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Rains v. Stayton Builders Mart, Inc.

Court of Appeals of Oregon

August 13, 2014

KEVIN RAINS and MITZI RAINS, Plaintiffs-Respondents,
v.
STAYTON BUILDERS MART, INC.; JOHN DOE LUMBER SUPPLIER; JOHN DOE LUMBER MILL; and FIVE STAR CONSTRUCTION, INC., Defendants. STAYTON BUILDERS MART, INC., Third-Party Plaintiff-Respondent,
v.
RSG FOREST PRODUCTS, INC., et al., Third-Party Defendants, and WEYERHAEUSER COMPANY, Third-Party Defendant-Appellant. WEYERHAEUSER COMPANY, Fourth-Party Plaintiff,
v.
RODRIGUEZ & RAINS CONSTRUCTION, an Oregon corporation, Fourth-Party Defendant. WITHERS LUMBER COMPANY, Fourth-Party Plaintiff,
v.
SELLWOOD LUMBER CO., INC., an Oregon corporation; and WEYERHAEUSER COMPANY, Fourth-Party Defendants. WESTERN INTERNATIONAL FOREST PRODUCTS, INC., Fourth-Party Plaintiff,
v.
BENITO RODRIGUEZ, KEVIN RAINS, and RODRIGUEZ & RAINS CONSTRUCTION, Fourth-Party Defendants. SELLWOOD LUMBER CO., INC., an Oregon corporation, Fifth-Party Plaintiff,
v.
SWANSON BROS. LUMBER CO., INC., an Oregon corporation, Fifth-Party Defendant

Argued and Submitted May 1, 2013

Page 484

[Copyrighted Material Omitted]

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Marion County Circuit Court. 06C21040. Dennis J. Graves, Judge.

Michael T. Stone argued the cause and filed the briefs for appellant.

Maureen Leonard argued the cause for respondents Kevin and Mitzi Rains. With her on the brief were Brian Whitehead and J. Randolph Pickett.

Thomas W. Brown argued the cause for respondent Stayton Builders Mart, Inc. With him on the brief were Nicholas E. Wheeler, Julie A. Smith, and Cosgrave Vergeer Kester LLP.

Before Ortega, Presiding Judge, and Sercombe, Judge, and Hadlock, Judge.

OPINION

Page 486

ORTEGA, P. J.

[264 Or.App. 639] Plaintiffs Kevin and Mitzi Rains filed an action against several parties seeking damages for injuries sustained by Kevin when a board on which he was standing broke, causing him to fall 16 feet to the ground. Kevin, who was working as a subcontractor on a construction project, sustained a thoracic T12 vertebrae burst fracture that resulted in paraplegia. Kevin brought claims against a number of parties for negligence and strict products liability. Mitzi also brought a claim for loss of consortium. Eventually, after several rounds of third-party practice and a partial settlement agreement between plaintiffs and Stayton Builders Mart (the company that supplied the board to the job site), the case proceeded to trial on Kevin's strict products liability claim and Mitzi's loss of consortium claim against Stayton, and claims against Weyerhaeuser Company (the third-party defendant that had provided lumber to Stayton). The jury returned a verdict for plaintiffs, and the trial court determined that Stayton was entitled to indemnity from Weyerhaeuser. The trial court also awarded Stayton its defense costs from Weyerhaeuser. Weyerhaeuser appeals the judgments that resulted from the litigation.

I. BACKGROUND

The relevant background facts are undisputed and mostly procedural. Kevin originally brought his action for negligence and strict products liability against Five Star Construction, Inc.[1] (the general contractor), Stayton, and the John Doe company that sold the defective board to Stayton. Mitzi filed a claim for loss of consortium against those same parties. Sometime later, Stayton filed a third-party complaint against Weyerhaeuser for common-law indemnity and contribution, alleging that Weyerhaeuser had provided the defective board to Stayton.[2] Shortly before trial, plaintiffs [264 Or.App. 640] entered into a partial settlement agreement with Stayton that dismissed plaintiffs' negligence claims against Stayton and limited Stayton's financial exposure on the strict products liability claim, but left Stayton in the litigation as a defendant.

The case proceeded to trial and the jury returned a verdict against Stayton and Weyerhaeuser. In addition, the jury applied the comparative fault statute, ORS 31.600(2), and designated Stayton 30 percent at fault, Weyerhaeuser 45 percent at fault, and Kevin 25 percent at fault. The jury awarded Kevin $5,237,700 in economic damages and $3,125,000 in noneconomic damages, and Mitzi $1,012,500 in noneconomic damages. After reducing the judgment to account for Kevin's comparative fault, the trial court entered a limited judgment for plaintiffs in the sum of $7,031,400.

In a subsequent hearing, the trial court ruled in favor of Stayton on its indemnity

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claim and entered a limited judgment for Stayton against Weyerhaeuser for $2,000,000. Later, the court entered a general judgment against Weyerhaeuser awarding Stayton its defense costs in the amount of $265,458.70. Weyerhaeuser appeals the limited judgments and the general judgment.

On appeal, Weyerhaeuser raises thirteen assignments of error. We reject three assignments--numbered eight, nine, and eleven--without discussion. The first four assignments relate to the partial settlement agreement between plaintiffs and Stayton. For the reasons explained below, we reject Weyerhaeuser's first and second assignments of error, and conclude that its third and fourth assignments were not preserved. Weyerhaeuser's fifth and sixth assignments challenge the verdict form used at trial. We conclude that the fifth assignment was not preserved, and reject the sixth assignment on the merits. Weyerhaeuser's seventh assignment contends that the trial court should have reduced each plaintiff's noneconomic damages award to $500,000 under ORS 31.710. We agree that the trial court should have applied the statutory cap to Kevin's strict products liability claim, and reverse plaintiffs' limited judgment for correction of that error. However, we conclude that the trial court correctly determined that the cap, as applied to Mitzi's loss [264 Or.App. 641] of consortium claim, would violate Article I, section 17, of the Oregon Constitution, and affirm the judgment on that issue. In its tenth assignment, Weyerhaeuser contends that the court erroneously entered a judgment for Stayton on its indemnity claim because Stayton failed to prove that it had discharged Weyerhaeuser's liability to plaintiffs. We agree, and reverse Stayton's limited judgment. Finally, in its twelfth and thirteenth assignments of error, Weyerhaeuser contends that the trial court erred by awarding Stayton its defense expenses. Stayton concedes that $1,512 of appeal-related fees should not have been awarded by the trial court. We accept that concession, and reverse the general judgment for correction of that error, but otherwise reject Weyerhaeuser's twelfth and thirteenth assignments of error.

II. ANALYSIS

We divide our discussion of Weyerhaeuser's assignments of error into five groups and discuss any additional relevant facts as necessary within each group. First, we address assignments one through four, which involve the partial settlement between plaintiffs and Stayton. Second, we address assignments five and six, which challenge the verdict form used by the court. Third, we address assignment seven relating to the $500,000 cap on noneconomic damages. Fourth, we address Weyerhaeuser's tenth assignment, which relates to the validity of the limited judgment on Stayton's indemnity claim. And finally, we address the twelfth and thirteenth assignments involving the trial court's award of defense costs to Stayton.[3]

A. The agreement: first through fourth assignments of error

Weyerhaeuser's first through fourth assignments relate to the partial settlement agreement between Stayton and plaintiffs. We begin with the relevant text of that [264 Or.App. 642] agreement.[4] The agreement provided that if the parties did not mutually resolve their claims against Weyerhaeuser and proceeded to trial:

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" 1. In the event of a verdict, net of plaintiffs' comparative fault, in favor of plaintiffs against Stayton Builders Mart in an amount less than $1.5 million, or in the event of a defense verdict, Stayton Builders Mart will pay plaintiffs the sum of $1.5 million. Stayton Builders Mart will be free to collect any amount it is awarded in its contribution or indemnity claims from third-party defendant.
" 2. In the event of a net verdict in excess of $1.5 million, Stayton Builders Mart will pay the amount of the verdict up to $2 million. Any excess over $2 million that is recovered by Stayton Builders Mart on its indemnity or contribution claims against third-party defendant Weyerhaeuser, if any, shall be paid to the plaintiffs.
" 3. In exchange for the defendant entering into this High-Low Agreement, the plaintiffs agree to dismiss their negligence claims against Stayton Builders Mart, Inc.
" 4. Both plaintiffs and Stayton Builders Mart agree not to appeal the jury verdict on plaintiffs' claim against Stayton Builders Mart. Stayton Builders Mart retains the right to appeal the jury verdict on its third-party indemnity and contribution claims.
" 5. Stayton Builders Mart agrees to pursue its indemnity claim based upon strict liability against third-party defendant through trial to verdict.
" 6. In the event of an appeal by third-party defendant that could affect Stayton Builders Mart's obligations under this Agreement, Stayton Builders Mart and its insurer will pay the sum of $1.5 million within 60 days after the jury verdict. The potential obligation of Stayton Builders Mart and its insurer for the remaining $500,000 will then be determined by the ultimate outcome of the appeals process, pursuant to the terms of this Agreement."

[264 Or.App. 643] As a preliminary matter, the parties dispute whether the agreement should be labeled a " Mary Carter agreement" [5] or a " high-low agreement." [6] As its terms demonstrate, the agreement has aspects consistent with each label. In the end, however, the precise label is not material in this case; it is the substance of the agreement that drives our analysis. Accordingly, we simply refer to it as " the agreement." [7]

After Stayton and plaintiffs entered into the agreement, Weyerhaeuser moved to dismiss Stayton from the action as a defendant, arguing that there was no longer a justiciable controversy between plaintiffs and Stayton because the agreement eliminated any adversity between them. The trial court's denial of that motion is the subject of Weyerhaeuser's first assignment of error.

As relevant to the parties' arguments, whether a justiciable controversy exists depends on whether (1) " the interests of the parties to the action are adverse" and (2) " the court's decision in the matter will have some practical effect on the rights of the parties to the controversy." Brumnett v. PSRB, 315 Or. 402, 405, 848 P.2d 1194 (1993).

Weyerhaeuser argues, as it did to the trial court, that the agreement eliminated all adversity between plaintiffs and Stayton. Specifically, Weyerhaeuser contends that, under the terms of the agreement, Stayton's only chance of recovering the money that it agreed to pay plaintiffs [264 Or.App. 644] was if (1) the jury found Stayton and Weyerhaeuser liable for

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at least $1.5 million and (2) Stayton successfully recovered in indemnity from Weyerhaeuser. Stated simply, Weyerhaeuser contends that " Stayton's sole interest was in the jury finding both Weyerhaeuser and it to be liable, which would position it to recover all its damages in indemnity from Weyerhaeuser." Weyerhaeuser further complains that any attempt by Stayton to " defend itself at trial would only have increased Stayton's liability and decreased its opportunity to avoid all damages, as such efforts could have benefited Weyerhaeuser." Accordingly, Weyerhaeuser complains that the interests of plaintiffs and Stayton were " fully aligned" at trial, which should have led to the dismissal of Stayton.

Plaintiffs counter that the agreement was only a partial settlement and that it did not extinguish all adversity between plaintiffs and Stayton. In particular, plaintiffs point out that the agreement established a potential range of liability for Stayton between $1.5 and $2 million, which they argue made their interests adverse enough to survive Weyerhaeuser's challenge to justiciability. The trial court agreed with plaintiffs on this point, and so do we.

At the outset, we acknowledge that agreements such as the one at issue here have the potential to distort the adversarial process. The Supreme Court, in Grillo v. Burke's Paint Co., 275 Or. 421, 426, 551 P.2d 449 (1976), recognized that " Mary Carter agreements have been criticized as distorting the relationship between plaintiffs and defendants, resulting in a non-adversary and possibly collusive proceeding between the plaintiff and one defendant which may adversely affect the non-settling defendant's right to a fair trial." [8] Cf. Elbaor v. Smith, 845 S.W.2d 240 [264 Or.App. 645] (Tex 1992) (declaring Mary Carter agreements void in certain instances as " violative of sound public policy" ); see generally John E. Benedict, It's a Mistake to Tolerate the Mary Carter Agreement, 87 Colum L Rev 368 (1987) (concluding that such agreements distort tort litigation by prejudicing nonsettling defendants at trial, undermining the equitable apportionment of damages among tortfeasors, and contravening legal ethics). Nevertheless, despite acknowledging the problems with such agreements, the Supreme Court joined the majority of jurisdictions and declined to declare such agreements void; instead, the court recognized that the problems could be addressed by instituting safeguards, such as disclosing the agreement to the parties, the court, and the factfinder, such that the factfinder could evaluate the agreement's effect on the adversarial process. Grillo, 275 Or. at 426-27.

We also acknowledge that Stayton, as a result of the agreement, had an interest in the jury finding both it and Weyerhaeuser liable for at least $1.5 million. That is so because, if the jury had returned a defense verdict, Stayton would have been liable to plaintiffs for $1.5 million under the agreement and would have been precluded from recovering in indemnity because Weyerhaeuser would not have been found to be liable to plaintiffs. See Marton v. Ater Construction Co., LLC, 256 Or.App. 554, 560, 302 P.3d 1198 (2013) (explaining that one of the elements of a common-law indemnity claim is that " the [indemnity-]defendant was also liable to the third party" ).

Nevertheless, the potential ills created by such agreements did not, as a matter of law, extinguish all adversity between plaintiffs and Stayton. Instead, whether adversity

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continued to exist depended on the terms of the agreement, as illustrated by two of our prior decisions.

In Stephens v. Bohlman, 138 Or.App. 381, 384-85, 909 P.2d 208, rev dismissed, 324 Or. 177, 925 P.2d 907 (1996), we explained that adversity is extinguished and a case is no longer [264 Or.App. 646] justiciable when a party has " no interest" in the outcome of the case because it could " neither gain nor lose anything as a result of the trial." In that case, the plaintiff brought a medical malpractice action against a physician and a hospital. The plaintiff and the hospital entered into a settlement agreement whereby the hospital agreed to pay the plaintiff $90,000 and remain in the case as a defendant " as though they had not reached a settlement." Id. at 384. In return, the plaintiff agreed not to execute on any judgment against the hospital and released the hospital from any liability in excess of $90,000. Id. We concluded that that agreement had extinguished all adversity between the plaintiff and the hospital and that the trial court had erred in failing to dismiss the hospital before the trial began. Id. at 385-86. We explained that the hospital's payment of $90,000

" was absolute; nothing in the agreement entitles it to recover any portion or to pay any additional amount no matter what the outcome of the lawsuit against defendant. Thus, [the] hospital's only purpose for appearing at the trial was to fulfill its contractual obligation to plaintiff because it had no interest in the outcome."

Id. at 384. Accordingly, we concluded that the hospital had nothing at stake in the outcome of the case, and the trial court erred in not dismissing the hospital as a party.[9] Id. at 385-86.

In Dew v. City of Scappoose, 208 Or.App. 121, 143, 145 P.3d 198 (2006), rev den, 342 Or. 416, 154 P.3d 722 (2007), we concluded that " [m]erely because a party is fully indemnified against potential liability, it does not follow that the party has nothing at stake in an action against it, nor does it render such an action moot." In that case, the plaintiff filed an action against the City of Scappoose and one of its city councilors relating to her termination from employment with the city. In particular, she brought two claims against the councilor, one under 42 U.S.C. section 1983 and the other for intentional economic interference. Id. at 126. Eventually, the plaintiff entered into a settlement agreement with the councilor in which the [264 Or.App. 647] plaintiff agreed to dismiss the intentional interference claim and not to enforce any judgment against him on the section 1983 claim in excess of his insurance policy limits, or in an amount not collectible directly from the city. The agreement also provided that it was not intended to release the councilor as a defendant in the lawsuit on the section 1983 claim, or hinder his ability to defend himself. Id. at 127-28, 143. The trial court dismissed the section 1983 claim on mootness grounds, concluding that the agreement left the councilor with no personal exposure, thus making the remaining claim against him no longer justiciable. Id. at 128.

We reversed, explaining that, even though the agreement effectively insulated the councilor from any personal financial exposure, " the question of his liability remains an open one." Id. at 143. Accordingly, we concluded that the outcome of the trial would have a practical effect on the councilor's rights " because it will determine whether he is personally liable. Because [his] personal liability to [the] plaintiff has yet to be determined, the parties remain in an adversarial relationship and the issue is not moot." Id. In reaching that conclusion, we noted that Stephens differed because the plaintiff in that case " specifically discharged the defendant hospital from any further liability beyond the $90,000 that the hospital had already paid." Id.

We acknowledge that this case differs from Dew because the agreement in that case did not give the councilor an affirmative incentive to facilitate a determination that both he and the city were liable for the plaintiff's section 1983 claim; here, the agreement provided

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such an incentive to Stayton. Nevertheless, we conclude that, although the agreement in this case may have realigned the parties' interests and strategy at trial, it did not foreclose all adversity between plaintiffs and Stayton. That is, we cannot say that Stayton had nothing at stake in the outcome of the case. Most importantly, the agreement did not absolutely establish Stayton's potential financial exposure. Instead, it set up a range of liability for Stayton that, at least on some level, maintained an adversarial position between the parties. The remaining adversity was that every dollar above $1.5 million that the jury awarded to plaintiff against Stayton, [264 Or.App. 648] up to a maximum of $2 million, equaled an additional dollar that Stayton had to pay to plaintiffs. The mere possibility that Stayton would later prevail on its indemnity claim and fully recover all of that additional money from Weyerhaeuser did not extinguish the adversity that remained at the time of trial. See Dew, 208 Or.App. at 143 (an agreement that effectively insulates a party from personally having to pay any judgment does not extinguish adversity). Accordingly, in the circumstances of this case, adversity remained between Stayton and plaintiffs.

Weyerhaeuser's second through fourth assignments of error challenge the trial court's denial of Weyerhaeuser's request to admit the agreement into evidence. At a pretrial hearing, Weyerhaeuser argued that the agreement should be admitted into evidence because

" Weyerhaeuser would like to make use of the Mary Carter Agreement during the course of the presentment of evidence. We believe the jury has a right to know of this agreement. They have a right to know the terms of this agreement. They also have a right to know that it's insurance that's paying these terms as opposed to Stayton Builders Mart, a small, local lumber yard."

Weyerhaeuser then acknowledged that, under OEC 411,[10] evidence of liability insurance is not relevant to the issue of whether a person acted negligently or otherwise wrongfully, but proceeded to argue that

" [t]he concern is that in typical cases where a defendant has insurance, a plaintiff would use that against the defendant and essentially show the jury, well, don't worry about this defendant, whether they can pay. They have got insurance. And that heightens the likelihood that a jury would find negligence. In this case, it's different.
[264 Or.App. 649] " In this case, the jury will be left with the impression that this small, local lumber yard is potentially on the hook for a very large settlement. And they might think differently as to how to deal with the apportionment of damages if they were under that false impression.
" The true impression is that the money is being paid by a very large insurance company in Ohio, and the jury has a right to know that. And it is not within the exclusion as detailed in [the] Oregon Rules of Evidence."

The trial court ruled that " [b]ased upon the ruling in Bocci, the court would be consistent with that ruling and say that the terms of the agreement and the fact that insurance is involved would not be admissible at trial." [11]

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In its second assignment of error, Weyerhaeuser contends that the trial court erred by denying Weyerhaeuser's request to admit the agreement into evidence. Weyerhaeuser first argues that Mary Carter agreements are, as a matter of law, admissible into evidence upon the request of any nonsettling defendant. In particular, Weyerhaeuser relies on the Supreme Court's statement in Grillo that

" [h]aving reviewed [cases from other jurisdictions discussing the validity of Mary Carter agreements], we conclude that the [Mary Carter agreement] in the instant case is valid and enforceable, but that it would have been subject to pretrial discovery and, upon request of defendant, would have been admissible in evidence."

275 Or. at 427. Weyerhaeuser maintains that the Supreme Court's holding in Grillo unambiguously requires Mary Carter agreements to be admitted into evidence at the request of the nonsettling defendant. In doing so, Weyerhaeuser argues that such agreements must be admitted without [264 Or.App. 650] concern for whether admission of the agreement, or parts of it, would otherwise be precluded by the Oregon Evidence Code.

Plaintiffs counter that Weyerhaeuser offered the agreement to inform the jury that any financial obligation incurred by Stayton at trial would be paid by Stayton's insurer and that such a purpose--to demonstrate that Stayton had insurance coverage and to influence the jury's potential allocation of fault and its damage award--was impermissible under OEC 411. Plaintiffs acknowledge that " [t]he jury was entitled to know that plaintiffs and Stayton had entered into a partial settlement in which Stayton's liability would be based on the outcome ...


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