A Right to Fees When Tort Claims “Arise Out Of” the Contract2020-04-23T00:25:22+00:00
11.05.2013 // CONSTRUCTION LAW WATCH
A Right to Fees When Tort Claims “Arise Out Of” the Contract

Many people are familiar with the “American rule” for attorneys’ fees in a lawsuit: Attorneys’ fees are available to a prevailing party in a lawsuit only when expressly authorized by contract or statute.[1] In other words, each party to a lawsuit will pay its own attorneys’ fees incurred in the lawsuit – absent a contract or statute authorizing an award of attorneys’ fees to the prevailing party.

In many construction lawsuits, there is no statute that would allow for attorneys’ fees, but there is often a contract between the parties that does award prevailing party attorneys’ fees. Breach of contract claims, however, operate under Oregon’s six-year statute of limitations (if not earlier depending on the terms of the contract) that starts running upon breach, not upon discovery of the breach of contract. Just because a contract-based claim might be time-barred by the statute of limitations does not necessarily mean that there cannot be litigation between the parties, however. Under Oregon law, tort liability may arise from conduct that is also a breach of contract, provided the tort liability is predicated on a duty independent from the contractual duty.[2] The classic example is compliance with building codes. Under Oregon law, a contractor’s duty to comply with building codes is independent from any duty of workmanship contained in the contract.[3]

It is possible, therefore, that a party to a time-barred contract may still have a tort claim such as negligence. In those instances, the question arises as to whether the attorneys’ fee provision in the contract applies to the tort claim. Oregon case law suggests that a broadly worded prevailing party fee provision in a contract may support a right to recover attorneys’ fees for tort claims that “arise out of” or “relate to” the contract.

For example, in Meduri Farms, Inc. v. Robert Jahn Corp.[4] a clause in an orchard lease authorized an award of fees to the prevailing party “[i]f suit or action is instituted in connection with any controversy arising out of this lease.” A dispute arose between the plaintiff-tenant and the defendant-landlord and the tenant sought to enjoin the landlord from interfering with the operations of the orchard. The landlord counter-claimed, asserting, among other claims, a fraud claim. The tenant prevailed on the fraud claim and was awarded its attorneys’ fees under the terms of the lease. The Oregon Court of Appeals upheld an award of fees to the plaintiff because the fraud claim, albeit a tort claim, nevertheless arose out of the lease.

By contrast, in Zidell v. Greenway Landing Dev. Co.[5] the Oregon Court of Appeals refused to grant fees, but its rationale is consistent with Meduri Farms in that the analysis depended on the actual wording of the fee provision in question. In Zidell, the plaintiff sued the defendant for construction defects in an unfinished condominium unit. The plaintiff alleged the following contract and tort claims: (1) breach of an express warranty regarding defects in the construction, materials and workmanship; (2) fraudulent misrepresentation; (3) unlawful trade practice for non-disclosure of defects; (4) negligent planning, development, and construction; and (5) breach of an oral contract. At trial, the jury found the defendant liable in negligence and breach of oral contract, but not on the other claims. The trial court awarded the plaintiff its attorneys’ fees and denied attorneys’ fees to the defendant. The defendant appealed. On appeal, the Court of Appeals observed that the fee provision at issue applied to the contract claim only. According to the Court of Appeals, “[t]he issue [of whether to award fees] turns on the interpretation of the attorney fees provision in the agreement.” The fee provision in the contract was “not as broad as” fee provisions the Court had previously interpreted to allow attorneys’ fees for tort claims that arise “in connection with” the contract such as Meduri Farms.

The lesson learned from Meduri Farms and Zidell is that the recoverability of attorneys’ fees in tort claims arising out of the performance of a contract hinges on how broadly the fee provision in the contract is worded. If the fee provision is specifically tailored to claims that seek to “enforce the contract” or if it applies only in the event of “breach of” or “default under” the contract, the fee provision probably only applies to breach of contract claims. Such a provision probably does not allow for recovery of attorneys’ fees for tort claims between the parties. Broadly-worded fee provisions that include phrases such as “arising out of” or “relating to” the contract, however, likely expand the right to recover fees, and should be applicable to non-contract claims such as negligence.

The bottom line is that attorneys’ fees might be recoverable for a tort claim like negligence if there is a contract between the parties with the right kind of attorneys’ fee provision.


[1] E.g., Swett v. Bradbury, 335 Or 378, 381 (2003).

[2] E.g., Abraham v. T. Henry Const., Inc., 350 Or 29, 39 (2011) (“[E]ven though the relationship between the parties arises out of the contract, the injured party may bring a claim for negligence if the other party is subject to a standard of care independent of the terms of the contract.”) (quoting <st2:policysmarttags.cwspolicytagaction_5>Georgetown Realty v. The Home Insurance Company, 313 Or 97 (1992)).

[3] Id.

[4] 120 Or App 40, 43 (1993).

[5] 89 Or App 525 (1988), overruled, in part, on other grounds by Newell v. Weston, 156 Or App 371 (1998) (court should do claim by claim analysis when awarding prevailing-party fees, not just look to one party that prevailed in the “action”).

ABOUT BALL JANIK LLP

Ball Janik LLP was founded in 1982 with six lawyers and a four-person support staff in Portland, Oregon. Since our firm’s inception, we have expanded our capabilities, our professionals, and geographic footprint. What started as a firm focused in real property and land use (known then as Ball Janik & Novack), has grown to include the insights of a team of 30-plus attorneys, with a combined six centuries of experience, and capabilities including Real Estate and Land Use, Construction Defect, Commercial Litigation, Insurance Recovery, Construction and Design, Employment, Finance and Corporate, Public Agencies and Schools, and Community Associations. With offices in Florida and Oregon, our regional growth has earned us a national reputation for upholding the rights of our clients.

Ball Janik LLP has been recognized by Chambers USA, U.S. News & World Report and Best Lawyers®, The Best Lawyers in America©, and Corporate International. Ball Janik LLP’s success and integrity have repeatedly made it one of “Oregon’s Most Admired Professional Firms,” according to the Portland Business Journal’s survey results of CEOs throughout the region.

Robert W. Wilkinson
Portland, Oregon
No Blog Tiles found.