Forsythe v. Homestead Development Corp.

919 P.2d 537, 142 Or. App. 45, 1996 Ore. App. LEXIS 840
CourtCourt of Appeals of Oregon
DecidedJuly 3, 1996
DocketC921063CV; CA A86318
StatusPublished
Cited by2 cases

This text of 919 P.2d 537 (Forsythe v. Homestead Development Corp.) is published on Counsel Stack Legal Research, covering Court of Appeals of Oregon primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Forsythe v. Homestead Development Corp., 919 P.2d 537, 142 Or. App. 45, 1996 Ore. App. LEXIS 840 (Or. Ct. App. 1996).

Opinion

DE MUNIZ, J.

This is an appeal from a judgment in a mechanic’s lien foreclosure action filed by plaintiff Forsythe against, inter alia, appellant Precision Excavating, Inc. (Precision) and respondent Homestead Development Corporation (Homestead).1 We affirm in part and reverse in part.

Homestead is a developer of small subdivisions. Precision is an excavating company. Forsythe was an employee of Precision. In May 1992, Precision and Homestead entered into a contract for Precision to work on a subdivision in Hillsboro. In November 1992, after completion of the job, Forsythe filed a construction lien for $18,793.90. After the lien was filed, Precision’s counsel, Berman, wrote Homestead’s counsel, Corrigan, acknowledging the lien and stating that, “if suit is filed, Precision Excavating, Inc. will defend Homestead Development Corp.” In late November, Forsythe filed this action against Precision and Homestead for “Foreclosure of Mechanics Lien.”

After the action was filed, Homestead tendered defense to Precision pursuant to ORS 87.070.2 Berman responded that, before accepting tenders of defense, he needed to know that there was no conflict between Precision and Homestead because of amounts that Precision claimed Homestead still owed. An exchange of correspondence followed in which Homestead continued to demand that Precision accept the defense, and Precision continued to press for an accounting.

Although there was no resolution of the amount due from Homestead to Precision, in February 1993, Precision filed an answer to Forsythe’s complaint in which Precision accepted the tender of defense on behalf of Homestead.3 However, Precision also included in the answer a cross-claim [49]*49against Homestead for $8,563 that Precision claimed that Homestead had not paid.

The dispute over payment continued. On July 6, Berman wrote Corrigan that Precision was defending the lien claim and that Berman did not “perceive any actual or potential conflict.” However, if Corrigan did, “he is welcome to take over the defense of Homestead Development with regard to the lien.” Meanwhile, the case was assigned to arbitration for August 27. ORS 36.400 et seq. On August 13, Berman sent a letter to Corrigan requiring that $8,500 be put into Berman’s trust account to be used first to satisfy any lien ultimately recovered and any remaining funds to be disbursed to Precision. Berman stated that if that arrangement was not acceptable, then Corrigan “should plan on participating in the arbitration [.]” On August 17, Corrigan responded that he and his firm were “now representing Homestead Development for all purposes” in the litigation.

Homestead did not file an answer to Forsythe’s complaint but did file an answer and cross-claim in response to Precision’s cross-claim. Homestead alleged:

“Defendant Precision is obligated to defend Homestead against plaintiffs claim under common law indemnification principles and pursuant to ORS 87.070. By filing its cross-claim against Homestead in this action, defendant Precision has created an untenable conflict of interest, forcing Homestead to choose between proceeding with counsel who at the same time is representing a cross-claim adversary, or to obtain its own independent counsel resulting in Precision’s violation of its duty to defend Homestead, all resulting in damages to defendant Homestead in an amount to be determined at trial, including but not limited to, Homestead’s attorney fees incurred herein.
“WHEREFORE, Homestead prays that Precision’s cross-claim be dismissed, for judgment against Precision in Homestead’s cross-claim, and for an award of attorney fees, costs and disbursements.”

[50]*50At arbitration, the arbitrator resolved Forsythe’s claims against him and held that Precision was owed $9,641 on its cross-claim and that Homestead was not entitled to recover attorney fees. Homestead sought a trial de novo of the cross-claim award in the circuit court.4 The trial court found that Precision was obligated to defend Homestead, which “had the right to expect and receive the undivided loyalty of [Berman] in representing it on the tender of defense,” and that, when Precision filed the cross-claim against Homestead, Homestead was “more than justified” in retaining independent counsel. The court then held:

“(1) Precision is entitled to prevail on its cross-claim in the sum of $7,768.59.
“(2) Homestead is entitled to prevail on its cross-claim against Precision in the sum of $5,380.65.
“(3) Homestead is entitled to recover attorney fees and costs in this proceeding!.]”

Precision’s first two assignments of error challenge the court’s findings that provide the basis on which it awarded Homestead attorney fees on its cross-claim. We consider the assignments together. ORAP 5.45(6). We review findings of historical fact to determine whether there is evidence to support them, Illingworth v. Bushong, 297 Or 675, 694, 688 P2d 379 (1984), and legal conclusions for errors of law. Bernard v. First Nat’l Bank, 275 Or 145, 153, 550 P2d 1203 (1976).

Precision first argues that the court erred in finding that Precision was obligated to defend Homestead and in failing to recognize that Berman only had an attorney-client relationship with Precision, not with Homestead. Precision’s second assignment of error argues that the court erred in finding that Precision’s acceptance was conditional and that Homestead was justified in retaining independent counsel when the cross-claim was filed.

Precision first argues that the court erred in finding that it was obligated to defend Homestead on either statutory [51]*51or common-law grounds. Precision acknowledges that, under ORS 87.070, a contractor is required to defend an action brought on a lien at the expense of the contractor, but it contends the allegations of Forsythe’s complaint were “grossly insufficient” to state a claim for lien foreclosure. See Anderson et al. v. Chambliss et ux., 199 Or 400, 408, 262 P2d 298 (1953) (party claiming mechanic’s lien must show in his complaint substantial compliance with requirements of statute). It argues that it could not tell from the complaint that Forsythe was pleading a lien foreclosure.

Even if Forsythe’s complaint was subject to attack because it was not properly pleaded (an attack that Precision indeed made by affirmative defense), or could be successfully defended against (which occurred), we reject Precision’s contention that it was not possible to tell that Forsythe’s pleading was an attempt to foreclose his lien. The complaint was titled “Foreclosure of Mechanic’s Lien” and alleged unpaid wages, nonpayment for rental equipment and nonreimbursement for fuel.

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Bluebook (online)
919 P.2d 537, 142 Or. App. 45, 1996 Ore. App. LEXIS 840, Counsel Stack Legal Research, https://law.counselstack.com/opinion/forsythe-v-homestead-development-corp-orctapp-1996.