When an owner of property subject to a lien records a lien bond, the bond becomes security for the lien and guarantees payment of a judgment upon the lien. In an opinion issued yesterday by the Washington Court of Appeals, Division I in DBM Consulting Engineers v. United States Fidelity and Guaranty Co., plaintiff won a hollow victory and learned the hard way that in order to collect a judgment from a lien bond a judgment for foreclosure of the lien, not just breach of contract against the principal, must be obtained.
DBM recorded a mechanics lien against a client to secure a debt DBM asserted it was owned under a contract for professional services. The client obtained a lien bond to allow it to sell the property while the claim was pending. DBM sued the client for breach of contract, unjust enrichment and foreclosure of the lien and prevailed at trial. While DBM requested foreclosure of the lien in its complaint, it never pursued the foreclosure claim or obtained a ruling on the claim. When the client failed to pay the judgment, DBM then sued the surety to compel it to pay DBM and the trial court found for DBM. The Court of Appeals reversed the trial court and dismissed the suit finding that because DBM failed to obtain a judgment upon the lien the surety was not obligated to pay under the lien bond statute, RCW 60.04.161.
To add insult to injury, the Court stated in a footnote that because DBM brought a lien foreclosure claim in the original action, but in effect abandoned the claim by not obtaining a judgment on the lien, DBM would be barred by res judicata from pursuing the claim in another suit.
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.
The Oregon Supreme Court last week held that an "agreement to agree' can be enforceable, at least in part, but limited the damages that can flow from a breach. In Logan v. D.W. Sivers Co., the parties had entered into a letter of intent for the sale of real property. The plaintiff-buyer intended to use the property in a section 1031 exchange. The letter of intent stated that it did not constitute a binding agreement, but provided that the defendant-seller agreed not to enter into an agreement to sell to any other party for a period of 60 days. Notwithstanding that restriction, the seller accepted another party's offer to purchase the property before the 60th day.
The disappointed buyer sued for breach of contract, and the jury awarded as damages nearly $1 million, representing the additional taxes plaintiff was required to pay because of her inability to satisfy the requirements for a section 1031 exchange.
The Supreme Court agreed with the trial court that the letter of intent did not obligate the parties to reach an agreement to sell the property, but that it did obligate the seller to refrain from selling to another party for 60 days. While the seller was liable for breach of contract on that basis, the majority of the court reversed as to the measure of damages. In particular, because there was no binding promise to complete the sale, plaintiff could not recover the amount of tax liability resulting from her inability to purchase the property. Justice Gillette, writing for the majority, remanded for a new damages calculation.
Justices Kistler, Durham and Walters dissented on the issue of damages, contending that the jury should be allowed to award damages for the loss of the expected benefits of the transaction.
Last week California adopted a new law that requires employers to provide unpaid time off work to an employee with a military spouse who is home on leave.
All employers with at least 25 employees are subject to the law, including governmental and tax-exempt employers. Employees working an average of 20 or more hours each week qualify for the benefit. Qualified employees with a spouse deployed to a designated combat area who returns home on leave are eligible for up to ten days of unpaid leave. Note that the members of the National Guard or reserves deployed to a combat area are included in the definition of military spouses.
An employee must notify his or her employer within two business days of receiving notice that the military spouse will return home on leave. The employee must also certify that the military spouse is on leave from deployment during the requested time off. This statutory leave is in addition to any other leave or benefit that the employee is entitled to receive. Retaliation against an employee for taking the leave is prohibited.
California is not the first state to adopt such mandatory leave laws and will not be the last. Such statutes are becoming increasingly popular as the hardships placed on military families by the war on terror become better appreciated.
The Oregon Consumer Identity Theft Act, enacted earlier this year, limits the use of social security numbers and imposes mandatory procedures for notifying consumers of any breach in the security of their personal information. These provisions went into effect on October 1, 2007. The types of information covered by the new law include social security numbers, drivers' license numbers, financial account, credit and debit card numbers, and passport numbers.
Additional provisions of the Act, which go into effect on January 1, 2008, require businesses to develop and implement programs to protect the security, confidentiality, and integrity of the personal information acquired and disposed of by the business. Businesses that already comply with more stringent requirements of state or federal law will be in compliance with the Act.
The Department of Consumer and Business Services provides education and guidance on the law and recommended practices here.
The Ninth Circuit will reconsider whether an internet roommate-matching service can be held liable under the Fair Housing Act for postings on its site. On Friday the court ordered that Fair Housing Council v. Roommate.com will be re-heard by an en banc panel.
In May of this year, a divided three-judge panel held that Roommate.com was immune from liability under the Communications Decency Act, even though it had allegedly published listings stating discriminatory preferences. See our earlier coverage of the case here.
Briefs filed with the Oregon Supreme Court are now available on the internet, via links at the calendar page on the court's web site. See those links here. Relatedly, a new court rule requires parties to submit briefs to the Supreme Court both on paper and electronically.
On October 9, the U.S. Supreme Court hears oral argument in Stoneridge Investment Partners v. Scientific-Atlanta, which many view as the most important securities case in years. At issue is the validity of "scheme liability" and whether third parties, such as financial advisors, auditors, attorneys, or vendors, who engage in allegedly fraudulent transactions with a public corporation, but who do not speak or provide financial statements or other disclosures to investors, can be held liable under SEC Rule 10b-5.
The bottom line is that a decision recognizing expanded liability under 10b-5 for third parties could have a potentially far-reaching impact, especially for auditors and lawyers who advise public corporations. Find further discussion of the case and its implications here and here.
A business that fails to respond promptly to a summons and complaint can find itself liable for a default judgment. An opinion issued last week by the Oregon Court of Appeals shows how important it is for companies to adopt internal procedures for handling and responding to a complaint in a timely fashion.
Rule 71 of the Oregon Rules of Civil Procedure allows a court to set aside a default judgment if the default resulted from "mistake, inadvertence, surprise, or excusable neglect." The Court of Appeals refused to undo a $250,000 default judgment despite the corporate defendant's claim that its failure to defend itself was a result of excusable neglect.
In Knox v. GenX Clothing, Inc., a customer sued defendant clothing store over defendant's handling of an alleged shoplifting incident. Corporate executives never hired a lawyer to defend the case, and the court entered a default judgment. Defendant asked the Court of Appeals to set aside the judgment due to a miscommunication within the company and the executives' lack of understanding of the legal system. The court agreed with plaintiff that the testimony regarding a miscommunication was not credible, and that ignorance of legal process does not excuse a failure to act.
Judge Robert Wollheim, writing for the court, noted that if a corporate defendant has in place a procedure for handling a summons and complaint, and if that internal procedure goes awry, then the judgment may be set aside based on excusable neglect. But having no internal procedure in place leaves a business unlikely to succeed in avoiding a default judgment.
With the change to a Democratic majority in the House and Senate last year, unions are finding a more receptive audience for proposed changes in labor laws. Earlier this year, Congress passed HR 800, the Employee Free Choice Act of 2007, which would have made sweeping changes to the National Labor Relations Act (NLRA). The bill, which failed in the Senate, would have made it easier for unions to represent a workforce by: (1) requiring the National Labor Relations Board (NLRB) to certify a union if a majority of workers signed union cards, eliminating the need for secret ballot elections; (2) requiring companies and newly certified unions that are unable to reach agreement on an initial contract within 90 days to enter into binding arbitration, with the resulting contract remaining in force for two years; and (3) increasing penalties imposed on employers, but not unions, for unfair labor practices committed during a union organizing campaign.
Also afoot is a movement to overturn the Oakwood/Kentucky River trilogy of cases decided by the NLRB last year, addresssing which employees qualify as supervisors under the NLRA. The unions assert that the NLRB decisions will lead to a massive reclassification of workers as supervisors, who are ineligible for union representation. The Re-Empowerment of Skilled and Professional Employees and Construction Tradeworkers (RESPECT) Act, introduced by Senators Dodd (D-CT), Kennedy (D-MA), and Durbin (D-IL) earlier this year, would amend the definition of “supervisor” under the section 11(2) of the NLRA to limit the number of employees who can be so classified. The House Education and Labor Committee approved the House version of the bill (HR 1644) on September 19.
Regardless of whether the RESPECT Act succeeds, the introduction of pro-union legislation is likely an indication of things to come in 2008. Stay tuned......