Case Title: Loosli v. City of Salem

Citation: 

Docket Number: S055509

State: oregon

Court: Oregon Supreme Court

Date: 2008-10-02T00:00:00Z

Document:
FILED: October 2, 2008
IN THE SUPREME COURT OF THE STATE OF OREGON
BYRON LOOSLI
and MELINDA LOOSLI,
husband and wife;
BEN LEMIRE and CYNTHIA LEMIRE,
husband and wife;
and DIVINE GUIDANCE, LLC,
dba Just a Good Car Lot,
Petitioners on Review,
v.
CITY OF SALEM,
a municipal corporation,
Respondent on Review,
and
AVIS B. WOODRUM
and LOUISE WOODRUM,
husband and wife,
Defendants.
(CC 04C-17616; CA
A130044; SC S055509)
En Banc
On review from the Court of Appeals.*
Argued and submitted June 4, 2008.
Eric S. Postma, of Gary M. Bullock and
Associates, PC, Portland, argued the cause and filed the brief for petitioners
on review.  With him on the briefs was Meredith Boyden.
William F. Gary, of Harrang Long Gary Rudnick
PC, Salem, argued the cause and filed the brief for respondent on review.  With
him on the brief was Sharon A. Rudnick.
David F. Rees, of Stoll Stoll Berne Lokting
& Shlachter PC, Portland, filed the brief for amicus curiae Oregon
Trial Lawyers Association.
KISTLER, J.
The decision of the Court of Appeals and the
judgment of the circuit court are affirmed.
*Appeal from Marion County Circuit Court, Jamese
L. Rhoades, Judge. 215 Or App 502, 170 P3d 1084 (2007).
KISTLER, J.
The question in this case is when a
public body that provides information pursuant to a statute will be liable for
negligently providing incorrect information.  The trial court ruled, on summary
judgment, that defendant City of Salem owed plaintiffs no statutory or other
duty and thus was not responsible for any economic damages that plaintiffs
suffered as a result of the city's negligence in providing information.  A
divided, en banc Court of Appeals affirmed.  Loosli v. City of Salem,
215 Or App 502, 170 P3d 1084 (2007).  We allowed plaintiffs' petition for
review and now affirm the Court of Appeals decision and the trial court's
judgment.
Plaintiffs wanted to start a used car
business in Salem and leased property for that purpose.(1) Later, plaintiffs applied to the Driver and Motor Vehicle Services Division (DMV)
of the Oregon Department of Transportation for a "vehicle dealer
certificate," a necessary prerequisite for operating a used car business. 
ORS 822.025(6) requires that every application for a vehicle dealer certificate
include, along with other information, a certificate from a local government
official stating that the applicant's business complies with local land use and
other ordinances.(2)
DMV has prepared a preprinted application for a vehicle dealer certificate that
sets out, at the bottom of the application form, the following certification
(followed by a space for the local official's signature): 
"As the zoning official
for the locality in which this business is located, I verify by my signature
below that the location of this business as stated on this application,
complies with any land use ordinances and business regulatory ordinances of the
city or county, as appropriate pursuant to ORS 822.025[(6)]."
Melinda Loosli, one of the plaintiffs
in this case, went to the Salem planning department and submitted plaintiffs'
DMV application for the city's review and approval.  An associate city planner
signed the bottom part of plaintiffs' DMV application and thus certified that
plaintiffs' business complied with the city's land use and business regulatory
ordinances.  The associate city planner later did not remember signing
plaintiffs' application; she explained, however, that ordinarily she would have
checked the business address listed on the application against a computer
database before signing it.
Plaintiffs submitted their completed application
to DMV, which approved it, and plaintiffs put additional time and money into
starting their business.  Shortly after the city signed plaintiffs' DMV
application, it notified them that an overlay zone applied to their property,
that automobile sales were not a permitted use within the overlay zone, and
that plaintiffs could not sell cars at their proposed location.  After
receiving the city's notice, plaintiffs moved their business to a different
location within the city.
Plaintiffs then filed this action,
alleging that the associate city planner had been negligent when she mistakenly
certified, on the DMV application for a vehicle dealer certificate, that
plaintiffs' business complied with local land use ordinances.  Plaintiffs alleged
that they had experienced economic losses as a result of the employee's negligence.(3) 
The city moved for summary judgment on plaintiffs' negligence claim.  It argued
that, even assuming that its employee had acted negligently and that the
resulting damages were reasonably foreseeable, the city was not liable for
plaintiffs' economic losses unless it owed plaintiffs some duty above and
beyond the common-law duty to exercise reasonable care to prevent foreseeable
harm.  The city contended that no such duty existed.  The trial court agreed,
granted the city's motion, and entered judgment in the city's favor.  As noted,
a divided Court of Appeals affirmed the trial court's judgment, and we allowed
plaintiffs' petition for review.
The issue on review is narrow. 
Plaintiffs do not dispute that "'[o]ne ordinarily is not liable for
negligently causing a stranger's purely economic loss without injuring his
person or property.'"  Oregon Steel Mills, Inc. v. Coopers &
Lybrand, LLP, 336 Or 329, 341, 83 P3d 322 (2004) (quoting Hale v. Groce,
304 Or 281, 284, 744 P2d 1289 (1987)).  Nor do they dispute that
"liability [in negligence] for purely economic harm 'must be predicated on
some duty of the negligent actor to the injured party beyond the common law
duty to exercise reasonable care to prevent foreseeable harm.'"  Id.
(quoting Onita Pacific Corp. v. Trustees of Bronson, 315 Or 149, 159,
843 P2d 890 (1992)).  It follows from those decisions that, even if it was
reasonably foreseeable that plaintiffs would suffer economic loss as a
consequence of the city's actions, that fact is not sufficient to state a
negligence claim against the city.  "Some source of a duty outside the
common law of negligence is required."  Hale, 304 Or at 284.(4)
Before the Court of Appeals,
plaintiffs argued that a "source of a duty outside the common law of
negligence" could be found either in ORS 822.025 or in their relationship
with the city.  On review, plaintiffs acknowledge that the city did not owe
them any duty under ORS 822.025.  They argue, however, that their relationship
with the city imposed a duty on it to protect their economic interests.  That
relationship (and the city's resulting duty) arose, plaintiffs argue, when
Melinda Loosli submitted plaintiffs' DMV application to a city employee for her
certification and the city employee signed it.(5) 
In arguing that that transaction gave rise to a relationship that imposed a
duty on the city, plaintiffs note that they paid the city a fee for signing the
certification on their DMV application, that ORS 822.025 required them to get
the certification from the city, and that they relied on the certification.  The
city responds that, in signing the certification, it was carrying out its role
in a regulatory scheme that is intended to protect the public's interests, not
plaintiffs'.  The city reasons that, if the statutory scheme imposes no duty on
it to protect plaintiffs' interests, as plaintiffs acknowledge, then any
relationship that arose solely out of the city's compliance with ORS 822.025(6)
cannot impose any greater duty on the city than the statute does.  In short,
the city argues that its regulatory role in this case both defines and limits
the nature of its relationship with plaintiffs. 
In analyzing the parties' arguments,
we begin with the relevant statutes.  Generally, a person may not engage in the
business of buying, selling, or trading new or used vehicles without first
obtaining a vehicle dealer certificate.  See ORS 822.005 (making it an
offense to engage in those acts without a vehicle dealer certificate); ORS
822.007 (authorizing an injunction to prevent engaging in those acts without a
vehicle dealer certificate).  To obtain a vehicle dealer certificate, a person
must submit an application to DMV together with proof that the person meets
certain bonding, insurance, education, and other requirements.  See ORS
822.020 (stating those requirements).  The application must contain the applicant's
contact information,(1)
the business's name, the business's location, and a certificate signed by a local
official that the proposed business complies with "any [local] land use
ordinances or business regulatory ordinances."  See ORS 822.025
(setting forth these and other requirements for the application).
The statutes provide that DMV shall
examine the application and may investigate any statements in the application. 
ORS 822.035(1).  If DMV is satisfied that an applicant is entitled to a vehicle
dealer certificate, it shall issue a certificate that allows the dealer to
conduct business under the certificate.  ORS 822.035(2).  If a dealer wishes to
expand its business to an additional location or wishes to move an existing
business to a different location, it must obtain either a supplemental or a
corrected vehicle dealer certificate from DMV.  ORS 822.040(2), (3).  The
failure to do so constitutes a Class A misdemeanor.  See ORS
822.045(1)(a), (b) (describing offenses); ORS 822.045(4)(a), (b) (classifying
those offenses).
These statutes reflect a
comprehensive legislative policy choice to regulate the business of buying,
selling, and trading vehicles.  The requirement that dealers meet minimum
insurance, bonding, and educational requirements serves to protect consumers.  The
requirement that dealers provide the names of their principals, their addresses,
and their business locations to DMV as part of the application serves the same
purpose; it allows DMV to monitor the dealers, to ensure that dealers whose vehicle
dealer certificates have been revoked do not open a new business, and to make
periodic inspections of the dealers' businesses.  See ORS 822.035(5)
(authorizing DMV to inspect dealer records and inventory); ORS 810.480
(authorizing police officers to inspect dealer records and inventory for
compliance with the vehicle code).
The requirement in ORS 822.025(6) that
an applicant for a vehicle dealer certificate include, as part of its application
to DMV, a certificate from a local government official that the applicant's business
complies with "any [local] land use ordinances and other business
regulatory ordinances" serves a related but separate regulatory purpose. 
It helps ensure that state and local regulatory bodies act in a coordinated
fashion.  In particular, it helps DMV to ensure that any business that it
authorizes will also comply with local regulatory requirements.  As plaintiffs
have acknowledged, the certification that ORS 822.025(6) requires is not
intended to protect an applicant's interests.  Rather, the certification
assists DMV in its task of deciding whether to approve the application and thus
protects the interest of the public at large.  With that statutory background
in mind, we turn to plaintiff's argument that the city's compliance with ORS
822.025(6) gave rise to a "special relationship" between the city and
plaintiffs that imposed a duty on the city to protect plaintiffs' economic
interests.
Not every relationship gives rise to
a duty "beyond the common law duty to exercise reasonable care to prevent
foreseeable harm."  See Onita, 315 Or at 159 (stating
standard).  Determining which relationships give rise to such a duty has not
always proven easy, however.  This court has observed that section 552 of the Restatement
(Second) of Torts (1977) provides a good starting point for the analysis
when a party has been negligent in obtaining or communicating information.  Id.
(describing that rule as "close to the mark").(7)  The court, however, has
declined to adopt that section of the Restatement as a "black
letter 'rule,'" id. -- a view that sometimes has divided the court.  Compare
Conway v. Pacific University, 324 Or 231, 244, 924 P2d 818 (1996) (holding
that defendant "did not have a special responsibility to exercise
independent judgment in [the plaintiff's] behalf and to look after [the
plaintiff's] interests"); with id. at 251 (Durham, J., dissenting)
(urging adherence to section 552).
We need not revisit the issue that divided
the court in Conway to resolve this case.  Under section 552 of the Restatement,
plaintiffs' claim against the city fails.  Subsection (1) of section 552 states
the general rule of liability for negligently obtaining or providing incorrect
information that results in economic damages only.  Restatement at
§ 552 comment a.  It provides that a person "who, in the course
of his business, profession or employment [negligently] * * * supplies false
information for the guidance of others in their business transactions" is
subject to liability for economic loss that the false information causes.
In this case, the city did not sign
the certification on plaintiffs' DMV application "for the guidance of
[plaintiffs] in their business transactions."  Rather, the city was acting
pursuant to ORS 822.025(6).(8) 
As such, the city's certification on the DMV application allowed DMV to
coordinate state and local regulatory requirements and thus provided guidance
to DMV.  Because the city did not supply the information for plaintiffs'
guidance in their business transactions, plaintiffs' claim does not satisfy one
of the criteria stated in section 552(1) of the Restatement.(9)
Subsections (2) and (3) of section
552 point in the same direction.  Subsection (2) limits the scope of liability
stated in subsection (1).  It provides that, generally, the liability of a
person who negligently supplies incorrect information "is limited to loss
suffered [b]y the person * * * for whose benefit and guidance he intends to
supply the information."  Restatement at § 552(2).  The
limitation in subsection (2) mirrors one of the criteria for liability in
subsection (1).  See Restatement at § 552(1) (providing for
liability for negligent misrepresentation for persons who supply information
for "the guidance of others in their business transactions").  As
explained above, the city provided the certification on plaintiffs' DMV
application for DMV's guidance.  It follows that, under subsection (2),
the city was not liable to plaintiffs.
Subsection (3) states an
exception to the limitation on liability in subsection (2).  It provides
that, when a person is under a public duty to provide information, liability
extends to "the class of persons for whose benefit the [public] duty is
created."  Restatement at § 552(3).  Liability, however,
extends no further.  Not only does the latter point follow from the fact that
subsection (3) is an exception to the limitation on liability stated in
subsection (2), but the comment to subsection (3) makes that point clear.  It explains:
"The scope
of the defendant's duty to others in these [public duty] cases will depend upon
the purpose for which the information is required to be furnished.  The purpose
may be found to be to protect only a particular and limited class of persons,
as when a statute requires insurance companies to file information concerning
their finances with a state insurance commissioner is found to be only for the
protection of those buying insurance.  In such a case the liability of the
company when it negligently gives false information extends only to those who
take out insurance policies and only to losses suffered through taking out the
policy."
Restatement at § 552 comment k.
For the purposes of this case, we
assume that ORS 822.025(6) imposed a duty on the city to provide the
certification on plaintiffs' DMV application.(10) 
As explained above, however, that certification is not intended to benefit
plaintiffs specifically, and the comment to subsection (3) makes clear that a
person who provides information pursuant to a statutory duty is liable only to
the specific class of persons whom the statute is intended to benefit. 
Subsection (3) thus confirms that the city owes plaintiffs no duty under ORS
822.025(6) to protect their economic interests.
To be sure, plaintiffs do not rely on
ORS 822.025(6) as the source of any duty that the city owes them.  Rather, they
argue that a duty arose from their relationship with the city.  However, when
the only relationship with the city that plaintiffs identify arose solely out
of the city's compliance with ORS 822.025(6), that relationship does not impose
any greater duty on the city than ORS 822.025(6) does.  As both the trial court
and the Court of Appeals correctly recognized, the city owed no statutory or
other duty to plaintiffs that would permit them to state a negligence claim
against the city for purely economic losses.
The decision of the Court of Appeals
and the judgment of the circuit court are affirmed.
1. In reviewing a grant of summary judgment, we view the facts from the
summary judgment record and all reasonable inferences that we may draw from
them in the light most favorable to the nonmoving party -- in this case,
plaintiffs.  Oregon Steel Mills, Inc. v. Coopers & Lybrand, LLP, 336
Or 329, 332, 83 P3d 322 (2004).
2. ORS 822.025(6) requires that every application for a vehicle dealer
certificate include, along with other information:
"A certificate signed
by a person authorized by the local governing body to do so, stating that the
location of the business as given in the application for a [vehicle dealer]
certificate complies with any land use ordinances or business regulatory
ordinances of the city or county."
3. Plaintiffs also brought a claim for rescission against the persons
who had leased the land to them, a claim that the parties later settled.
4. In
this case, plaintiffs alleged a negligence claim against the city; they did not
allege a negligent misrepresentation claim.  The city has argued that the
economic loss doctrine, summarized in the text above, bars plaintiffs' claim. 
That argument applies equally to negligence and negligent representation
claims, and the validity of the city's argument is the only issue before us. 
We express no opinion on whether the evidence was sufficient to establish other
elements of plaintiffs' claim. 
5. In the trial court and also in the Court of Appeals, plaintiffs
relied on statements that city employees made to them during earlier telephone
calls.  On review, plaintiffs do not rely on those calls; instead, they base
their relationship with the city solely on their submission of the DMV
application to the employee and the employee's signing it.
6. If the applicant is a partnership or corporation, the application
must include the names and residences of either the partnership's members or
the corporation's principal officers.  ORS 822.025(1).
7. Section 552 of the Restatement (Second) of Torts defines the
extent of liability for a person who makes certain negligent misrepresentations
in the course of his or her business, profession, or employment.  It provides:
"(1) One
who, in the course of his business, profession or employment, or in any other
transaction in which he has a pecuniary interest, supplies false information
for the guidance of others in their business transactions, is subject to
liability for pecuniary loss caused to them by their justifiable reliance upon
the information, if he fails to exercise reasonable care or competence in
obtaining or communicating the information.  
"(2) Except
as stated in Subsection (3), the liability stated in Subsection (1) is limited
to loss suffered
"(a) by the
person or one of a limited group of persons for whose benefit and guidance he
intends to supply the information or knows that the recipient intends to supply
it;  and
"(b)
through reliance upon it in a transaction that he intends the information to
influence or knows that the recipient so intends or in a substantially similar
transaction.  
"(3) The
liability of one who is under a public duty to give the information extends to
loss suffered by any of the class of persons for whose benefit the duty is
created, in any of the transactions in which it is intended to protect
them." 
8. Plaintiffs do not argue that the city employee signed the
certification for any reason other than to comply with ORS 822.025(6); that is,
this is not a case in which the relationship between the city and plaintiffs
went beyond the city's discharge of its duties under ORS 822.025(6).
9. Plaintiffs argue that the fact that they paid the city a fee means
that the city had a duty to protect their economic interests.  Plaintiffs
misperceive the role that their payment of a fee plays.  Under the Restatement
(Second) of Torts, a person who provides information gratuitously has no
duty to exercise reasonable care.  Restatement at § 552 comment c. 
The fact that a gratuitous transaction imposes no duty does not mean that every
nongratuitous transaction imposes such a duty.  Under the Restatement,
the other criteria set out in section 552 must be met.  As explained above,
plaintiffs' claim does not meet those criteria.
10. ORS 822.025(6)
requires applicants to include a certification from a local government
official, but it does not explicitly place a duty on the local government to
provide the certification.  The city's argument assumes, however, that ORS
822.025(6) implicitly places a public duty on it to provide the certification,
and we accept that assumption for the purposes of analyzing plaintiffs' claim.