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Montara Owners Association v. La Noue Development, LLC

Court of Appeals of Oregon

December 4, 2013

MONTARA OWNERS ASSOCIATION, an Oregon non-profit corporation, Plaintiff,
v.
LA NOUE DEVELOPMENT, LLC, an Oregon limited liability company; et al., Defendants. LA NOUE DEVELOPMENT, LLC, an Oregon limited liability company, Third-Party Plaintiff-Appellant and MARK LA NOUE, an individual, Third-Party Plaintiff,
v.
SUTTLES CONSTRUCTION, INC., an Oregon corporation; and GORDON HARDING, an individual, dba Gordon Harding Construction, and MCM ARCHITECTS, PC, an Oregon professional corporation; et al., Third-Party Defendants, and VASILY A. SHARABARIN, an individual, dba Advanced Construction, Third-Party Defendant-Respondent. EVANS CONSTRUCTION SIDING CORPORATION, an Oregon corporation, Fourth-Party Plaintiff,
v.
DAVE BURGESS CONSTRUCTION, INC., an Oregon corporation; et al., Fourth-Party Defendants. DAVE BURGESS CONSTRUCTION, INC., an Oregon corporation, Fifth-Party Plaintiff,
v.
RAUL HERNANDEZ and CARLOS HERNANDEZ, individuals, dba Hernandez Brothers, a partnership; et al., Fifth-Party Defendants. LA NOUE DEVELOPMENT, LLC, an Oregon limited liability company; and MARK LA NOUE, an individual, Plaintiffs,
v.
MCM ARCHITECTS, PC, an Oregon professional corporation, Defendant.

Argued and submitted on May 24, 2011.

Multnomah County Circuit Court 051213487, 061213628 Jean Kerr Maurer, Judge.

Leta E. Gorman argued the cause for appellant. With her on the briefs were Emilie K. Edling and Bullivant Houser Bailey PC.

Thomas M. Christ argued the cause for respondent. With him on the brief were Julie A. Smith and Cosgrave Vergeer Kester LLP.

Before Schuman, Presiding Judge, and Wollheim, Judge, and Nakamoto, Judge.

WOLLHEIM, J.

The dispute here is a familiar one: a construction defect action by a homeowners association against the developer and general contractor, who then filed third-party complaints against the multiple subcontractors. Most, but not all, of the claims settled. The claims of the developer and general contractor, La Noue Development, LLC (La Noue), against several subcontractors went to trial. Although La Noue prevailed, the jury awarded limited damages. This appeal relates to La Noue's claims against one subcontractor, Sharabarin, dba Advanced Construction, who installed the siding and trim on four of the townhouses that are the subject of this action. La Noue raises six assignments of error on appeal. Because we conclude that instructional error entitles La Noue to a new trial limited to damages, we reverse and remand for that reason and do not address La Noue's second assignment of error, relating to the trial court's denial of its motion for a new trial based on newly discovered evidence. However, we address the other assignments of error because those issues could arise on retrial.

La Noue was the developer and the general contractor of the Montara townhouses. La Noue developed the property between 1999 and 2004, and Sharabarin began his work in March 2001. The Montara townhouses consist of nine buildings with three or four units in each building. In 2005, the Montara Owners Association (homeowners) filed a complaint alleging multiple claims against La Noue, seeking to recover for property damages caused by defects in the design and construction of the Montara townhouses. In their breach of contract claim against La Noue, the homeowners alleged that La Noue had contracted with subcontractors to employ and supervise all labor for construction and maintenance of the 35 Montara townhouse units. The homeowners alleged that the building envelope systems failed in all nine buildings, causing water intrusion, water damage, rot, and structural and other physical damage to the units as a result of faulty workmanship, improper or defective materials, improper construction, and noncompliance with building codes. The homeowners further alleged that the defects were so pervasive that all siding, windows, and roofs would have to be removed and repaired. The homeowners asserted a variety of tort and contract claims and a claim under the Unlawful Trade Practices Act, ORS 646.605 to 646.656, against La Noue. The homeowners sought close to $7.5 million in damages, prejudgment interest for the cost of repairing the buildings, and other unspecified damages, including special assessments, loss of profits on the townhouses that had or would be sold, and expenses for loss of use of the townhouses.

La Noue generally denied the homeowners' allegations supporting their claims, and, in response to the claims of damage to the buildings, La Noue brought third-party claims against, among others, more than 20 subcontractors that had provided excavation, fireplaces and chimneys, handrails, framing, gutters, roof trusses, roofing, siding, and other services. Sharabarin is one of those subcontractors, having installed siding on buildings 10 through 13. La Noue alleged negligence, breach of contract, common law and contractual indemnity, and contribution claims against all the subcontractors. Specifically, against Sharabarin and the other siding subcontractors, La Noue alleged a strict products liability claim. For its breach of contract and negligence claims, La Noue alleged that Sharabarin and other subcontractors breached their contractual obligations and failed to perform their work with reasonable care, in a manner consistent with local construction standards, or in accordance with industry and manufacturers' standards, as described in the homeowners' complaint. For its indemnity and contribution claims, La Noue alleged that the subcontractors caused some or all of the damages to the buildings and were responsible for the homeowners' damages; therefore, if La Noue was determined to be responsible for the homeowners' damages, the subcontractors should pay La Noue's damages, because the subcontractors' work was the cause of the homeowners' damages. La Noue also sought its attorney fees and costs, as well as unspecified equitable relief. La Noue settled with the homeowners by paying them approximately $5 million, and La Noue settled with most of the third-party defendants.

La Noue then filed a second amended third-party complaint limited to five remaining nonsettling subcontractors, including Sharabarin. Sharabarin's amended answer and affirmative defenses alleged that he performed all work in accordance with the plans and specifications that La Noue and its architects provided to him, and that the work Sharabarin performed was under the supervision and authorization of La Noue's site superintendents. Thus, Sharabarin argued, he was not liable in any respect. La Noue replied, denying Sharabarin's amended answer and affirmative defenses.

As a result of various pretrial rulings, the only claim the trial court submitted to the jury was La Noue's breach of contract claim against Sharabarin and two framers. As relevant to this appeal, before trial, the court granted summary judgment to Sharabarin on La Noue's contractual indemnity claim, ruling that the indemnity clause in La Noue's contract with Sharabarin was void under ORS 30.140.[1]

Trial began in September 2007. At trial, La Noue alleged damages of over $2 million. Sharabarin moved for a directed verdict limiting damages on the breach of contract claim. The court granted, in part, the motion to limit damages. During trial, two additional subcontractors settled with La Noue, leaving only the claims against Sharabarin and two framers. The jury found in favor of La Noue on the breach of contract claim against Sharabarin and the two remaining framers, and it awarded damages against Sharabarin in the amount of $43, 711 and against the remaining framers in the amount of $102, 101.

In a bench trial three weeks later, the trial court ruled that La Noue could not recover its attorney fees as consequential damages. Meanwhile, the homeowners began repairs. In November 2007, the homeowners were notified of a $900, 000 shortfall for repairs. La Noue filed a motion for a new trial under ORCP 64, alleging additional damages, including window damage, damages resulting from a requirement by the City of Portland for building permits, and damages from other unforeseen difficulties causing an extension of the remediation efforts. The court denied La Noue's motion for a new trial, and La Noue filed this appeal. The two remaining framers settled with La Noue while this appeal was pending and La Noue's appeal now solely concerns its claim against Sharabarin.

I. JURY INSTRUCTION

We begin with La Noue's assertion in its first assignment of error that the trial court erred in instructing the jury on the measure of damages with regard to the breach of contract claim. The parties submitted proposed jury instructions to the trial court. Sharabarin's requested instruction on the measure of damages tracked the language in Uniform Civil Jury Instruction (UCJI) 65.18 for expectation, or "benefit of the bargain, " damages:

"You can award money for those damages that arise naturally and necessarily from the breach of contract and would place the plaintiff in the same position as if the contract had not been breached."

In contrast, relying on Beik v. American Plaza Co., 280 Or 547, 555-56, 572 P.2d 305 (1977), and Newlee v. Heyting, 167 Or 288, 117 P.2d 829 (1941), the framer subcontractors proposed a significant modification to UCJI 65.18. They requested an instruction on contract damages that would allow the jury to award La Noue damages based on either the cost of repair or, in the event of "economic waste, " the diminished value of the buildings:

"If one party breached the contract, then you must decide if the breach caused a loss and, if so, how much money should be paid.
"The mere fact that I am talking about money does not mean that you should or should not award any money.
"The cost of replacement or repair is the correct measure of damage for defects in construction work unless that remedy generates undue economic waste. If you find that, except for technical, nonsubstantial, or immaterial departures by the defendants from the plans and specifications, the [framing] [siding] work is satisfactory, and that an award to La Noue for claimed repair costs would result in gross economic waste, the proper measure of damages is not the cost of repair but rather the difference in the value of Montara as built and what its value would be if it had been built according to the contracts."

At the close of evidence, the court instructed the jury that, as to damages, it could choose between the cost of repair and the diminished value of the properties, depending on whether the jury found "undue" or "gross" economic waste. The court's jury instruction on the measure of damages was worded almost exactly as requested by the framer subcontractors and pertained to both the framing and the siding work:

"If one party breached the contract, then you must decide if the breach caused a loss and, if so, how much money should be paid.
"The mere fact that I am talking about money does not mean that you should or should not award any money.
"The cost of replacement or repair so as to make the building conform to the plan is the correct measure of damage for defects in construction work unless that remedy generates undue economic waste. If you find that, except for technical, nonsubstantial, or immaterial departures by the defendants from the plans and specifications, the framing or siding work is satisfactory, and that an award to La Noue Development, L.L.C. for claimed repair costs would result in gross economic waste, the proper measure of damages is not the cost of repair but rather the difference in the value of Montara as built and what its value would be if it had been built according to the subcontracts."

The court did not instruct the jury regarding what "economic waste" meant. La Noue took exception to the instruction.

On appeal, La Noue makes two arguments concerning the jury instruction on damages, asserting that the instruction misstated the applicable law and should not have been given due to a lack of evidence in the record to support the jury instruction.[2]During oral arguments before this court, it became apparent that La Noue was contending that there should be an exception to the usually applicable economic waste doctrine in the context of a dispute between a general contractor and a subcontractor. Alternatively, La Noue asserts that there was no evidence at trial from which the jury could have determined economic waste or diminished value because Sharabarin failed to produce such evidence. Sharabarin responds that the jury instruction was an accurate statement of the law and that he carried his burden of proving that the cost of repair would be disproportionate to the ends attained.

We review a trial court's decision whether to give an instruction for errors of law. See State v. Barnes, 329 Or 327, 333-34, 986 P.2d 1160 (1999) (applying that standard of review). For the reasons that follow, we agree with La Noue that the court erred in instructing the jury. Assuming that Sharabarin might have been able to present to the jury an alternative to normal expectation damages based on the economic waste doctrine, he bore the burden of proving the amount of damages the jury should award if it applied that doctrine, namely, the diminished value of the townhouses. McComb v. Cogswell, 140 Or 676, 15 P.2d 716 (1932).[3] Sharabarin did not meet his burden due to a lack of evidence, and there was, consequently, no basis in the evidence to give the instruction concerning economic waste or diminished value.

A. An Incorrect Statement of the Law

"Under Oregon law, there are two different types of error respecting jury instructions: (1) error in the failure to give a proposed jury instruction, and (2) error in the jury instructions that actually were given." Williams v. Philip Morris Inc., 344 Or 45, 55, 176 P.3d 1255 (2008). This case concerns the latter type of instructional error. When we are deciding "whether it was error to give a particular instruction, we read the instructions as a whole to determine whether they state the law accurately." State v. Woodman, 341 Or 105, 118, 138 P.3d 1 (2006). "[A]s a general rule, the parties in a civil action are entitled to jury instructions on their theory of the case if their requested instructions correctly state the ...


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