Development Law Group Update: Recent Oregon Court of Appeals Case Resolves Statute of Limitations Issues in Construction Defect Cases

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The Oregon Court of Appeals recently issued a ruling in the case of Waxman v. Waxman & Assoc., Inc. that resolves two significant issues regarding the statute of limitations in certain construction defect cases. First, the court ruled that where a plaintiff's claim is based upon breach of contract, the applicable statute of limitations is six years, not ten. And second, the court ruled that the six-year limitation period begins to run at the time of the breach (which will generally be at the time the work is completed), not at the time the breach is discovered.

The Waxman case was one of a series of claims that arose out of the construction of four connected row homes. Three sets of homeowners who had purchased their homes directly from the defendant builder/developer had pursued their claims in arbitration, as a result of an arbitration provision in the sale agreements. Loren Waxman and his co-owner (Pamela Vernon), however, were the second owners of their unit and therefore had no direct contractual relationship with the defendant. As a result, Waxman and Vernon were compelled to pursue their claims in state court.

Waxman and Vernon asserted claims against the builder/developer for both breach of contract and negligence. The builder/developer argued that the contract claims had expired under Oregon's six-year statute of limitations (ORS 12.080). Waxman and Vernon argued in response, first, that the applicable statute of limitations for construction defect claims is not six years but ten years (ORS 12.135) and, second, that even if the six-year statute applied, that statute incorporates a discovery rule that precluded the six-year period from commencing until they first learned about the defects.

The court rejected both of Waxman and Vernon's arguments, ruling, first, that the applicable statute of limitations for contract claims relating to construction defects is six years (ORS 12.080), not ten years (12.135) and, second, that the statute of limitations for contract claims does not incorporate a discovery rule but instead commences at the time of the breach. Both of these issues have been the subject of a great deal of confusion and uncertainty in recent years.

With respect to its ruling that ORS 12.080 does not incorporate a discovery rule, the court recognized an exception in cases of fraudulent concealment. Specifically, the court recognized that if the defendant fraudulently concealed the contract breach, the six-year period would not begin to run until the plaintiff discovered the breach or reasonably should have discovered it. While the extent to which this exception will be used remains to be seen, it is certainly possible that it will lead to allegations in future litigation that latent construction defects of which the contractor should have been aware were fraudulently concealed and therefore subject to a discovery rule.

The six-year limitation period will not apply to all construction defect claims, but only to those that are based upon breach of contract. In some cases, owners who purchased their property directly from the builder or developer may be limited to breach of contract claims and subject to the six-year limitation period, because the availability of tort claims is uncertain under Oregon law. Such owners, however, will likely be able to pursue tort claims against other parties with whom they did not have a contractual relationship, such as subcontractors, in which case their claims would be subject to a two-year statute of limitations, but also subject to a discovery rule. Likewise, owners who purchased their properties from prior owners and not directly from the builder or developer may also be able to pursue tort claims against the builder or developer.

The Waxman ruling is certainly good news for builders, because it confirms the position they have been taking on Oregon's statute of limitations in construction defect cases. At the same time, though, it likely raises at least one significant new issue for litigation.

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