Government not liable in "economic loss" case, according to the Oregon Court of Appeals

Today the Oregon Court of Appeals issued an en banc opinion further refining the economic loss doctrine, finding no liability when a local government makes statements to a private individual that turn out to be wrong.

In Loosli v. City of Salem, plaintiffs sought to open an auto dealership in Salem, and to that end applied for a state-mandated vehicle dealer certificate. As part of the process, plaintiffs obtained a certificate from the City of Salem stating that the property complied with all relevant land use and business ordinances. Shortly after plaintiffs opened their business, the City notified them that they were in violation of the city's land use ordinances and ordered them to cease operations. The plaintiffs eventually were required to relocate, incurring monetary damages. They brought a negligence suit against the City for economic losses resulting from their reliance on the City's erroneous certification.

Under the economic loss doctrine, a negligence claim for purely economic losses must be based on some special duty that defendant owes to plaintiff beyond the ordinary duty to exercise reasonable care to avoid foreseeable harm.  That special duty can arise from either:  (1) a legislative intent to protect persons in plaintiffs' circumstances, or (2) the existence of a "special relationship" between the City and plaintiffs. The Court rejected the legislative intent argument, and further held that no "special relationship" exists between government officials and applicants for government permits.  The court affirmed summary judgment for the City.

See the Oregon Business Litigation Blog's discussion here and here of two economic loss cases issued by the court last December.