Construction Defects - HOA
Oregon Court Denies HOA’s Effort to Proceed Against Subcontractors for Construction Defect
Traub Lieberman Straus & Shrewsberry LLP
December 17, 2014
In Liberty Oaks Homeowner’s Ass’n v. Liberty Oaks, LLC, 2014 Ore. App. LEXIS 1696, the Liberty Oaks Homeowners’ Association (“HOA”) sued the developers of townhomes, alleging that they were responsible for construction defects in the townhouse community. The Developers filed a third-party action against certain subcontractors for “contribution” and “indemnification.”
The trial court granted summary judgment in favor of the developers on the ground that the HOA’s action was barred by the statute of limitations. The court also granted summary judgment in favor of the subcontractors, dismissing the developer’s third party action. The HOA appealed the judgment and the developers appealed with respect to their claims against the subcontractors.
For reasons not explained in the court’s decision, while the appeals were pending the developers settled with the HOA and, as a condition of the settlement, the developers assigned their claims for contribution and indemnification against the subcontractors to the HOA. As such, the HOA sought to prosecute the developers’ appeal as against the subcontractors. However, after settling with the developers the HOA dismissed its appeal as against the developers, thus leaving intact the judgment that dismissed the HOA’s complaint against the developers.
The subcontractors argued that the appeal being prosecuted by the HOA (i.e. the developers’ appeal of the judgment in favor of the subcontractors) was moot in light of the fact that the HOA’s claims against the developers had been dismissed. Thus, the subcontractors argued that there was no longer a basis to impose liability in the third-party complaint as the third-party action was completely “derivative” of the claims asserted against the developers, which had been dismissed. In response, the HOA argued that its settlement agreement with the developers allocated settlement amounts to the subcontractors and, therefore, liability of the subcontractors remained at issue.
In agreeing with the subcontractors, the Court of Appeals determined that dismissal of the HOA’s primary complaint established as a matter of law that the developers were not liable to the HOA on the claims alleged in the complaint. The judgment dismissing the HOA’s primary complaint demonstrated that the developers were not liable to the HOA and the parties’ settlement did not result in reversal or vacation of the judgment. “[B]ecause the judgment dismissing the primary complaint establish[ed] that developers [were] not liable to the HOA on the claims alleged in the primary complaint, the derivative claims alleged in the third-party complaint [were] moot,” as was the appeal.
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