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Eclectic Investment LLC v. Patterson

Supreme Court of Oregon, En Banc

March 19, 2015

Richard PATTERSON, et al., Defendant. JACK SON COUNT Y, Cross-Claim Plaintiff-Appellant, Petitioner on Review,
Byron McALLISTER, Jr., dba Greater Crater Construction Company, Cross-Claim Defendant-Respondent, Respondent on Review.

Argued and submitted November 6, 2014

On review from the Court of Appeals.[*] CC 07019L3; CA A150458

Michael Jewett, Michael Jewett, P.C., Ashland, argued the cause and fled the brief for petitioner on review.

James A. Wallan, Hornecker Cowling, LLP, Medford, argued the cause and fled the brief for respondent on review.

The county, a defendant in a negligence action, sought common-law indemnity from a co-defendant. The trial court denied the common-law indemnity claim, and the Court of Appeals affrmed the trial court's decision. Held: (1) In cases in which Oregon comparative negligence statutes apply, common-law indemnity is not necessary or justifed; (2) Because the trial court applied the Oregon comparative negligence statutes to allocate fault among the parties in the underlying negligence case, and because the jury found plaintiff to be more than 50 percent at fault, the county was neither potentially nor actually liable for the co-defendant's conduct. Therefore, the trial court correctly denied the county's common-law indemnity claim.


Jackson County (the county) is a defendant in this negligence action, in which plaintiff sought damages for damage to its real property. As an affirmative defense, the county alleged that plaintiff was negligent and was itself responsible for the damages that it had suffered. The county also filed a cross-claim against a codefendant (the contractor) seeking common-law indemnity. Plaintiff's negligence claim was tried to a jury, which found that plaintiff was more than 50 percent at fault. Therefore, under ORS 31.600, neither the county nor the contractor were liable to plaintiff. Nevertheless, the county had incurred costs in defending against plaintiff's claim, and it pursued its cross-claim for indemnity to collect those costs from the contractor. The trial court denied the county's indemnity claim, the county appealed, and the Court of Appeals affirmed. Eclectic Investment. LLC v. Patterson. 261 Or.App. 457, 323 P.3d 473 (2014). For the reasons that follow, we also affirm.

The following facts are uncontested. Plaintiff, a property owner, hired the contractor to enlarge plaintiff's parking lot by excavating a slope above the parking lot. The contractor did not apply for an excavation permit before performing its work, as required by county ordinances. However, the contractor later applied for the necessary permit, which the county denied because it lacked sufficient detail. The contractor re-applied, and the county issued a preliminary permit. The county conducted an inspection and noted erosion problems with the slope and concerns about its soil composition and the adequacy of a retaining wall. As a result, the county withheld final approval. After another inspection of the construction site, the county granted final approval. The county did not require the contractor to make any change to the slope, which had a steep 1:1 grade. Roughly a year after the excavation, a rainstorm caused topsoil to wash off the slope onto plaintiff's parking lot and into a building, damaging plaintiff's property.

As relevant here, plaintiff alleged that the contractor had been negligent in its excavation of the slope and that the county had been negligent in approving that excavation without requiring the contractor to make the slope safe.[1]Plaintiff alleged that, as a result of defendants' negligence, the slope had collapsed and damaged plaintiff's property. The county and the contractor both denied negligence. The county also alleged, as an affirmative defense, that plaintiff had been negligent in failing to apply for proper permits before beginning excavation and for failing to consult an engineer about the excavation. The county asked that plaintiffs damages be allocated in accordance with ORS 31.610, which apportions damages based on the comparative fault of all parties.[2] The county also filed a cross-claim for common-law indemnity against the contractor, alleging that "[the county's] negligence, if any, was passive and secondary as compared to the primary and active negligence of [the contractor], " and therefore that the contractor should indemnify the county. The county and the contractor agreed to sever the indemnity claim from the negligence claim for later determination by the trial court.

At trial on plaintiff's negligence claim, the county requested that the jury answer special questions pursuant to ORS 31.605.[3] The jury found that plaintiff had been more than 50 percent at fault, the county had been 7 percent at fault, and the contractor had been 4 percent at fault. Because ORS 31.600 provides that a claimant may not recover if the claimant's fault is greater than the combined fault of the other parties, the trial court entered judgment in favor of defendants.[4]

The county and the contractor then agreed to arbitrate the county's common-law indemnity claim. The county neither owed nor had paid any obligation to plaintiff, but it nevertheless sought to collect from the contractor the legal fees and costs that it had incurred in defending against plaintiff's negligence claim. The arbitrator found against the county, and the county appealed the arbitrator's decision to the trial court.

The case was tried to the court on stipulated facts. The county argued that it was entitled to indemnity under this court's decision in Astoria v. Astoria & Columbia River R. Co., 67 Or 538, 548, 136 P 645 (1913), and that Astoria stands for the proposition that a party that is "actively" negligent must indemnify a party whose negligence is merely "passive." In response to that argument, the trial court remarked that the county "was not completely passive because it inspected the excavation twice." However, court also went on to consider more broadly, whether, in equity, the contractor rather than the county "should have discharged the obligation." (Emphasis in original). With regard to that question, the court observed that the Restatement (Second) of Torts, § 886B (1979), provides that indemnity should be granted where "[t]he indemnitor created a dangerous condition of land or chattels as a result of which both were liable to the third person, and the indemnitee innocently or negligently failed to discover the defect." The court viewed the Restatement as favoring the county's position, but also considered the county's position to be at odds with the fact that "the jury found [the contractor] to be the least at fault of the parties." After considering that "important factor, " the court reached two conclusions: first, that plaintiff's claim against the county was based on the county's independent negligence, not on vicarious liability, and, second, that "[t]he direct fault of the two parties involved in this indemnity action is relatively equal." The trial court therefore denied the county's indemnity claim.

The county appealed, arguing that the trial court had erred in failing to apply the rule articulated in Astoria, 67 Or at 548. The Court of Appeals disagreed and affirmed the decision of the trial court. Eclectic, 261 Or.App. at 465. Relying on cases decided after Astoria, the court concluded that the applicable legal standard is broader than that stated in Astoria. Id. at 463. As the Court of Appeals explained it, although the distinction between active and passive negligence is one factor that a trial court may consider in determining whether indemnity is appropriate, the ultimate question is whether, in equity, and under the totality of the circumstances, the indemnitor rather than the indemnitee "'should have discharged the obligation.'" Id. (quoting the trial court's decision) (emphasis in original). The Court of Appeals decided that the trial court had correctly applied that legal standard and that its conclusions were supported by substantial evidence. Id. at 464-65. Moreover, the Court of Appeals reasoned, even if Astoria alone were controlling, this case is distinguishable. Id. at 465. Unlike the governmental entity in Astoria, the county in this case was aware of the offending condition before it gave its approval. Id.

The county filed a petition for review, which we allowed. In this court, the county argues that the correct legal standard is set out in Astoria-that a passive tortfeasor may recover in indemnity from an active tortfeasor- and that the trial court erred in considering the jury's allocation of fault as a factor in deciding that the county was not entitled to indemnity. The contractor responds that, to the extent that Astoria requires that indemnity be determined based on whether a party's negligence was active or passive, it should be overruled. We begin therefore with a discussion of the legal standard that governs the county's claim for indemnity and an analysis of the extent to which a jury's allocation of fault is a factor in that determination.

Common-law indemnity is a judicially crafted remedy that allows parties to avoid the harsh results of the traditional common-law rule that "joint wrongdoers standing in pari delicto cannot compel contribution." Astoria, 67 Or at 547. As a result, under that common-law rule, joint tortfeasors were jointly liable for the full amount of a plaintiff's damages regardless of their respective degrees of fault. Common-law indemnity provided a means to shift the loss to the responsibly party:

"[A] person who, without personal fault, has become subject to tort liability for the unauthorized and wrongful conduct of another, is entitled to indemnity from the other for expenditures properly made in the discharge of such liability. When allowed to one joint tortfeasor against another, indemnity operates as an exception to the common-law rule denying contribution among joint tortfeasors. Indemnity involves shifting the entire loss to the primarily responsible tortfeasor; contribution permits the loss to be apportioned among those jointly responsible."

Kenneth J. Sherk, Common Law Indemnity Among Joint Tortfeasors, 7 Ariz L Rev 59, 59-60 (1965) (internal citations omitted); see also Prosser and Keeton on the Law of Torts § 50, 336 (W. Page Keeton ed., 5th ed 1984) (describing "common law rule that there can be no contribution among those who are regarded as 'joint tortfeasors'").

In Kennedy v. Colt, 216 Or 647, 653, 339 P.2d 450 (1959), this court explained the principles underlying common-law indemnity as follows:

"'If the parties are not equally criminal, the principal delinquent may be held responsible to his codelinquent for damages incurred by their joint offense. [W]here the offense is merely malum prohibitum, and is in no respect immoral, it is not against the policy of the law to inquire into the relative delinquency of the parties, and to administer justice between them, although both parties are wrongdoers.'"

(Quoting Lowell v. Boston & L. R. Corp., 40 Mass. 24, 23 Pick 24 (1839).) Applying those principles to circumstances in which more than one tortfeasor is responsible for harm, courts have determined whether the character of one party's wrong was such that, as between the tortfeasors, that party should pay the entirety of the damages awarded. Courts have shifted responsibility for damages from one tortfeasor to the other based on a qualitative, equitable determination of the nature of the parties' negligence:

"In explaining their reasons for granting indemnity * * * courts have often resorted to complicated, and somewhat confusing, word formulae. The indemnitee's fault or negligence has been characterized as 'constructive, ' 'secondary' or 'passive, ' and the fault or negligence of the indemnitor as 'actual, ' 'primary' or 'active.' The principle which has achieved the greatest currency is that a tortfeasor who is guilty of passive negligence only is entitled to indemnity against a tortfeasor who was guilty of active negligence. Concurrently negligent tortfeasors have often seized upon such judicial terminology in order to portray their negligent acts as amounting to no more than 'passive' negligence. And, as might be expected, courts have occasionally employed the terminology to 'bend' the law somewhat and award indemnity to a tortfeasor whose actual negligent act has concurred with that of another to produce harm to a third person."

Sherk, 7 Ariz L Rev at 64 (internal citations omitted).

In this case, the county relies on Astoria, 67 Or at 547, for the principle that common-law indemnity is available to a joint tortfeasor whose negligence was "passive" in comparison to the "active" negligence of another tortfeasor. In Astoria, the city of Astoria had permitted a railroad company to build tracks on the city's streets and required that it lay the tracks evenly with the grade of the elevated street. Id. at 539-40. The railroad company failed to comply with that requirement, and the plaintiff was injured as a result. Id. at 540. The plaintiff sued the city, asserting that the city had negligently failed to maintain its streets in a safe condition, and prevailed. Id. at 542. The city then sued the railroad for indemnification. Id. This court affirmed the trial court's judgment for the city. Id. at 51. The court looked to the complaint that the plaintiff had filed against the city and explained that the plaintiff had alleged that the city's negligence was "passive" while the negligence of the railroad was "active":

"From a resume of the salient features of the declaration, it plainly appears that the active negligence charged is against the railroad company, while passive negligence only is laid at the feet of the municipality. All that is urged against the city is its failure properly to care for the safety of the traveling public[.] [T]hat situation does not render the parties equally delinquent. The efficient and primary cause of the accident was the negligence of the company, while the subsequent negligence of the city in not enforcing obedience to the terms of the ordinance was constructive rather than actual."

Id. at 548.

In subsequent decisions, this court has looked askance at the distinction between "passive" and "active" negligence as a means of determining whether one of two tortfeasors ought to pay the whole of an award of damages. See, e.g., Gen. Ins. Co. of Am. v. P. S. Lord Mech. Contractors, 258 Or 332, 336, 482 P.2d 709 (1971) ("The words 'passive' versus 'active' and 'secondary' versus 'primary' are not sufficiently precise to provide clear guidelines for this area."). Nonetheless, this court has continued to use that distinction:

"In an action for indemnity, the claimant must plead and prove that (1) he has discharged a legal obligation owed to a third party; (2) the defendant was also liable to the third party; and (3) as between the claimant and the defendant, the obligation ought to be discharged by the latter. The last requirement means that, although the claimant must have been legally liable to the injured third party, his liability must have been 'secondary' or his fault merely 'passive, ' while that of the defendant must have been 'active' or 'primary.'"

Fulton Ins. Co. v. White Motor Corp., 261 Or 206, 210, 493 P.2d 138 (1972) (internal citations omitted).

In this case, the parties cite Fulton and focus on the third element of an indemnity action as described in that case and applied in Astoria. The county argues that, under Astoria, its negligence was merely passive and, therefore, the contractor ought to pay the fees and costs that the county incurred in defending against plaintiffs negligence claim. The contractor, in turn, argues that the county's negligence in approving the excavation was active. Significantly, however, neither party addresses the Fulton requirement that the party seeking indemnity from a joint tortfeasor establish that both tortfeasors were subject to liability to a third party. Fulton, 261 Or at 210.[5]

There is good reason why both tortfeasors must be subject to liability to a third party as a precondition to a common-law indemnity claim. As explained by the Restatement (Third) of Restitution (2013), the Restatement (Third) of Torts: Apportionment of Liability (2010), and George E. Palmer, Law of Restitution (1978; supp 2014), the theory underlying both indemnity and contribution is that of restitution for unjust enrichment. One tortfeasor is entitled to restitution from another if the tortfeasor seeking indemnity has provided a benefit to the other tortfeasor: "'Indemnity, a form of restitution, is founded on equitable principles; it is allowed where one person has discharged an obligation that another should bear; it places the final responsibility where equity would lay the ultimate burden.'" Reporter's Note, Restatement (Third) of Restitution § 23 comment a (quoting Hunt v. Ernzen, 252 N.W.2d 445, 447-48 (Iowa 1977)). Thus, if two tortfeasors are subject to liability, and one discharges that liability although in equity the other should have done so, then the discharging tortfeasor may recover restitution-in the form of indemnity-from the tortfeasor who should have fulfilled that responsibility. Without potential liability to a third party, the latter tortfeasor receives no benefit from the former and cannot be required to repay what it did not receive. As noted in the Restatement (Third) of Restitution, the determination of "primary" and "secondary" liability requires an underlying "allocation of the common liability as between claimant and defendant, whereby their joint obligation to a third person is assigned to the defendant inter se." Id. at § 23 comment b. Accordingly, a claim for indemnity presumes that both tortfeasors are subject to joint liability for a plaintiffs damages.

The problem in this case, although neither party identifies it, is that Oregon law no longer provides for joint liability of multiple tortfeasors. Instead, since Astoria and Fulton, the Oregon Legislative Assembly has instituted a system of comparative fault in which (1) the trier of fact allocates fault and responsibility for payment of damages between the parties; and (2) each tortfeasor is liable for damages attributable to only its own negligence.[6] ORS 31.610(1) provides that "in any civil action * * * the liability of each defendant for damages awarded to plaintiff shall be several only and shall not be joint." ORS 31.610(2) states that damages shall be awarded "in accordance with the percentages of fault determined by the trier of fact under ORS 31.605." ORS 31.600(2) requires that the trier of fact "compare the fault of the claimant with the fault of any party against whom recovery is sought, the fault of third party defendants who are liable in tort to the claimant, and the fault of any person with whom the claimant has settled." And ORS 31.605(l)(b) provides that, on request of any party, the trier of fact shall specify the "degree of fault of each person" and express that degree of fault "as a percentage of the total fault attributable to all persons considered by the trier of fact." Those statutes set out a comprehensive system for allocating fault between the parties and distributing liability for damages severally in accordance with that allocation.

A claim for common-law indemnity is not consistent with that system. As explained, courts originally recognized claims for common-law indemnity to provide a more equitable apportionment of damages than was possible under a traditional regime that did not allow contribution among tortfeasors. See W. Page Keeton, Contribution and Indemnity Among Tortfeasors, 1969 Ins Coun J 630, 630 (1969) ("The twin rights of contribution and indemnity exist only to take the sting out of the common[-]law rules . Historically, neither the common[-] law courts nor legislative bodies were sympathetic with the wrongdoer."). However, "[w] hen joint and several liability is abolished, a contribution rule becomes nugatory." Henry Woods & Beth Deere, Comparative Fault § 13:5, 240 (3d ed 1996, supp 2013). As a result, "indemnity between tortfeasors based on 'active-passive negligence' or 'primary-secondary liability' has now generally yielded to a percentage comparison of fault." Id. § 13:11 at 254-55. The Restatement (Third) of Torts: Apportionment of Liability § 22 specifically disavows the Second Restatemenfs provision for indemnity in cases in which "the indemnitor was 'actively' negligent and the indemnitee was 'passively' negligent * * * [or] the indemnitee was 'secondarily' liable and the indemnitor was 'primarily' liable." The Reporter's Note explains that those "doctrines were developed before comparative responsibility" and as such "are inconsistent with the goals of comparative responsibility." Id.; accord Prosser and Keeton § 51 at 344 ("Changes in the law of contribution and comparative fault may materially alter the context and the equities, thus causing courts to reconsider rules of indemnity. * * * Adoption of comparative fault may be seen as creating another option-allocating loss according to percentages.").

Consequently, "a clear majority [of decisions from comparative negligence jurisdictions] have held that the statutory adoption of a comparative negligence scheme effectively abrogates the theory of indemnity based on the active/passive negligence dichotomy." Gomez v. Am. Elec. Power Serv. Corp., 726 F.2d 649, 652 (10th Cir 1984) (citing decisions from six jurisdictions); see, e.g., Pachowitz v. Milwaukee & Suburban Transp. Corp., 56 Wis2d 383, 386-87, 202 N.W.2d 268 (1972) (rejecting the distinction between active and passive negligence in a comparative negligence statutory scheme); see also B & B Auto Supply, Sand Pit, & Trucking Co. v. Cent. Freight Lines, Inc., 603 S.W.2d 814, 816-17 (Tex 1980) (following Pachowitz and explaining that "there is no longer any basis for requiring one tortfeasor to indemnify another tortfeasor when both have been found negligent and assessed a percentage of fault by the jury"). The Supreme Court of Kansas has stated bluntly that "Comparative liability, with its superior mechanism for allocating responsibility, renders the all or nothing theory of implied indemnity an anachronism." Kennedy v. City of Sawyer, 228 Kan.439, 459-60, 618 P.2d 788 (1980).[7]

In this case, although neither party has argued that Oregon's comparative fault system eliminates the need for judicially created indemnity in situations such as this one-in which a defendant is liable, if at all, for only the damages that resulted from its own negligence-we cannot avoid the issue that that system now presents. Common-law indemnity is a judicially created claim intended to equitably allocate liability among joint tortfeasors. We cannot respond to the parties' request that we reconsider the principles that underlie such a claim and determine whether a jury's allocation of fault should be a factor in a court's analysis without also considering the fact that the Oregon Legislative Assembly has created a system of comparative negligence that fully addresses the problem that common-law indemnity was crafted to solve.

We agree with the reasoning of the authorities that we have cited: The doctrine of common-law indemnity was developed before comparative responsibility and is inconsistent with its framework. In cases in which the Oregon comparative negligence statutes apply and in which jurors allocate fault-and thereby responsibility-for payment of damages between tortfeasors, and each tortfeasor's liability is several only, a judicially created means of allocating fault and responsibility is not necessary or justified.[8]

In this case, the Oregon comparative negligence statues apply. Under ORS 31.610(1), the county was not subject to potential liability for the conduct of the contractor; the county's potential liability was for only its own conduct. Therefore, although both the county and the contractor could have been liable to plaintiff, their liability would have been several only, not joint. Furthermore, the county asked that the jury answer special questions under ORS 31.605 and allocate the degree of fault of each party. The jury found plaintiff to be more than 50 percent at fault, and, consequently, neither the county nor the contractor was liable to plaintiff. As a result, the county was neither potentially nor actually liable to plaintiff for the conduct of the contractor. In that circumstance, the trial court correctly denied the county's claim for common-law indemnity.[9]

The decision of the Court of Appeals and the judgment of the circuit court are affirmed.

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