S054549, Opinion — Harris v. Suniga

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Argued and submitted September 10, 2007, decision of Court of Appeals affirmed;
judgment of circuit court reversed, and case remanded to circuit court for further
proceedings March 20, 2008

Charles HARRIS
and Kary A. Harris,
co-trustees of the Harris Family Trust,
Respondents on Review,
v.
George R. SUNIGA
and George R. Suniga, Inc.,
an Oregon corporation,
Petitioners on Review.

George R. SUNIGA
and George R. Suniga, Inc.,
an Oregon corporation,
Third-Party Plaintiffs,
v.
HARVEY CAIN CONSTRUCTION, INC.,
an Oregon corporation;
Color Flow Painting, Inc .;
Paul Allport,
dba Triple J Remodeling and Roofing;
and Scott A. Boyd,
dba Boyd's Painting,
Third-Party Defendants.
(CC 03C16648; CA A125316; SC S054549)
180 P3d 12

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On review from the Court of Appeals .*

Norman R. Hill, Webb, Martinis & Hill, Salem, argued the
cause and filed the briefs for respondents on review.

Thomas M. Christ, Cosgrave Vergeer Kester LLP,
Portland, argued the cause and filed the brief's for petitioners
on review.

Frederic E. Cann, Cann Lawyers, Portland, submitted a
brief on behalf of amicus curiae Northridge Remodeling
Company.

Stan Austin, Miller Nash, LLP, Bend, submitted a brief on
behalf of amici curiae the American Council of Engineering
Companies, ACEC Oregon, AFSE/The Best People on Earth,
the Professional Engineers of Oregon, the Oregon section of
the American Society of Civil Engineers, and the National
Society of Professional Engineers.

David F. Rees and Joshua L. Ross, Stoll Stoll Berne
Lokting & Shlachter P.C., Portland, submitted a brief on
behalf of amicus curiae Oregon Trial Lawyers Association.

A. Richard Vial and Christopher M. Tingey, Vial
Fotheringham LLP, Portland, submitted a brief on behalf of
amicus curiae Community Associations Institute-Oregon.

\* Appeal from Marion County Circuit Court, Thomas M. Hart, Judge. 209 Or
App 410, 149 P3d 224 (2006).

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Dean E. Aldrich, J. Lee Street, and Adele Ridenour, The
Aldrich Law Office, P.C., Portland, submitted a brief on
behalf of amici curiae Community Action Organization of
Washington County; Farmworker Housing Development
Corporation; Mississippi Overlook, LLC; Murrey R. and
Joann D. Albers; Association of Unit Owners of Hilltop
Condominiums at Uptown; Archival Properties, LLC;
Michael and Deanne Fahy Price; Association of Unit Owners
of the Linden Village Condominiums; Dennis O. and
Kathleen McCarney Mayer; Lon and Charlene Paulson; and
Barry and Alyssa Engle.

Phillip E. Joseph, James C. Prichard, and Robert W.
Wilkinson, Ball Janik LLP, Portland, submitted a brief on
behalf of amici curiae Daniel and Stephanie Harmond and
Brian and Janet Mattson.

Before De Muniz, Chief Justice, and Durham, Balmer,
Kistler, Walters, and Linder, Justices .**

BALMER, J.

The decision of the Court of Appeals is affirmed. The judg-
ment of the circuit court is reversed, and the case is
remanded to the circuit court for further proceedings.

** Gillette, J., did not participate in the consideration or decision of this case.

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BALMER, J.

This tort case requires us to determine the scope of
the "economic loss" doctrine. That doctrine bars a party that
has suffered a purely economic loss from bringing a negli-
gence action against the party that caused the loss, unless
there is a special relationship between the parties. Plaintiffs
are trustees of a trust that purchased an apartment building
that plaintiffs alleged had been negligently constructed by
defendants. Defendants had built the apartment building for
an investment company, which later sold it to plaintiffs.
Plaintiffs alleged that they were harmed by defendants'
negligence in constructing the building, and defendants
responded by asserting that plaintiffs' claim was for a purely
economic loss and therefore could not be brought in the
absence of a special relationship between defendants and
plaintiffs. The trial court granted summary judgment for
defendants. On appeal, the Court of Appeals reversed, agree-
ing with plaintiffs that their claim was based on damage to
their property and therefore was not barred by the economic
loss doctrine. Harris v. Suniga, 209 Or App 410, 149 P3d 224
(2006). For the reasons described below, we affirm the deci-
sion of the Court of Appeals.

The relevant facts are undisputed, and we take them
from the Court of Appeals opinion and the summary judg-
ment record. Defendants were the general contractors for the
construction of an apartment building in Salem, which they
built for a California investment company. In 2002, the
California investment company sold the apartment building
to the Harris Family Trust, of which plaintiffs are the trus-
tees. Shortly after the purchase, plaintiffs discovered what
they allege to be defects in the construction of the building,
including defendants' failure to install required flashings on
various parts of the building. Because of those defects, plain-
tiffs claim, water has leaked into the building, causing dry rot
and requiring extensive repairs. Plaintiffs brought this
action, alleging that defendants were negligent in construct-
ing the building and seeking recovery of the $376,000
required to repair the building.

Defendants answered, denying plaintiffs' claims and
asserting various affirmative defenses. Defendants then

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moved for summary judgment arguing, among other things,
that plaintiffs' claim was barred by the economic loss doc-
trine. Defendants asserted that the damage to the apartment
building was an investment loss for plaintiff's. In defendants'
view, whether the loss was characterized as a reduction in
the value of plaintiff's' investment in the building or as the
difference between what plaintiffs actually paid for the build-
ing and what they would have paid had they known the true
condition of the building, plaintiffs' loss was purely economic.
Accordingly, defendants claimed, Oregon law barred plain-
tiffs from asserting a negligence claim against defendants, in
the absence of a special relationship between the parties.

As noted, the trial court agreed with defendants and
granted their motion for summary judgment, but the Court of
Appeals reversed. The Court of Appeals began by recognizing
both "the general rule that all persons are liable in negligence
if their conduct unreasonably creates a foreseeable risk of
harm to others" and the existence of various "exceptions" to
that general rule. 209 Or App at 415. One of those exceptions,
the court noted, was claims for economic losses-" 'financial
losses such as indebtedness incurred and return of monies
paid' "-which Oregon case law had contrasted with "dam-
ages for injury to person or property." 209 Or App at 418
(quoting Onita Pacific Corp. v. Trustees of Bronson, 315 Or
149, 159 n 6, 843 P2d 890 (1992)). The issue, then, was
whether plaintiffs' damages for the dry rot allegedly caused
by defendants' negligent construction was an "economic loss"
or was, instead, "injury to property."

The Court of Appeals then looked to Newman v.
Tualatin Development Co. Inc., 287 Or 47, 597 P2d 800
(1979), where this court had held that a class of townhouse
owners who had alleged negligent construction of their units
could recover from the builder even though the owners were
not in privity with the builder. Although the issue before this
court in Newman had been class certification, rather than the
merits of the plaintiffs' claims, the Court of Appeals noted
that the nonprivity plaintiffs in that case were in the same
position as plaintiffs here, and this court had stated that
" 'the nonprivity owners can prevail if they [can] prove the
defendant was negligent.'" Harris, 209 Or App at 419 (quot-
ing Newman, 287 Or at 52). The Court of Appeals concluded

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that the kind of losses alleged by plaintiffs here, like those
alleged by the plaintiffs in Newman, were not the kind of eco-
nomic losses barred by the economic loss doctrine and there-
fore reversed the trial court's grant of summary judgment.
Defendants filed a petition for review, which we allowed.

The parties agree that, under Oregon common law, a
person whose negligent conduct unreasonably creates a fore-
seeable risk of harm to others and causes injury to another
ordinarily is liable in damages for that injury. See Bailey v.
Lewis Farm, Inc., 343 Or 276, 286-87, 171 P3d 336 (2007)
(illustrating rule). The parties also agree that Oregon cases
have identified, as an exception to that general rule, claims
for economic losses, as opposed to claims for damages for
injury to person or property. See Fazzolari v. Portland School
Dist. No. 1J, 303 Or 1, 7, 734 P2d 1326 (1987) (identifying
claims for "economic" injuries as exception to general rule
permitting recovery for injuries caused by another's negli-
gence). The parties' disagreement focuses on the appropriate
scope and application of the economic loss doctrine.

Before turning to the parties' specific arguments, we
briefly review the development of the economic loss doctrine
in Oregon.1 Defendants argued that the doctrine was first
recognized in 1992, in Onita Pacific Corp. In fact, this court
has recognized the substance (although not the label) of the
economic loss doctrine at least since Snow v. West, 250 Or
114, 440 P2d 864 (1968), where the court held that an
employer could not maintain an action against a third person
for loss of services of an employee whose death was caused by
the third person's negligence. The court noted that financial
losses caused by a third person's intentional conduct might be
the basis for liability, but that liability for such losses could
not be premised on negligence. Id. at 116-17. In later cases,
this court explained the reasons for its adoption of the eco-
nomic loss doctrine, noting that permitting the recovery of all
economic losses caused by a person's negligence would have

1 On the economic loss doctrine generally, see Fleming James, Jr., Limitations
on Liability for Economic Loss Caused by Negligence: A Pragmatic Appraisal, 25
Vanderbilt L Rev 43 (1972), and Fowler V. Harper, Fleming James, Jr., and Oscar
S. Gray, 4 Harper, James and Gray on Torts § 25.18A (3d ed 2007).

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the potential ofleading to "limitless recoveries and * * * ruin-
ous consequences," Ore-Ida Foods v. Indian Head, 290 Or
909, 917, 627 P2d 469 (1980), and quoting Judge Cardozo's
statement from Ultramares Corp. v. Touche, 255 NY 170,
179, 174 NE 441 (1931), that allowing recovery in negligence
for economic losses unrelated to injury to person or property
could lead to "'liability in an indeterminate amount for an
indeterminate time to an indeterminate class.'" Duyck v.
Tualatin Valley Irrigation Dist., 304 Or 151, 157, 742 P2d
1176 (1987) (quoting Ultramares) (emphasis in Duyck).2

In Hale v. Groce, 304 Or 281, 284, 744 P2d 1289
(1987), the court stated the rule clearly: "[O]ne ordinarily is
not liable for negligently causing a stranger's purely eco-
nomic loss without injuring his person or property." For a
plaintiff to recover in those circumstances, the plaintiff would
have to show "[s]ome source of duty outside the common law
of negligence," id., such as a special relationship or status
that imposed a duty on the defendant beyond the common-
law negligence standard. See Onita Pacific Corp., 315 Or at
159-66 (stating and applying rule in context of claim for neg-
ligent misrepresentation).

Here, plaintiffs do not base their claim on a special
relationship or status or on any contract with defendants, but
rather seek to recover in negligence on the grounds that
defendants' negligence resulted in foreseeable damage to
their property. Defendants' central argument in response is
that plaintiffs' loss is "purely economic." Defendants point
out that plaintiffs are "strangers" to defendants in the same
sense that this court used that term in Hale because plain-
tiffs did not purchase the building from defendants, contract
with defendants, or have any other relationship with defen-
dants.3 If defendants' negligence harmed anyone's property,

2 In offering that justification for the economic loss doctrine, this court's deci-
sions are consistent with those of most other American and British courts. As
Professor James points out, however, tort rules that permit recovery for injury to
person or property because of a single negligent act also can result in the sort of
limitless liability to which Judge Cardozo referred, as demonstrated by the fires
that destroyed London and Chicago in years past. James, 25 Vanderbilt L Rev at
50.

3 Amici curiae Harmond and Mattson assert that the economic loss doctrine is
actually two distinct concepts: a "contractual expectations doctrine" that protects
the expectations and obligations of contracting parties from being modified by tort

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defendants argue, that person was the initial owner of the
property, the person for whom defendants constructed the
building: "[T]he damage was not to plaintiffs' property, but to
the property of the original owner." (Emphasis in original.)
Even if defendants were negligent in constructing the build-
ing, the argument goes, their negligence occurred before
plaintiff bought the property, and, if plaintiffs suffered any
injury because of defendants' negligence, it was because they
inadequately had inspected the property before they bought
it and paid the seller more for it than they should have.
According to defendants, plaintiffs' loss, at most, was an
investment loss.

Defendants' argument has some logical appeal.
Plaintiffs allege that the cost to repair the dry rot caused by
defendants' negligence is $376,000. If, when plaintiffs pur-
chased the property, they had been aware of the negligent
construction and existing and increasing dry rot, presumably
they would not have been willing to pay the price they did,
but only an amount $376,000 less than that price. In that
sense, the loss that plaintiffs suffered is simply the difference
between the price that they paid for this investment asset
and the price that they would have paid had they known the
actual condition of the asset. Such an investment loss is a
purely "economic loss," and persons who suffer those kinds of
losses cannot recover damages in negligence unless they can
prove a special relationship or duty beyond the common-law
duty to exercise reasonable care to prevent foreseeable harm.
Oregon Steel Mills, Inc. v. Coopers & Lybrand, LLP, 336 Or
329, 341, 83 P3d 322 (2004) (articulating and applying stan-
dard in negligence case seeking damages related to decline in
stock price). Moreover, plaintiffs purchased the apartment
building at issue here as an investment, rather than as a res-
idence, arguably making it more appropriate to view this dis-
pute over the value of the building as involving a purely
financial matter.

law principles and a "foreseeability" rule that limits a defendant's liability for the
economic losses that its conduct may cause to remote plaintiffs. We do not neces-
sarily accept amici's characterization of the economic loss doctrine, but we do agree
that the absence of any contract between plaintiffs and defendants in this case
means that the focus of our analysis is on defendants' potential liability to a plain-
tiff with whom defendants have no direct relationship.

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Defendants' theory, however, proves too much.
Every physical injury to property can be characterized as a
species of "economic loss" for the property owner, because
every injury diminishes the financial value of the property
owner's assets. Damage to a car reduces the value of the
car-one of the owner's assets. A tree falling on a person's
residence is damage to property, but also can be character-
ized as a financial loss because it reduces the value of the res-
idence, which the owner may properly view as an asset or
financial investment as well as a residence. Yet the law ordi-
narily allows the owner of the damaged car or residence to
recover in negligence from the person who caused the dam-
age. In Onita Pacific Corp., this court used the term "eco-
nomic losses" to describe "financial losses such as indebted-
ness incurred and return of monies paid, as distinguished
from damages for injury to person or property." 315 Or at 159
n 6 (emphasis added). That definition did not purport to be
comprehensive, but it plainly indicated that the court was
adhering to the distinction that had developed in the common
law between "purely economic losses," on the one hand, and
damages for physical injuries to person or property, on the
other. The logic of defendants' position would eliminate that
distinction.4

Here, plaintiffs seek recovery because defendants'
negligence caused dry rot in the apartment building that
plaintiffs own. The allegations in the complaint are thus
quite different from the kinds of damages that this court has
characterized as "economic losses" in other cases-the
reduced stock price in Oregon Steel Mills, the monetary gift to
a beneficiary in Hale, or the "indebtedness incurred or return
of monies paid" in Onita Pacific Corp. Plaintiffs here seek
recovery for physical damage to their real property, and this

4 That is not to say that defendants' argument does not expose tensions within
the economic loss doctrine as it has developed. As the Court of Appeals noted, fol-
lowing Professor James, the reasons for the different treatment of indirect eco-
nomic loss and physical damage " 'do not derive from the theory or the logic of tort
law.'" Harris, 209 Or App at 422 (quoting James, 25 Vanderbilt L Rev at 44).
Professor James identifies a "pragmatic objection" to recovery for economic losses
that supports the common-law economic loss doctrine, but he also describes the
limits of that objection and therefore the limits of the scope of the economic loss
doctrine. 25 Vanderbilt L Rev at 48-58.

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court's cases generally permit a property owner to recover in
negligence for damages of that kind.

As noted, defendants also argue that, even if the dry
rot could be characterized as "property damage" with respect
to the person for whom defendants built the apartment build-
ing, it was not damage to plaintiffs' property, because plain-
tiffs purchased the property long after any negligent act by
defendants. Any damage to plaintiffs, defendants maintain,
was purely economic. Plaintiffs respond that this court
addressed that issue in Newman, when it held that a class of
townhouse owners could maintain a negligence action
against the builder of the townhouses, even though they had
not purchased the townhouses directly from the builder. In
Newman, the trial court certified a class of owners that had
purchased directly from the builder but declined to certify a
class of subsequent buyers, the "nonprivity owners." Both
rulings were appealed. This court affirmed certification of the
class of privity owners and reversed the trial court's decision
not to certify the class of nonprivity owners, stating, "We hold
the nonprivity owners can prevail if they can prove the defen-
dant was negligent." 287 Or at 52. Plaintiffs argue that
Newman is directly on point and supports their view that a
building owner can bring a negligence action against the
builder, even if the owner did not own the building at the
time of the builder's negligence. In defendants' view,
Newman dealt only with class certification and whether lack
of privity could be a defense to a negligent construction
claim-and not with the economic loss doctrine, which,
defendants assert, had not yet been established in Oregon.

Defendants are correct that Newman did not discuss
the economic loss doctrine by name. The facts of the case,
however, are almost identical to those here, and the neces-
sary implication of Newman, as the Court of Appeals recog-
nized, is that the economic loss doctrine did not bar the plain-
tiffs' claims. The plaintiffs in Newman sought damages from
the builder for the cost of the repair and replacement of gal-
vanized water pipes that were deteriorating, alleging negli-
gence and breach of warranty. 287 Or at 49. As discussed
above, although this court had recognized the substance of
the economic loss doctrine a decade earlier, the court did not
view that concept as barring a negligence action against the

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builder by a subsequent purchaser. The only conclusion that
one can draw from Newman is that this court considered the
nonprivity owners' damage claim there-like plaintiffs' dam-
age claim here-to be property damage that could provide
the basis for a negligence action, rather than a purely eco-
nomic loss for which defendants could not be liable, absent a
special relationship with the plaintiffs. If we were to accept
defendants' argument, we would have to overrule Newman.
We decline to do so.

This case, like Newman, also illustrates whythe con-
cerns that underlie the economic loss doctrine are not impli-
cated when, as here, the focus of the claimed negligence is on
physical damage to property. As discussed above, this court
has identified the potentially limitless economic impacts of
negligent conduct as the reason for barring claims for eco-
nomic losses. That concern, however, is rarely present when
the claim is for physical damage to real or other tangible
property. Unlike economic losses to third parties, which can
be indeterminate and potentially unlimited, physical damage
to property ordinarily can be ascertained, assessed, and paid.
Once a party has paid damages related to the physical injury
to property caused by its negligence, its liability is at an end.
Plaintiffs do not assert-and, indeed, affirmatively reject-
the idea that defendants can or should be liable to more than
one subsequent purchaser for the same damage to property.
As plaintiffs put it, "The builder can only be liable for the
physical damages his negligence causes. Those damages can
never be more than the costs of repairing the building or
damage to a particular physical item."

Defendants posit various hypothetical situations in
which a defendant that negligently damaged property would
have to pay each successive owner of the property for that
same damage, resulting in liability "unlimited in both time
and amount." Defendants' concerns are exaggerated. In our
view, doctrines such as claim preclusion, contribution, com-
parative fault, and mitigation of damages will be available in
appropriate circumstances to avoid the obvious unfairness of
subjecting a defendant to repeated lawsuits seeking recovery
for the same negligent act and the same property damage.5

" In suggesting that defendants' concerns may be overstated, we do not claim
that they are completely unfounded. Certainly, the cost of defending possible

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Several amici aligned with defendants argue that,
because the original purchaser could bring only a contract,
and not a negligence, action against the builder, to allow
plaintiffs to maintain a negligence action here would lead to
the anomalous result that a subsequent purchaser of the
property would have "more" rights against the builder than
the person for whom the builder constructed the building.
They also assert, more generally, that a builder's obligations
and the scope of its liability are better addressed through
contractual terms, rather than post hoc litigation. Amici
aligned with plaintiffs, in contrast, ask us to hold that an ini-
tial purchaser that has a contract with a builder may bring a
negligence claim against the builder in addition to a contract
claim and without alleging a special relationship. We decline
to address those issues. Certainly, contracts between build-
ers and initial purchasers (and between initial purchasers
and subsequent purchasers) play a critical role in determin-
ing legal rights and liabilities, and contractual negotiations
are a preferred method of establishing parties' respective
obligations. This case, however, does not involve a contract,
nor is it an action by an initial purchaser against a builder,
and the arguments the various amici advance, while impor-
tant and interesting, simply go beyond what is at issue here.

The decision of the Court of Appeals is affirmed. The
judgment of the circuit court is reversed, and the case is
remanded to the circuit court for further proceedings.

claims by successor purchasers, the complexity of construction litigation generally,
and the need to protect contractual expectations, require the courts to exercise care
in ensuring that builders are not subjected to multiple recoveries for their negli-
gence. Professor Jones, for example, argues that the right balance will be struck if
builders are held liable to subsequent purchasers on the theory that the initial pur-
chaser assigned to the subsequent purchaser the builder's implied warranty of
good workmanship. William K. Jones, Economic Losses Caused by Construction
Deficiencies: The Competing Regimes of Contract and Tort, 59 U Cin L Rev 1051,
1077-83 (1991). In his view, the "vague contours of negligence doctrine" make itill-
suited as a theory for a subsequent purchaser's claim against a builder. Id. at 1082.
Suffice it to say that the complaint in this case alleged negligence, not breach of
warranty, and our prior cases support the result that we reach.