Title: First Commerce of America v. Nimbus Center Assoc.

State: oregon

Issuer: Oregon Supreme Court

Document:

FILED:  July 29, 1999

IN THE SUPREME COURT OF THE STATE OF OREGON

FIRST COMMERCE OF AMERICA, INC.,
an Oregon corporation,

		Plaintiff,

	v.

NIMBUS CENTER ASSOCIATES, an
Oregon joint venture consisting of 
George H. Killian and Joseph W. Angel, GEORGE H.
KILLIAN, JOSEPH W. ANGEL,
WILLIAM R. ROBINSON,
CONSTANCE A. ROBINSON, CHESTER
ROBINSON TRUST, EVELYN Z.
ROBINSON, and WASHINGTON 
COUNTY, a political subdivision of the State
of Oregon,

	Defendants,

____________________________________

NIMBUS CENTER ASSOCIATES, an
Oregon joint venture consisting
of George H. Killian and Joseph
W. Angel, GEORGE H. KILLIAN and
JOSEPH W. ANGEL,

Petitioners on Review,

      v.

NATIONAL MORTGAGE CO., an Oregon
corporation,

Respondent on Review.

(CC C931118CV; CA A93182; SC S45921)

	On petition for reconsideration from order denying petition
for review dated April 6, 1999.*

	Jacob Tanzer, John J. Dunbar and Steve C. Berman, of Ball
Janik LLP, and Gary M. Berne, David A. Lokting and Scott Shorr,
of Stoll Stoll Berne Lokting and Shlachter P.C., Portland, filed
the petitions for petitioners on review.

	No appearance contra.

	Before Carson, Chief Justice, and Gillette, Durham,
Kulongoski, and Leeson, Justices.**  

	LEESON, J.

	The petition for reconsideration is allowed.  The petition
for review is allowed.  The decision of the Court of Appeals is
vacated, and the case is remanded to the circuit court with
instructions to vacate the judgment disposing of the third-party
claims and to dismiss the third-party claims as moot.

	*Appeal from Washington County Circuit Court,

	Gregory E. Milnes and Michael J. McElligott, Judges.

	153 Or App 561, 958 P2d 850 (1998).

	**Van Hoomissen and Riggs, JJ., did not participate in the
consideration or decision of this case.

		LEESON, J.

		Defendants Nimbus Center Associates, George H. Killian,
and Joseph W. Angel (Nimbus) petitioned for review of a Court of
Appeals' decision that dismissed their appeal as moot.  First
Commerce of America v. Nimbus Center Assoc., 153 Or App 561, 958
P2d 850 (1998).  After this court denied review, Nimbus
petitioned for reconsideration.  Although we agree with the Court
of Appeals that, given the procedural posture of this case,
Nimbus's claims are moot, the proper remedy for disposing of the
claims is to vacate the judgment and to dismiss the claims as
moot.  Accordingly, we allow the petition for reconsideration,
allow review, vacate the decision of the Court of Appeals, and
remand the case to the circuit court with instructions to vacate
the judgment dismissing Nimbus's third-party claims on the merits
and to dismiss those claims as moot.  We also address the ground
on which we allowed a motion to supplement the record with
information outside the circuit court record.  

		Benjamin Franklin Savings and Loan loaned Nimbus $2.5
million.  Benjamin Franklin Savings and Loan became insolvent,
and the Resolution Trust Corporation (RTC) became the owner of
the loan.  RTC proposed to auction the Nimbus loan.  National
Mortgage Company (National) is in the business of buying such
loans.  One of National's brokers was acquainted with an officer
of Nimbus.  Based on a contact between the broker and the
officer, Nimbus came to believe that it had an agreement with
National that National would purchase the loan at the RTC auction
at a substantial discount ($900,000) and then sell the loan to
Nimbus for the discounted price plus a five-to-ten percent
markup.  National purchased the loan, but another broker at
National sold the Nimbus loan to First Commerce of America (First
Commerce).

		First Commerce believed that Nimbus was in default on
the loan and filed this action against Nimbus to recover on the
loan.  Nimbus asserted various defenses against First Commerce's
claims.  Nimbus also asserted third-party claims against
National, arising from what Nimbus alleged was its agreement with
National.  As pleaded, Nimbus's affirmative defenses and third-party claims were identical:  

		"For its affirmative defenses and further as third
party claims, defendants allege:  

"FIRST AFFIRMATIVE DEFENSE AND 
FIRST THIRD-PARTY CLAIM AGAINST 
NATIONAL MORTGAGE CO. ('NMC')
(Negligence)

		"* * * * * 

"SECOND AFFIRMATIVE DEFENSE AND 
SECOND THIRD-PARTY CLAIM 
AGAINST NMC 
(Breach of Fiduciary Duty)

		"* * * * *"

Further, in relevant part, the prayer for relief stated:

	"[T]o the extent it is adjudged or decreed that Nimbus
and/or Angel [and Killian] must pay any amount to
plaintiff, that Nimbus and Angel [and Killian] have a
judgment against [National] for an amount equal to any
amount which Nimbus or Angel [or Killian] must pay
plaintiff together with interest * * *."

In short, Nimbus's third-party claims against National were
dependent on the outcome of First Commerce's claims against
Nimbus. 

	The circuit court dismissed Nimbus's third-party claims
against National on the merits, but, because the judgment was not
in the form of an ORCP 67 B judgment, it was not final and
appealable.(1)  Thereafter, First Commerce and Nimbus settled their
dispute, and the circuit court entered a stipulated judgment of
dismissal of First Commerce's action.  Nimbus appealed, assigning
error to the judgment of dismissal of its third-party claims
against National.

	The Court of Appeals held, generally, that third-party
claims are dependent on the primary claims and concluded that,
given the stipulated dismissal of the primary claims and the
absence of any evidence of a continuing controversy between
Nimbus and National, the appeal was moot.  First Commerce of
America, 153 Or App at 566-67.  The Court of Appeals dismissed
Nimbus's appeal on that ground.  Id. at 567.

	Nimbus then filed a petition for reconsideration of the
Court of Appeals' decision.  It included in its petition for
reconsideration a request to supplement the record on appeal with
documents showing the terms of the settlement between Nimbus and
First Commerce.  Nimbus contended that those documents would show
that Nimbus paid considerably more than $900,000 to First
Commerce.  As previously noted, Nimbus believed it had contracted
to purchase the loan from National for $900,000 plus a five-to-ten percent markup.  Because it paid First Commerce more than it
would have had to pay National under the alleged agreement
between Nimbus and National, Nimbus argued that it was damaged by
National's sale of the loan to First Commerce and, therefore, its
third-party claims against National were not moot.  The Court of
Appeals denied the petition for reconsideration, but it did not
rule on Nimbus's request to supplement the record.

	Nimbus petitioned for review and renewed its request to
supplement the record with evidence concerning the terms of its
settlement with First Commerce.  In the course of considering the
petition for review, we posed certain questions to the parties: 
(1) Whether Nimbus's claims against National properly were
pleaded as third-party claims; (2) if not, whether National
waived the pleading defect; (3) if Nimbus's claims properly were
pleaded as third-party claims, or if Nimbus improperly pleaded
its claims as third-party claims but National waived the defect,
and the Court of Appeals correctly determined that the third-party claims were moot, whether the correct remedy was to vacate
the judgment of dismissal of Nimbus's third-party claims and to
dismiss the third-party complaint as moot; and (4) if Nimbus's
third-party claims were dismissed as moot, whether the dismissal
would have the effect of permitting Nimbus to refile its claims
against National as a complaint in a new action.

	After considering the parties' responses to our
questions, this court allowed in part the motion to supplement
the record, but denied review.(2)

  Nimbus then petitioned for
reconsideration "only for the purpose of obtaining clarification
of the effect that this Court's order has on the disposition of
the appeal."  We agree that the disposition of the appeal
requires clarification.

	However, before discussing the correct disposition of
the appeal, we comment on Nimbus's request to supplement the
record.  Nimbus requested leave to supplement the record with the
terms of its settlement with First Commerce under ORS 19.365(4).(3)

 
We allowed the motion to supplement the record, but not under ORS
19.365(4), because that statute has no role here.  ORS 19.365(4)
applies when the record on appeal is incomplete or does not
contain material that should have been part of the circuit court
file.  This is not a case in which the parties made the terms of
the settlement between Nimbus and First Commerce part of the
circuit court record and, thereafter, the documents evincing the
settlement were lost, destroyed, misfiled, or otherwise became
missing from the circuit court file.  Nor is this a case, for
example, in which the parties tendered for filing documents that
they thought contained the terms of their settlement, but, in
fact, were some other documents, such as an earlier, unsigned
draft of terms rather than the final, signed terms.

	When an appellate court considers an assertion that a
case has become moot, evidence demonstrating that fact may appear
in the circuit court record.  An example is Kay v. David Douglas
Sch. Dist. No. 40, 303 Or 574, 738 P2d 1389 (1987), in which the
circuit court record showed that the case was moot when the
circuit court decided it, because the high school commencement
ceremony at issue already had occurred.  More commonly, however,
an event that may render a case moot occurs during the pendency
of the appeal and after the circuit court record has been
forwarded to the appellate court.  In such circumstances, ORS
19.365(4) does not give the appellate court authority to consider
the evidence, because the evidence was never part of, nor
inadvertently omitted from, the circuit court record.

	Mootness is a species of justiciability, and a court of
law exercising the judicial power of the state has authority to
decide only justiciable controversies.  Barcik v. Kubiaczyk, 321
Or 174, 188-89, 895 P2d 765 (1995) (under Article III, section 1,
and Article VII (Amended), section 1, of the Oregon Constitution,
the judicial power of the state vested in courts limited to
actual controversies between parties); Mid-County Future Alt. v.
Metro Area LGBG, 304 Or 89, 92, 742 P2d 47 (1987) (same,
referring to Article III, section 1, of the Oregon Constitution).

	If a case is not justiciable because an event that is
not reflected in the circuit court record has rendered the case
moot, an appellate court has the inherent power to consider
evidence of that event.  This is such a case.  Although the event
that rendered the third-party claims moot occurred when the case
still was pending in the circuit court (that is, entry of the
judgment of dismissal of First Commerce's claims against Nimbus),
the parties did not make the terms of the settlement underlying
the judgment of dismissal part of the circuit court record.  Nor
did the parties intend that the terms of their settlement become
part of the record and merely inadvertently failed to do so.  

	In deciding to grant Nimbus's request to supplement the
record with evidence of the terms of the settlement between
Nimbus and First Commerce, we exercised our inherent power to
consider evidence of an event that might have rendered Nimbus's
third-party claims moot.  That power derives from our duty to
determine whether a justiciable controversy continued to exist.(4) 
See Martin v. Harrison, 182 Or 121, 180 P2d 119 (1947) (court
considered information from appellant's counsel's affidavit
setting out certain facts outside record in support of motion for
relief from default and opposing motion to dismiss appeal for
lack of prosecution); Moe v. Pratt, 178 Or 320, 166 P2d 479
(1946) (court considered appellant's counsel's affidavit
regarding circumstances under which notice of appeal was given,
in response to motion to dismiss).  See also Int'l Electrical
Workers v. Central Lincoln PUD, 69 Or App 127, 129-30, 684 P2d
611 (1984) (granting motion to supplement record made in
connection with motion to dismiss as moot); Strand Century v.
Dallas, 68 Or App 705, 707 n 1, 683 P2d 561, rev den 297 Or 824
(1984) ("[a]n affidavit is an appropriate method of furnishing
information outside the trial court record relevant to a motion
to dismiss an appeal" on mootness grounds).

	When we allowed Nimbus's motion to supplement the
record, we did not require Nimbus to submit evidence of the terms
of the settlement, for two reasons.  First, the parties agreed
that the terms of the settlement required Nimbus to pay First
Commerce well in excess of the $900,000 (plus a five-to-ten
percent markup), the amount for which Nimbus alleges that
National agreed to sell the loan to Nimbus.  Second, the details
of the terms of the settlement would not have changed our
conclusion that, because of the manner in which Nimbus pleaded
its third-party claims as co-extensive with its affirmative
defenses to the primary claims, the third-party claims became
moot upon the dismissal of First Commerce's claims against
Nimbus.

	We turn to the proper procedural disposition of this
case, acknowledging at the outset that this court has been
inconsistent in the manner in which it has disposed of a judgment
on appeal after determining that a case has become moot.  For
instance, in Oregon Republican Party v. State of Oregon, 301 Or
437, 722 P2d 1237 (1986), the Oregon Republican Party sought to
determine the propriety of its plan to encourage absentee voter
participation by furnishing voters with stamped, self-addressed
envelopes and absentee ballot request forms.  The action was
filed in October 1984 relating to a November 1984 election.  This
court determined that the matter became moot when the election
occurred, reversed the decision of the Court of Appeals that
addressed the merits of the action, and remanded the case to the
Court of Appeals with instructions to dismiss the appeal.  Id. at
440-41.  The better practice would have been to vacate the
decision of the Court of Appeals and to remand the case to the
circuit court with instructions to vacate the judgment.  In that
case, however, there was no harm in merely dismissing the appeal,
because it appears that there were no potential future
consequences arising from the continued existence of the circuit
court's judgment.

	By contrast, in Kay, which challenged a plan to include
a formal prayer at a high school graduation ceremony, the court
determined that the case became moot when the graduation ceremony
took place.  303 Or at 579.  The court reversed the decision of
the Court of Appeals on the merits, but it also remanded the case
to the circuit court with instructions to vacate the judgment.

	On reflection, we hold that the better practice when a
case becomes moot on appeal or on review is to vacate both the
decision of the Court of Appeals and the circuit court judgment. 
See Lowe v. Keisling, 320 Or 570, 577, 889 P2d 916 (1995) (Unis,
J., dissenting) (so stating).  Reversal implies that a court
incorrectly decided the case on the merits.  Vacation of a
decision, by contrast, suggests nothing about the propriety of
the decision on the merits, because it conveys the message that
the decision on the merits ought not to have been rendered at all
(if the controversy was moot when the case was decided) or ought
not have prospective effect (if the controversy became moot after
the case was decided).  

	After determining that the case was moot, the Court of
Appeals dismissed Nimbus's appeal.  Although dismissal of an
appeal does not necessarily result in an affirmance of the
judgment being appealed, dismissal of an appeal unquestionably
leaves the judgment in place.(5)  The judgment disposing of
Nimbus's third-party claims against National was a disposition on
the merits of those claims.  Under familiar principles of claim
preclusion, if the judgment were left in place, the judgment
might preclude Nimbus from asserting its claims against National
in a new action.  As explained above, Nimbus's claims against
National, pleaded as third-party claims, became moot on entry of
the judgment disposing of the primary claims, thereby precluding
appellate review of the propriety of the dismissal of the third-party claims on their merits.  Therefore, rather than merely
dismissing the appeal, the Court of Appeals also should have
vacated the judgment disposing of the third-party claims and
remanded with instructions to dismiss those claims as moot.

	The petition for reconsideration is allowed.  The 
petition for review is allowed.  The decision of the Court of
Appeals is vacated, and the case is remanded to the circuit court
with instructions to vacate the judgment disposing of the third-party claims and to dismiss the third-party claims as moot.

1. 	ORCP 67 B provides:

		"When more than one claim for relief is presented
in an action, whether as a claim, counterclaim,
cross-claim, or third party claim, or when multiple
parties are involved, the court may direct the entry of
a final judgment as to one or more but fewer than all
of the claims or parties only upon an express
determination that there is no just reason for delay
and upon an express direction for the entry of
judgment.  In the absence of such determination and
direction, any order or other form of decision, however
designated, which adjudicates fewer than all the claims
or the rights and liabilities of fewer than all the
parties shall not terminate the action as to any of the
claims or parties, and the order or other form of
decision is subject to revision at any time before the
entry of judgment adjudicating all the claims and the
rights and liabilities of all the parties."

2. 	The court's amended order provided:

		"Petitioners on review ('Nimbus') have moved to
supplement the record with information about the terms
of the settlement between First Commerce and Nimbus. 
The motion is allowed in that the court assumes the
information would show that Nimbus was liable to First
Commerce in an amount substantially in excess of
$900,000; otherwise, the motion is denied.  Nimbus is
not required to forward evidence of the terms of
settlement.

		"The petition for review is denied."

3. 	ORS 19.365(4) provides:

		"When it appears to the appellate court that the
record on appeal is erroneous or that the record does
not contain material that should have been part of the
trial court file, and the erroneous or incomplete
record substantially affects the merits of the appeal,
on motion of a party or on its own motion the court may
make such order to correct or supplement the record as
may be just."

4. 	If the occurrence or nature of the event in question is
disputed, the parties might need to make a factual record.  At
the appellate level, that can be facilitated by remanding the
matter to the circuit court or by appointing a special master to
take evidence of the event.  In this case, the parties do not
dispute the occurrence of the event or its nature, only its legal
significance.	

5. 	ORS 19.410(2) provides:

		"Dismissal of an appeal shall operate as an
affirmance of the judgment being appealed if the
appellate court so directs in the order of dismissal."