed and remanded to determine substantive entitlement |
Key Cases Cited
- Walsh Construction Co. v. Mutual of Enumclaw, 338 Or 1 (2005) (history and interpretation of ORS 30.140)
- Eldridge v. Johnston, 195 Or 379 (1952) (severance/enforcement of partly illegal contracts)
- Turner v. Jackson, 139 Or 539 (1932) (cost‑of‑repair as usual measure of damages in construction cases)
- Schmauch v. Johnston, 274 Or 441 (1976) (economic waste and diminution‑in‑value alternative)
- Huffstutter v. Lind, 250 Or 295 (1968) (attorney fees as consequential damages under third‑party litigation doctrine)
- Jacob & Youngs v. Kent, 230 N.Y. 239 (1921) (classic exposition of economic waste doctrine)