Brownstone Homes Condominium Ass'n v. Brownstone Forest Heights, LLC

26 October 8, 2015 No. 38

IN THE SUPREME COURT OF THE

STATE OF OREGON

BROWNSTONE HOMES

CONDOMINIUM ASSOCIATION,

an Oregon non-profit corporation,

Petitioner on Review,

v.

BROWNSTONE FOREST HEIGHTS, LLC,

an Oregon limited liability company, et al,

Defendants,

and

CAPITOL SPECIALTY INSURANCE, CO.

Respondent on Review.

(CC 0606-06804; CA A145740; SC S061273)

En Banc

On motion to dismiss filed September 5, 2013, considered

and under advisement September 23, 2014.

Wendy M. Margolis, Cosgrave, Vergeer, Kester, LLP,

Portland, argued the cause and filed the briefs for petitioner

on review. With her on the briefs was Thomas W. Brown.

Brian C. Hickman, Gordon & Polscer, LLC, Portland,

argued the cause and filed the briefs for respondent on

review. With him on the briefs was Gregory A. Baird.

Travis Eiva, The Corson & Johnson Law Firm, Eugene,

filed the brief for amicus curiae Oregon Trial Lawyers

Association.

LANDAU, J.

Motion to dismiss denied.

Case Summary: Plaintiff in a damages action obtained a stipulated judgment

in a settlement with defendant, and sought to garnish the amount of the judg-

ment from defendant’s liability insurer under ORS 18.352. The insurer moved for

summary judgment, arguing that, because the settlement agreement included a

covenant by plaintiff not to execute against defendant, defendant had no covered

liability within the terms of the defendant’s policy with the insurer. The trial

court granted the motion for summary judgment, and plaintiff challenged that

decision, first in the Court of Appeals and then in the Supreme Court, arguing

Cite as 358 Or 26 (2015) 27

that, contrary to the trial court’s view, the non-execution covenant in the settle-

ment agreement had not affected the insurer’s coverage obligations. While the

case was pending in the Supreme Court, the insurer moved to dismiss, argu-

ing that the case had become moot because plaintiff and defendant had since

modified their settlement agreement and the non-execution covenant on which

the trial court’s decision had been based. Held: An opinion as to the legal conse-

quences of the original settlement agreement will have a practical effect on the

rights of the parties and review of the trial court’s decision therefore is not moot.

Motion to dismiss denied.

28 Brownstone Homes Condo. Assn. v. Brownstone Forest Hts.

LANDAU, J.

Defendant Capitol Specialty Insurance Co. has

moved to dismiss this appeal on the ground that it has

become moot. According to Capitol, the issues to be decided

in the appeal pertain to the terms of an agreement settling

an underlying construction defect case, but those very terms

have been superseded by amendments to the agreement

adopted during the pendency of the appeal. We conclude

that, because the amendments to the settlement agreement

do not have the effect of superseding the terms of the origi-

nal agreement, a judicial decision about that original agree-

ment will have a practical effect on the rights of the parties.

Consequently, the appeal is not moot, and the motion to dis-

miss is denied.

The facts relevant to Capitol’s motion are not in dis-

pute. Plaintiff Brownstone Homes Condominium Association

initiated a construction defect action against a contractor,

A&T Siding, Inc. A&T was insured by Capitol. Brownstone

and A&T ultimately settled, and the settlement included a

stipulated judgment against A&T. It also included an uncon-

ditional release and covenant not to execute that judgment

against A & T, along with A & T’s assignment to Brownstone

of any claim it might assert against Capitol.

Brownstone served a writ of garnishment on Capitol

under ORS 18.352 to satisfy the judgment. When Capitol

objected, Brownstone initiated a garnishment proceeding.

Capitol moved for summary judgment on the ground that

Brownstone’s release and covenant not to execute the judg-

ment against A&T extinguished A&T’s liability and, thus,

Capitol’s liability as well. The trial court agreed, granted

summary judgment in favor of Capitol, and entered judg-

ment dismissing the garnishment proceeding. Brownstone

appealed.

Meanwhile, Brownstone and A&T executed an

“addendum” to their original settlement agreement, which

recited that its purpose was to enable Brownstone to sat-

isfy its judgment by collecting from Capitol. To accomplish

that, the addendum modified the release and covenant not

to execute, and eliminated the assignment of A&T’s claims

against Capitol, replacing the assignment provision with a

Cite as 358 Or 26 (2015) 29

requirement that A&T pursue its claims directly against

Capitol and pay any proceeds to Brownstone.

Brownstone did not advise the Court of Appeals of

the execution of the addendum to the original settlement

agreement. Unaware of the addendum, the Court of Appeals

issued an opinion adjudicating the effect of the original

settlement, ultimately concluding that the trial court had

correctly determined that, because that agreement extin-

guished A&T’s liability to Brownstone, it also extinguished

any obligation that Capitol might have had to cover that lia-

bility. Brownstone Homes Condo. Assn. v. Brownstone Forest

Hts., 255 Or App 390, 298 P3d 1228 (2013). Brownstone

petitioned for review, and we allowed the petition. At that

point, Capitol notified us of the existence of the addendum to

the original settlement agreement and, on the basis of that

addendum, moved to dismiss the appeal.

Meanwhile, during the pendency of the state court

appeal, A&T initiated a separate action against Capitol to

recover the stipulated judgment against A&T. That action

was removed to the United States District Court for the

District of Oregon, which ultimately dismissed the action on

the ground that, the original settlement agreement having

extinguished A&T’s liability to Brownstone, any liability

that A&T agreed to under the addendum was contractual in

nature and not subject to coverage under the term of A&T’s

policy with Capitol. A&T appealed to the United States

Court of Appeals for the Ninth Circuit, arguing that, under

the terms of the addendum, it did not undertake any new

contractual obligations to Brownstone, but rather reformed

the original settlement agreement, effectively nullifying

the extinguishment of its liability in that original agree-

ment and restoring Capitol’s obligation to provide coverage

to A&T. The Ninth Circuit certified a question to us con-

cerning the authority of the parties to amend their original

settlement agreement to restore the insurer’s obligation to

provide coverage.

In A&T Siding, Inc. v. Capitol Specialty Ins. Co.,

358 Or 32, ___ P3d ___ (2015), A&T and Capitol addressed

that certified question. A&T argued that, together with

Brownstone, it had restored Capitol’s obligation to provide

30 Brownstone Homes Condo. Assn. v. Brownstone Forest Hts.

coverage by virtue of the voluntary reformation of the origi-

nal settlement agreement, based on its own and Brownstone’s

mistake as to the legal effect of that original agreement. We

concluded that such a mistake as to legal effect does not sup-

port reformation of the original settlement agreement. Id. at

___.

With that background in mind, we turn to the ques-

tion whether the execution of the addendum has the effect

of mooting the pending appeal before us. Under Oregon

law, when changed circumstances render an appeal moot,

it will be dismissed. State v. Hemenway, 353 Or 498, 501,

302 P3d 413 (2013). Whether an appeal has become moot

may be raised at any time during the appellate process.

ORAP 7.05(1)(c). It has been stated often that this court

lacks constitutional authority to decide moot cases. See, e.g.,

Hemenway, 353 Or at 500 (“Oregon courts have no authority

to decide moot cases: The judicial power granted to courts

under the Oregon Constitution is ‘limited to the adjudication

of an existing controversy.’ ” (Quoting Yancy v. Shatzer, 337

Or 345 Or 345, 362, 97 P3d 1161 (2004).)). More recently,

this court has qualified that broad, categorical assertion.

In Couey v. Atkins, 357 Or 460, 520, 355 P3d 866 (2015),

we concluded that, at least as to public actions and those

involving issues of public importance, whether mootness

requires dismissal of an action is a prudential matter and

not one of constitutional command. In this case, we need

not decide whether this case is such a “public action” or

one that involves issues of “public importance.” Nor do we

need to decide whether, if it is not, the constitution requires

dismissal because, because, at all events, the appeal is not

moot.

An appeal is moot when a court decision will no

longer have a “practical effect on the rights of the parties.”

Dept. of Human Services v. G. D. W., 353 Or 25, 32, 292 P3d

548 (2012). In this case, the issue before us is the legal effect

of the original settlement agreement—specifically, whether

the release and unconditional covenant not to execute pre-

clude Brownstone from recovering from Capitol, based on

the insurer’s obligation to provide coverage to its insured,

A&T. Capitol argues that the fact that the addendum to the

original settlement agreement eliminated the release and

Cite as 358 Or 26 (2015) 31

unconditional covenant not to execute renders academic any

opinion about the effect of the original agreement.

But that argument rests on the assumption that the

addendum had the effect of eliminating the original release

and unconditional covenant not to execute. As noted above,

358 Or at ___, we have just concluded in A&T Siding, Inc.

that the addendum did not have that effect, at least not ret-

roactively. Moreover, Capitol has not argued that the adden-

dum had that effect because the parties intended to rescind,

to accomplish a novation, or some other theory. Thus, the

issue of whether the original release and unconditional cov-

enant not to execute in the original settlement agreement

extinguished A&T’s liability to Brownstone—and, in the

process, extinguished Brownstone’s right to recover from

Capitol—remains a live issue. And an opinion as to the

legal consequences of that original agreement will have a

practical effect on the rights of the parties. In consequence,

the appeal is not moot.

Motion to dismiss denied.