Oregon Supreme Court: A footnote creates waves for construction defect litigation [Daily Journal of Commerce (Portland, OR)]

Homeowners may have less time to file negligence claims against developers and homebuilders because of a seemingly insignificant part of a court finding from earlier this year.

In a construction defect case in March, the Oregon Supreme Court included a footnote in its decision stating that a two-year statute of limitations applies to cases of negligent construction. Prior to that decision, the statute of limitations was understood to be six years. Since March, some trial court judges are following the footnote, and others are following the previous statute, but a forthcoming decision from the appellate court may break the tie.

"I'm kind of dumbfounded," said Crystal Lewis, an attorney representing the plaintiff in a case, Liberty Oaks HOA v. Liberty Oaks LLC, et al, that was dismissed in June because of the footnote mentioning the two-year statute. "Right now it just depends on who your trial judge is."

But Lewis' case, which pits a Tualatin homeowners' association against a developer and other contractors, is going through the appeals process and has piqued the interest of many people involved in construction defect litigation. The appellate court's ruling on the Liberty Oaks Homeowners Association's claim could finally clarify whether negligence claims are subject to two- or six-year limitations.

If homeowners have only two years to file a negligence claim after discovering problems caused by faulty construction, Lewis contends that properties maintained by homeowners associations - condominiums and townhomes - will especially be at risk.

Most of the defect claims handled by Lewis are based on building envelope problems caused by improper waterproofing. Volunteer homeowners associations might be informed about a leak or two, but not realize there is an underlying problem for years.

"You can't tell that's happening from just looking at the building," she said. "Six years gives a much more comfortable cushion to figure out the problem and act on it."

But other lawyers are defending the use of the two-year statute.

Attorney Jonathan Henderson argues that trial courts should have been applying the two-year statute of limitations even prior to the March decision of Abraham v. T. Henry Construction Inc., the case in which the footnote appears.

"People were lulled into complacency, but the defense bar still felt the two-year statute applied," said Henderson, who is representing several of the defendants in the Liberty Oaks appeal. "Now the odds are pretty good that the appellate courts will stand by the Abraham footnote."

If they do stand behind the footnote, Henderson said the ruling will provide a limitations defense for many contractors and developers and will cut off "quite a few claims." Breach-of- contract claims are still subject to a six-year statute of limitations, however.

"The end result is favorable for those in the construction industry," he said. "If there is a winner, it'll be contractors and developers."

But Lewis contends that insurance companies will benefit most.

"The big winners so far are the insurance carriers for contractors," she said. "It ends up on them to foot the bill for repairs ... and a lot of property owners are not going to be able to hold developers and builders accountable for damages caused by construction defect" (if the two-year statute of limitations is upheld).

The appeals process could take many months, but the court will decide the matter one way or the other. Until then, some plaintiff attorneys are scrambling to readjust their schedules now that they may not have as much time to file their claims.

But some attorneys say a bright side may exist for homeowners.

Attorney Hunter Emerick said an increase in construction defect litigation has caused contractors to become more educated. And now that homeowners may have less time to make certain types of claims, maybe they will become more educated too, he said.

"Homeowners and building owners need to become more aware of maintenance and taking care of their own buildings and catching problems early on," said Emerick, whose practice is based in Salem. "They should use this as a wake-up call to be more proactive."

Although the appellate court will decide the Liberty Oaks case, the losing party could appeal to the Oregon Supreme Court.