Northwest Business Litigation

Court of Appeals holds landowner can't sue county for faulty advice

The Oregon Court of Appeals issued its second opinion this month addressing the so-called economic loss doctrine, holding that a resident can't sue the county government for damages resulting from a land use planner's erroneous advice.  In Wild Rose Ranch Enterprises LLC v. Benton County, plaintiffs had sought to use their property as a quarry.  In response to an inquiry, the county's land use planner told the proposed quarry operator that a conditional use permit was not necessary.  Months later, the same county official informed plaintiff that a conditional use permit was required for the quarry after all.  The county denied plaintiff's subsequent application for such a permit. 

Plaintiffs sued the county for amounts spent on developing the quarry, and for their anticipated profits.  Plaintiffs pursued claims for negligence and negligent misrepresentation, due to their reliance on the initial, erroneous advice.  Plaintiffs acknowledged that, because of the economic loss doctrine, damages for negligence would be available only if the county had a "special relationship" with plaintiffs which gave rise to a duty to protect plaintiffs from economic harm.  Judge Haselton, writing for the court, agreed with the county that its development code was not intended to create tort liability in situations where the planning official's interpretation proved to be faulty.  The claims were dismissed.

See the Oregon Business Litigation Blog's discussion of Harris v. Suniga, the economic loss case decided earlier this month, here.

An advance payment extends the tort statute of limitations, the Oregon Supreme Court holds

Earlier this month the Oregon Supreme Court gave a broad reading to ORS 12.155, which suspends the statute of limitations on a tort claim when a "person" makes an advance payment on that claim, unless the person making the payment also gives written notice of the date that the statute of limitations expires.  While the Court of Appeals held that ORS 12.155 tolls the statute of limitations only when an insurer makes an advance payment, the Supreme Court reversed, holding that an advance payment by any person can extend the limitations period. 

In Hamilton v. Paynter, plaintiff alleged that she was injured when a forklift owned by defendants rear-ended her vehicle.  She claimed that defendants several months later made a $1,000 "partial payment" for the injuries she suffered, but did not give her written notice of the date the statute of limitations would expire on her claim.  She filed suit more than two years after the accident, which defendants claimed was beyond the limitations period.  The court disavowed earlier case law suggesting that only a payment by an insurer can toll the statute of limitations.  Because the defendants made an advance payment but failed to give notice of the limitations period, the statute of limitations was tolled and the claim was timely.

Sometimes a Burrito is Just a Burrito

A burrito is not a sandwich.

That's the ruling of a Massachusetts judge in a food fight between Panera Bread Co. and Qdoba Mexican Grill. Panera wanted to block its landlord from leasing space to Qdoba, citing an exclusivity clause in its lease which prevented the landlord from leasing to another sandwich shop.

The court relied on testimony from a Cambridge, Mass., chef, a former high-ranking USDA official, and Webster's Third New International Dictionary.

"I know of no chef or culinary historian who would call a burrito a sandwich," Chris Schlesinger, the chef, said in his affidavit. "Indeed, the notion would be absurd to any credible chef or culinary historian."

The court cited Webster's definition of a sandwich and explained that the difference comes down to two slices of bread versus one tortilla: "A sandwich is not commonly understood to include burritos, tacos, and quesadillas, which are typically made with a single tortilla and stuffed with a choice filling of meat, rice, and beans," he wrote.

Schlesinger explained that a sandwich is of "European roots" and generally recognized as "two pieces of leavened bread," while a burrito is "specific to Mexico and typically contains hot ingredients rolled into a flat unleavened tortilla."

Judith A. Quick, a former deputy director of the Standards and Labeling Division at the US Department of Agriculture, said in her affidavit: "The USDA views a sandwich as a separate and distinct food product from a burrito or taco."

IRS issues guidelines on Deferred Compensation Plans

On November 30, the IRS provided guidance on the reporting and withholding rules applicable to "deferred compensation plans" (DCPs) subject to tax code section 409A.  Pursuant to new IRS rules, a discounted stock option -- one with an exercise price less than the fair market value of the stock on the grant date -- is a "deferred compensation plan" and is subject to a 20% retroactive penalty tax and interest.  Employers sponsoring such a plan are now required to report as wages any income related to the DCP.  Even if the employee did not exercise the option, the IRS requires the employer to report income as if the option had been exercised on December 31.  Yes, employers are now required to report fictitious income based on transactions that did not occur.

The bad news gets worse.  The IRS treats similar arrangements as a single plan.  Thus, ALL options -- both discounted and not -- are treated as part of the same plan.  A discounted option now violates section 409A, and since each such option is considered part of the same plan as options that did not violate 409A, the income tax calculation includes ALL vested options, not just the discounted ones. 

Employers have generally responded by taking one of the following steps:

• Increasing the strike price to the fair market value on the grant date,
• Amending the option to set a fixed date on which the holder would exercise the option, and
  
• Canceling the old option and issuing a new, compliant option.

However, some of these steps may not work if discounted options were exercised during 2006.  Additional solutions and mitigation techniques may help avoid both a nasty shock to a valued employee and a burdensome reporting and withholding requirement on the employer.  Employers must immediately review their grant practices and evaluate whether they have awarded discounted options.  The IRS has given employers a December 31 deadline to address insider recipients subject to SEC rule 16(b).  For other employees, the IRS extended the deadline to December 31, 2007. 

Oregon Court of Appeals puts limits on the "economic loss" doctrine

The Oregon Court of Appeals this week clarified the scope of the "economic loss" doctrine, an important limitation on the type of damages recoverable for negligence.  Under Oregon's economic loss doctrine, a plaintiff cannot recover damages for purely economic losses resulting from defendant's negligence, unless the defendant owes some special duty to plaintiff beyond the common law duty to exercise reasonable care.   So, for example, an employer cannot sue a party for the loss of the services of its employee based on that party's negligent injury of the employee; in such a case, the employer suffered no injury to its person or property, so its losses are purely economic and cannot be recovered from the tortfeasor.

The issue the Court of Appeals addressed in Harris v. Suniga was how to define "economic losses."  In that case, the plaintiffs were subsequent purchasers of an apartment building, and the defendant was the builder whose negligent construction allegedly resulted in extensive dry rot.  Because plaintiffs had no contractual relationship with the builder, they could not sue for breach of contract.  Instead, they made a claim for negligence.  The defendant sought to dismiss based on the economic loss doctrine, arguing that plaintiff's loss was simply a decrease in the value of their investment and therefore was not recoverable in a negligence claim.  Judge Landau, writing for the court, disagreed.  He concluded that plaintiffs' claim was based on injury to their property and was not purely economic.  On that basis, the economic loss did not bar a negligence claim and plaintiffs are entitled to proceed against the builder.

Plaintiffs' law firm ordered to pay fees in Enron-related litigation

The federal judge overseeing the Enron shareholders’ class-action lawsuit in Texas granted summary judgment dismissing a $1 billion claim brought by plaintiffs’ counsel William Lerach against investment firm Alliance Capital Management.  In an unusual move, the judge ordered that plaintiffs' counsel pay Alliance’s attorney’s fees under Section 11(e) of the Securities Act incurred in preparing the summary judgment motion.

The judge held: 

"As for attorney's fees and costs under section section 11(e), the Court finds that at the time this suit was filed, given the sophisticated concealment of Enron's financial condition, Plaintiffs' suspicions arising from Savage's dual-hat roles at Alliance were not unreasonable. Thus at its inception and at least through Savage's deposition in January 2005 and for a period of discovery thereafter, the Court finds that this case was not frivolous, without merit, and/or brought in bad faith.  It appears to this Court, however, that the summary judgment briefing should not have been necessary and the continuance of the claim against Alliance was at that point without merit." 

The order requires the attorneys, not their clients, to pay the award.  Apparently they have collected almost $7 billion in settlements for clients in Enron-related litigation so this small setback won't carry much sting.

U.S. Supreme Court hears argument in Oregon antitrust case

SCOTUSblog has this recap of last week's Supreme Court argument in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co.  The case, tried in federal district court in Portland, addresses "predatory bidding" as a violation of antitrust law.  This commentator predicts that the court will reverse the case due to a defect in a key jury instruction, and remand for a new trial.  See earlier coverage in the Oregon Business Litigation blog here and here.

Oregon Supreme Court holds asbestos claim not barred by statute of limitations

Oregon Plaintiffs Lawrence and Patricia Keller may proceed to trial in their asbestos injury cases thanks to the Oregon Supreme Court's recent interpretation of the "discovery rule" in the Oregon statute of limitations.

The Kellers brought suit against various defendants alleging that Lawrence Keller was injured from exposure to asbestos.  The defendants moved to dismiss the suit, arguing that the statute of limitations had run on the claims.  Oregon's asbestos statute of limitations, ORS 30.907(1), provides that:  "A product liability civil action for damages resulting from asbestos-related disease shall be commenced not later that two years after the date on which the plaintiff first discovered, or in the exercise of reasonable care should have discovered, the disease and the cause thereof." 

Lawrence Keller had worked as a mechanic in a muffler shop where he allegedly was exposed to asbestos.  He later developed respiratory ailments and, from the mid-1980s to the mid-1990s, saw various doctors who told him that his exposure to asbestos was a possible cause of his problems.  More than two years before he filed his civil suit in 2000, he filed both workers compensation and social security disability claims in which he alleged that he suffered from his prior exposure to asbestos.

Nonetheless, in a unanimous opinion, the Oregon Supreme Court last week held that a reasonable juror could find that Mr. Keller did not discover his asbestos-related condition until a doctor diagnosed it.  That diagnosis came, for the first time, within the two-year limitations period.  The Court further held that knowledge of his condition and its cause should not be imputed to him while he engaged in a reasonable inquiry and was told by his doctors that the cause of his condition was uncertain.  You can read the opinion here:  Opinion.