Northwest Business Litigation

Cost of repair fails as measure of fraud damages, Oregon Court of Appeals holds

The wrong measure of damages sunk a claim for fraud in a case decided yesterday by the Oregon Court of Appeals.  In Morasch v. Hood, the plaintiffs alleged fraud in connection with defendants' sale of real property to plaintiffs.  Plaintiffs offered evidence of the cost of repairing or altering the property to bring it into conformity with defendants' representations, and the jury used that evidence to award damages to plaintiffs.  On appeal, defendants disputed whether the cost to repair is the proper measure of damages. 

The Court of Appeals held that the "out-of-pocket" damages rule applies, which means that plaintiff must show the difference between the purchase price and the fair market value on the date of sale.  And the fair market value is the value it would have had if defendants hadn't misrepresented the property.  Because plaintiff failed to show the value the property would have had if defendants had told the truth, the jury was unable to apply the correct measure of damages, and its verdict was properly vacated.

Oregon Court of Appeals remands punitive damages against FedEx

Last week the Oregon Court of Appeals affirmed a jury's verdict that FedEx defrauded one of its independent contractors, but remanded on the ground that $7 million in punitive damages was excessive.  In Wieber v. FedEx Ground Package System, Inc., plaintiffs had an independent contractor agreement with FedEx to pick up and deliver packages in a designated area.  After FedEx terminated the agreement, plaintiffs sued on several theories, including fraud.  The jury found in favor of plaintiffs, awarding compensatory damages of $350,000 and puntive damages of $7 million.

The Court of Appeals first held that a claim for intentional intererence with economic relations was defective as a matter of law and should not have gone to the jury.  Plaintiffs claimed that, by terminating the contract, FedEx interfered with their relationships with customers in the designated territory.  But because only "strangers" to a contract can be liable for interference, and because FedEx was not a stranger but was "inextricably linked" with plaintiffs' relationship with their customers, FedEx could not be liable for tortious interference.

The Court of Appeals then affirmed the fraud claim, based on a false representation by a FedEx representative that plaintiffs would receive advance notice before the contract was terminated.  The amount of punitive damages awarded on that claim was 20 times the actual damages, which is excessive under the Due Process Clause.  The court ordered a new trial on the amount of punitive damages unless plaintiffs agreed to an award of three times compensatory damages.

See our earlier coverage of Oregon case law on punitive damages and the Due Process Clause here.

Ninth Circuit narrowly interprets Computer Fraud and Abuse Act

The federal Computer Fraud and Abuse Act ("CFAA") creates a civil remedy against those who access information on a computer without authorization, or in a manner that exceeds authorized access.  The Ninth Circuit last week gave a narrow reading to CFAA, limiting its use as a tool to punish disloyal employees. 

In LVRC Holdings, LLC v. Brekka, defendant was a former employee of plaintiff who, during his employment, emailed company documents to his personal account.  After defendant left his employment with plaintiff, plaintiff discovered that defendant had retained the documents and used them in connection with a competing business.  Plaintiff claimed a violation of CFAA along with various state law tort claims. 

The Ninth Circuit affirmed the District Court's summary judgment for defendant, and dismissed the CFAA claim.  The court held that, because defendant was authorized to access the documents on plaintiff's computer system during his employment, and nothing in company policy prohibited emailing documents to employees' personal accounts, plaintiff could not claim that his access was "without authorization" under CFAA.

While an employer's ability to rely on CFAA is constrained by the result in Brekka, a rogue employee may still be subject to a trade secret claim under state law.

Homeowner may sue for negligent construction, Oregon Court of Appeals holds

A homeowner who discovers construction defects may be unable to pursue the builder on a contract theory if too much time has passed and the statute of limitations has run.  And, even if the statute of limitations on a tort claim would be delayed by the homeowner's belated discovery of the defect, under the economic loss doctrine no negligence claim is available unless there is a "special relationship" between the builder and the homeowner.  (See our earlier discussion of the economic loss doctrine here.)  The lack of a special relationship associated with an ordinary construction contract typically makes it impossible for a homeowner to pursue a negligence claim.

But a panel of the Oregon Court of Appeals held earlier this month that an aggrieved homeowner may be able to pursue a negligence per se claim on the theory that the builder violated the Oregon Building Code.  In Abraham v. T. Henry Construction, Inc., the homeowners discovered the defects more than six years after construction, making a contract claim untimely under ORS 12.080(1).  The court observed that plaintiffs may nonetheless state a valid negligence claim it they can allege a breach of a standard independent of the terms of the contract.  Plaintiffs identified such a standard in the Building Code, and asserted that the purpose of that Code is to protect homeowners such as plaintiffs.  Based on the claim that the builder had caused damage to the home by violating the Building Code, the Oregon Court of Appeals reversed summary judgment for the builder and remanded the case for trial.

U.S. Supreme Court dismisses appeal of Oregon tobacco punitive damages award

Mayola Williams' products liability case has completed its third journey to the U.S. Supreme Court, as the Court today dismissed Philip Morris' appeal of a $79.5 million punitive damages award. 

Williams' husband died in 1997 of cancer after years of smoking cigarettes sold by Philip Morris USA.  A Multnomah County jury awarded to Williams $821,485.50 in compensatory damages for wrongful death (later reduced to $521,485) and $79.5 million in puntive damages against Philip Morris.  The trial judge reduced the punitive damages to $32 million, but the Oregon Court of Appeals reinstated the jury's award. 

The U.S. Supreme Court in two separate appeals directed the Oregon Supreme Court to reconsider whether the punitive damages were excessive under the Due Process Clause of the Constitution.  Last year the Oregon Supreme Court declined to reach the constitutional issue, affirming the punitive damages on state law procedural grounds.

Today's dismissal in Philip Morris USA v. Williams ends the U.S. Supreme Court's inquiry into whether the Oregon Supreme Court properly avoided the Due Process issue in its most recent decision.  The Court's order states it had "improvidently granted" review last June, and as a consequence the punitive damages verdict stands.

See our earlier coverage of the case here and here.

Oregon Court of Appeals approves 4-to-1 ratio for punitives in debt collection case

Earlier this month, the Oregon Court of Appeals approved a reduction of a jury's award of punitive damages for violation of the Oregon Unlawful Debt Collection Practices Act.  In Lithia Motors, Inc. v. Yovan, the jury found for the buyer of a used car on his unlawful debt collection claim against Lithia Motors.  The jury awarded to the buyer $500 in noneconomic damages for emotional injury, and $100,000 in punitive damages, making the ratio of punitive to compensatory damages 200 to 1.

The trial court judge reduced the punitive damages to $2,000, which is four times compensatory damages.  The trial court's action was affirmed by an equally divided Court of Appeals sitting en banc.  Judge Walter Edmonds wrote for the court, stating that the 4-to-1 ratio is consistent with the "general ceiling for puntive damages when the only harm is financial."

Judge Timothy Sercombe and Judge Rex Armstrong dissented, arguing that $2,000 in punitives was not enough to deter future wrongful conduct. 

See our coverage of Goddard v. Farmers Insurance, a 2008 Oregon Supreme Court opinion regarding punitive damages for economic harm, here. 

Ninth Circuit interprets Oregon's anti-SLAPP statute, dismisses appeal

Oregon is one of a number of states that have enacted "anti-SLAPP" statutes designed to prevent certain types of abusive lawsuits.  SLAPP stands for "strategic lawsuit against public participation," and the anti-SLAPP statute creates a procedure for dismissing at an early stage a lawsuit designed to quash speech or activism on issues of public interest.  The procedure, called a "special motion to strike," puts the litigation on hold until a judge decides that there is a probablility plaintiff will prevail at trial.  ORS 31.150.

The Ninth Circuit last week addressed whether the a defendant can pursue an immediate appeal when the trial court denies a special motion to strike and determines that the lawsuit attacking defendant's speech must proceed to trial.  In Englert v. MacDonell, "the complaint alleged that the six named defendants, all forensic scientists in blood pattern analysis, had falsely denigrated plaintiff's qualifications in that specialty."  Defendants used Oregon's anti-SLAPP statute to ask the district court to dismiss the claims at an early stage.  The court denied the special motion to strike as to four of the six defendants, and those parties filed an immediate appeal to the Ninth Circuit.  The Ninth Circuit found in the anti-SLAPP statute no legislative intent to allow appeal of a denial of a special motion to strike before entry of judgment.  As a result, the court dismissed the appeal for lack of jurisidiction.

U.S. Supreme Court again wrestles with Oregon punitive damages verdict

When it agreed to review the judgment in Philp Morris v. Williams for a third time, the U.S. Supreme Court asked whether the Oregon Supreme Court properly affirmed the punitive damages based on a state law defect in Philip Morris's proposed jury instructions.  Accounts of yesterday's oral argument indicate the justices are concerned that the Oregon court affirmed the judgment by applying state procedural rules in lieu of analyzing whether the damages were excessive under the federal Due Process Clause, as the Court had signalled in remanding the case in 2007. 

But by the end of yesterday's oral argument, it appeared that the Court may abandon the procedural question, and proceed directly to the ultimate issue:  did the $79.5 million award violate Philip Morris's due process rights?  Chief Justice John Roberts's suggestion that the Court may request additional briefing on the constitutional issue could mean no prompt ending to this 10-year-old litigation.

See this account of the hearing from the SCOTUS blog, and this from The Oregonian.  See our earlier coverage of the case here.

U.S. Supreme Court to hear argument in Oregon punitive damages case

On Wednesday, the U.S. Supreme Court will hear oral argument in an appeal from the Oregon Supreme Court.  In Philip Morris USA, Inc. v. Williams, a Multnomah County jury awarded $79.5 million in punitive damages -- equal to 97 times compensatory damages -- to the widow of a smoker.  This is the third time the U.S. Supreme Court has considered the case; at issue now is whether the Oregon Supreme Court properly upheld the award based on a state procedural rule, instead of applying federal due process standards.

See our earlier coverage of the case here and here.  And see a preview of the argument from Cornell University Law School's Legal Information Institute here.

Oregon Court of Appeals finds landlord not liable for assault by tenant

Last week in Miller v. Tabor West Investment Co., LLC et al., the Oregon Court of Appeals held that a landlord is not liable under a theory of negligence for an off-premises assault committed by one tenant upon another tenant because the assault was not reasonably foreseeable.

The case involved an assault committed by a tenant who the defendant apartment complex owners and property managers knew had past history of violence.  The Court of Appeals analyzed the standards for a negligence claim within the context of a landlord-tenant relationship.  Although noting that a landlord can owe a special duty of care to a tenant, the Court of Appeals stated that "the scope of that particular duty in that particular relationship turns out to be limited to harms to plaintiff that were reasonably foreseeable."  Because the landlord did not know of a risk of the particular type of harm that befell plaintiff, the landlord was not liable.