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Riverview Condo. Ass'n v. Cypress Ventures, Inc.

Court of Appeals of Oregon

October 29, 2014

RIVERVIEW CONDOMINIUM ASSOCIATION, an Oregon non-profit corporation, Plaintiff-Appellant Cross-Respondent,
CYPRESS VENTURES, INC., an Oregon domestic business corporation; Defendant, and BANK ONE ARIZONA, NA, a national banking association; MICHAEL S. MORSE, an individual; and DANIEL S. BRACKEN, an individual, Defendants-Respondents, and BROOKFIELD DEVELOPMENT, INC., an Oregon domestic business corporation; Defendant-Respondent Cross-Appellant. BROOKFIELD DEVELOPMENT, INC., an Oregon domestic business corporation, Third-Party Plaintiff,
PETER ZAIKIN, dba Anytime Construction; MIKE ANFILOFIEFF, dba Final Finish Carpentry; MODERN TECH CONSTRUCTION, INC., an Oregon corporation; RAIN-MASTER ROOFING, INC., an Oregon corporation; and N.W. CUTTING EDGE CONST., INC., an Oregon corporation, Third-Party Defendants

Argued and Submitted March 6, 2014

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[Copyrighted Material Omitted]

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Multnomah County Circuit Court. 100710713. Nan G. Waller, Judge.

On appeal, reversed in part and remanded; on cross-appeal, dismissed as moot.

Ryan D. Harris argued the cause for appellant-cross-respondent. With him on the briefs were Vial Fotheringham LLP and Thomas M. Johnson.

Peter Hawkes argued the cause for respondents Bank One Arizona, NA, and Daniel S. Bracken. With him on the brief was Lane Powell PC.

Lori DeDobbelaere argued the cause for respondent Michael S. Morse. With her on the brief was Lachenmeier Enloe Rall & Heinson.

Bruce R. Gilbert argued the cause for respondent-cross-appellant. With him on the briefs was Stephan E. Archer and Smith Freed & Eberhard P.C.

Before Duncan, Presiding Judge, and Wollheim, Judge, and Lagesen, Judge.


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[266 Or.App. 576] DUNCAN, P. J.

Plaintiff, a condominium association, appeals after the trial court dismissed, based on the statute of repose and statute of limitations, plaintiff's claims against defendants. In those claims, plaintiff alleged that defendants were negligent during construction of the condominium buildings, concealed known defects in the buildings, and mismanaged the condominium association and its finances before they turned it over to the unit owners. For the reasons that follow--many of which derive from cases that were decided after the trial court ruled--we conclude that the court erred in granting summary judgment on plaintiff's construction-defect and nuisance claims, which allege injuries to plaintiff's interest in real property and are governed by a six-year statute of limitations, but we affirm the court's dismissal of claims alleging financial harm, which are governed by a two-year statute of limitations. Accordingly, we reverse in part and remand for further proceedings.


A. Facts

Because this case comes to us after the grant of defendants' motions for summary judgment, we state the relevant facts in the light most favorable to plaintiff, the nonmoving party. Loosli v. City of Salem, 345 Or. 303, 306 n 1, 193 P.3d 623 (2008).[1]

Cypress Ventures, Inc. (Cypress Ventures) was owned by Lowell Morse; his son, defendant Michael Morse, was its president. Lowell Morse also owned a 1/3 interest in Brookfield Development, Inc. (Brookfield), which is also a defendant in this case. Cypress Ventures hired Brookfield to act as the general contractor for a condominium development, a three-building, 17-unit condominium known as the Riverview Condominium. Cypress Ventures also hired Brookfield to develop townhomes next to the condominium development.

[266 Or.App. 577] In 1999, Brookfield started construction on the Riverview Condominium. Construction continued through the first part of 2000, and all three of the buildings received final permits and certificates of occupancy by May 10, 2000. Brookfield received its final payment from Cypress Ventures that same month.

Shortly thereafter, on July 27, 2000, Cypress Ventures recorded with Multnomah County the declaration, association bylaws, and plat that submitted Riverview Condominium to the condominium form of ownership, as governed by the Oregon Condominium Act, ORS chapter 100. The recording also established the Association of Unit Owners of Riverview Condominium (the Association), which is the plaintiff in this action. The Association is composed of all unit owners.

Under the Association's bylaws, Cypress Ventures--the " declarant" of the condominium--had the power to appoint and replace the Association's directors and officers until three years after the first unit was sold or 75

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percent of the units ( i.e., 13 of the 17 units) had been sold, whichever came first. Cypress Ventures installed Lowell Morse, along with Steve Eck, Brookfield's president, as two of the Association's three interim directors.

Cypress Ventures then began to sell individual units. The first unit sold on August 10, 2000. However, Cypress Ventures encountered financial difficulties and sold only one more unit before deeding its interest in the Riverview Condominium, in lieu of foreclosure, to its creditor, defendant Bank One, on December 29, 2000. In conjunction with that property transfer, Lowell Morse and the Association's other interim board members resigned, and Bank One, now the successor " declarant" of the condominium, installed its own board members, including defendant Daniel Bracken, a vice president for Bank One, to direct the Association.

A year later, in December 2001, Bank One sold the 13th unit of the condominium, which triggered the " turnover" process under the bylaws whereby Bank One was to cede its control over the Association's board. On February 21, [266 Or.App. 578] 2002, the Association held the turnover meeting, and the unit owners elected their own board members to direct the Association.

At some point after the turnover, unit owners began experiencing water intrusion into their units. At a condo association meeting in early 2003, unit owners and board members discussed " problems with leaking windows" in the units. The first documented repair occurred in the fall of 2003, in unit 4C. The Association hired Himango Siding to repair the leaking windows in that unit. The invoice for the repair work, which was submitted to the board in November 2003, included the following notation:

" Supplied labor and material to remove necessary existing siding on front wall of unit 4-C, determine cause of leaks in unit 4-C windows, repair leaks and reinstall new and existing siding as necessary.
" * * * *
" FYI: the reason these windows leaked is as follows: the original siders ran there [ sic ] building paper over the top of the window opening weather strip instead of under it so water that gets in at the bottom of upper windows can get behind the paper [and] run down the wall and into the top of the bottom windows. We used a sticky rubber membrane to create a positive seal from the window flange to the paper so if water does get past the caulking over time it must stay on the outside of the building paper." [2]

After that repair was made, the board continued to receive reports of water leaks. Sometime between 2004 and 2006, another owner, Sara Berreth, developed a leak in the bedroom windows of her unit. Berreth had been elected as a board member at the turnover meeting and served as the Association's treasurer. The Association hired Darren Williams to repair her leaking windows. Williams repaired the leaks but told Berreth that his repair work would not provide a permanent fix " because of the way it was constructed." [3]

[266 Or.App. 579] Another unit owner, Shawn Smith, who later served on the Association's board from 2005 to 2008, discovered in 2004 that his windows in his master bedroom were leaking. He noticed that water was leaking from around the top of the windows and that the caulking was sagging. Smith's windows were repaired in September 2004, and he spoke with the contractor who performed those repairs. The contractor told Smith that " there's two different styles of siding from the bottom unit to the top unit, that the interface between those two was done incorrectly, and that around the windows themselves something to do with flashing, the way it was installed was funneling water into--over the windows, and then it was coming down in the walls and pooling." Smith relayed

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that information to the Association's board.

In a letter dated July 27, 2004, a property manager, Gordon Properties, LLC, notified the board that " three out of the five of the condos that we manage have leaking windows. The windows have leaked for as long as we have managed them, which is all the way back to when the first tenants moved in." Then, in October 2004, the Association received a report that unit 4C was continuing to experience water leaking from windows, and that the fire alarm in unit 4C had been set off by " water coming through the alarm unit from 4D." The fire department had forced its way into unit 4D and " concluded the water [was] coming from the upper unit 4D walls." The report, which was made by the owner of unit 4C, requested " help in getting this water damage resolved by sending out a building inspector and contractor to take care of this problem."

Gordon Properties, which managed unit 4D, recommended that the Association hire Sherman Rake Company to address leaks in various windows, and the Association hired Sherman Rake in 2005. The price of that repair work was $12,120, and Sherman Rake noted in its May 2005 invoice that it found that water had been trapped by the belly band-- i.e., where the panel siding transitions to lap siding. Sherman Rake further noted its " [c]oncerns that water could be coming from areas other than around the windows. If such is the case, [Sherman Rake] will not be responsible for on-going water damage that might occur in [266 Or.App. 580] the future that is caused by anything other than [Sherman Rake's] workmanship." One of the Association's board members at that time, Angela Long, spoke with Sherman Rake about the repair work and was told that " flashing was put on backwards or something of that nature."

In February 2006, Long discovered that her own bedroom windows were leaking, and she brought that to the attention of the rest of the board. Also in 2006 or 2007, Smith discovered that his bathroom windows were leaking--the same problem that he had experienced earlier with his bedroom windows. At that time, approximately nine of the 17 units had reported window-related issues, and of the units that had not reported problems, some were vacant or rentals.

As previously noted, Cypress Ventures and Brookfield had also developed townhomes next to the Riverview Condominium. Sometime in 2003 or 2004, Smith noticed that those townhomes were having their siding replaced. Smith spoke with the head of the homeowners association for the townhomes and was told that their association was having the siding and windows replaced because of problems with leaking. Once the condominium units began developing problems with leaking, the Association discussed what had happened at the townhomes.[4]

Water-intrusion problems continued in the condominium through 2006 and 2007, and the Association hired Building Enclosure Design & Inspection Corporation (" BEDIC" ) in 2008 to perform an inspection " focused on building enclosure issues and * * * related to current condition and resulting remaining useful life concerns." BEDIC issued a report in early November 2008 that concluded, among other things, that " [o]verall the siding assembly is not performing," that water was entering wall cavities with no place to escape, and that parts of the substrate were rotting. The report concluded that extensive siding replacement and rot [266 Or.App. 581] repair were necessary--expenses that would well exceed the Association's reserves and would require a dramatic increase in monthly dues.

B. Procedural History

On July 22, 2010, the Association filed this action against Brookfield, Bank One, Michael Morse, and Bracken.[5] In their complaint,

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the Association alleged that water intrusion and resulting damage to the condominium buildings were the direct result of faulty design, faulty workmanship, improper maintenance, defective material, improper construction, and noncompliance with building codes and manufacturer specifications--referred to throughout the complaint as " construction defects." In its first claim for relief, the Association alleged that each of the defendants had been negligent in concealing or failing to discover the defects, and in not repairing them. In other specifications under that claim, the Association alleged that defendants had been negligent in failing to responsibly budget for the repairs and by concealing the inadequacy of the Association's reserves and assessments for repairs.

In addition to its negligence claim, the Association alleged, against Michael Morse, Bank One, and Bracken, claims for negligent misrepresentation; intentional or reckless misrepresentation; breach of fiduciary duty; and violations of the Condominium Act and nondisclosure. Against Morse, Bank One, and Brookfield (but not Bracken), the Association alleged a claim for nuisance based on water intrusion. And, against Bank One, the Association further alleged claims for breach of contract, breach of express statutory warranty, and breach of implied warranty.

Amid extensive pleading and motions practice (much of which involved third-party claims that are not at issue in this appeal), defendants filed a series of summary judgment motions. The first of those motions, filed by Brookfield, asserted that all of the Association's claims against it were barred by two alternative statutes of repose: [266 Or.App. 582] ORS 12.115, which applies generally to negligent injury to property, and ORS 12.135, which applies specifically to actions arising from construction. Those statutes, which will be discussed later in more detail, both provide 10-year statutes of repose but have different triggers: ORS 12.115 runs the 10-year period from the date of the " act or omission complained of," whereas ORS 12.135 runs the 10-year period from the date of " substantial completion" of construction. Brookfield argued that both statutes applied and that, under either, the Association's claims were untimely because all of Brookfield's construction was completed in May 2000, more than 10 years before the complaint was filed on July 22, 2010.

In response, the Association argued that ORS 12.135--and not ORS 12.115--was the applicable statute of repose, and that there remained genuine issues of material fact as to the date of " substantial completion" of the Riverview Condominium. Alternatively, the Association argued that, even if the more general statute, ORS 12.115, were to apply, there nonetheless remained genuine issues of material fact as to whether, because of the close relationship between Brookfield and Cypress Ventures, the running of the statute of repose had been tolled until control of the Association was turned over to unit owners in February 2002.

In ruling on Brookfield's motion, the trial court initially observed that most of the Association's allegations against Brookfield concerned defects arising from the work Brookfield performed as a general contractor, but that the complaint also included " allegations which seek to hold Brookfield liable for budget and reserve studies, assessment levels and maintenance." The trial court explained that Brookfield's motion for summary judgment was based solely upon the statute of repose, and that the motion " did not address the issue of whether Brookfield had liability for events arising after completion of construction." Thus, the court expressly declined to grant summary judgment with respect to claims arising from activities that occurred after construction, including specifications of negligence based on Brookfield's post-construction involvement in management and sale of the units, operation of the Association, [266 Or.App. 583] and preparation of the Association's budget and assessment levels, as well as the nuisance claim, to the extent that the claim was directed at Brookfield's post-construction activity-- i.e., ignoring the signs of defects while knowing that water intrusion would result.

With respect to " claims having to do with the construction" -- i.e., " construction-defect"

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claims, the trial court agreed with Brookfield that both statutes of repose applied, but it reached different conclusions under each statute. In applying ORS 12.135, the more specific, construction-related statute, the trial court ruled that Brookfield's proffered evidence--establishing the dates of Brookfield's last work, Cypress Venture's last payment, and issuance of certificates of occupancy--did not " directly say that [Cypress Ventures] factually accepted the project," the trigger for the statute of repose. See ORS 12.135(4)(b) (defining " substantial completion" to include " the date of acceptance of the completed construction, alteration or repair of such improvement by the contractee" ). For that reason, the court denied Brookfield's motion to the extent that it was predicated on the statute of repose set forth in ORS 12.135(1)(b).

Nonetheless, the court granted Brookfield's motion with regard to construction-defect claims based on the more generally applicable statute of repose. Applying ORS 12.115, the court concluded that all of Brookfield's construction-related activities had ended by May 2000, and it rejected the Association's tolling arguments. Accordingly, the court entered an order that disposed of all of Brookfield's claims, save the two specifications of negligence and the nuisance allegations that concerned post-construction conduct by Brookfield.

Brookfield then filed another summary judgment motion against " [e]ach of the remaining claims, as identified by the prior motion for summary judgment ruling." [6] As for [266 Or.App. 584] the post-construction negligence specifications, Brookfield argued that there was no evidence that it had actually managed or sold units or overseen the affairs of the Association. With regard to the nuisance claim, Brookfield argued that the claim was subject to a six-year statute of limitations for interference with an interest in real property under ORS 12.080(3), and that that limitations period had already run. The court agreed that the nuisance claim was untimely, and it granted the motion to dismiss that claim; however, it denied Brookfield's motion with respect to allegations that Brookfield was negligent in certain post-construction matters pertaining to oversight and management of the Association and its finances, leaving those specifications of negligence as the only remaining bases for a claim against Brookfield.[7]

Meanwhile, Michael Morse had filed his own motion for summary judgment. In his motion, Morse argued that, as a result of the trial court's earlier ruling on Brookfield's motion for summary judgment on the statute of repose, the construction-defect claims against Morse were likewise barred, leaving the following claims against him: (1) negligent misrepresentation; (2) intentional misrepresentation; (3) breach of fiduciary duty; and (4) violation of the Oregon Condominium Act and nondisclosure. And, Morse argued, those remaining claims were barred by the two-year statute of limitations, ORS 12.110, because the Association knew or should have known of the existence of the claims before July 22, 2008. Alternatively, Morse argued that he was immune from personal liability because all of his actions were taken in his capacity as a corporate officer.

At that point, Brookfield joined in Morse's motion, arguing that any remaining specifications of post-construction negligence were barred by the statute of limitations for the [266 Or.App. 585] reasons set forth in Morse's motion. Bank One and Bracken likewise joined Morse's motion, arguing that all of the claims

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against them (including construction-related claims) " violate the statute of limitations and/or statute of ultimate repose." However, unlike Morse, who had argued that the construction-related claims were no longer at issue and did not require a statute-of-limitations analysis at all, Bank One and Bracken specifically raised the statute of limitations as another basis upon which to dismiss the Association's construction-defect claims against them.

During the hearing on the joint motions, the court proceeded as though the only " remaining" claims against any defendants were based on post-construction conduct. Nonetheless, the court understood the timing of discovery of the construction defects to be a necessary part of the analysis. The court explained, " I understand * * * I'm not ruling on construction defects, but the -- if -- if there are alleged construction defects and there's knowledge of the defects I think that's what's at issue, not the conversion of that into a, oh, well, then useful life converts from X to Y and assessments must go from W to Z." (Emphasis added.) The court then explained that

" there were plenty of red flags of a size and color * * * such that no reasonable juror could conclude other than that the board after the departure of the individual or entity defendants was on notice of problems of a size and character that should've led them to conclude--and, indeed, they did conclude--the evidence that the assessments were inadequate or that the financial--the financial wherewithal of the organization was inadequate."

Accordingly, the trial court ruled that " all claims remaining against defendants Morse, Brookfield, Bank One and Bracken are barred by the running of the statutes of limitations as a matter of law." Based on that ruling, and the earlier summary judgment rulings that preceded it, the court ...

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