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OREGON MOLD LITIGATION (cont'd)

E. Unreported trial court cases.

Haynes v Adair Homes, Inc., Clackamas County case no. CCV0211573
Perhaps the most significant mold cases in Oregon, from the standpoint of a notable jury verdict, is Haynes v Adair Homes, believed to be the first cases in the Northwest that actually went through a full jury trial to a significant verdict for the plaintiffs. Most cases before and since have either resulted in a settlement, a defense verdict, or a relatively small jury verdict for property damage but not personal injury. The jury in Haynes v Adair Homes awarded damage not only for property damage and personal injury but also neurological damage to the Haynes children. That made it one of the first verdicts in the country to recognize neurological damage from mold intoxication.

Paul and Renee Haynes were the owners of five acres in Sandy, Oregon on which they had an older and smaller house. They contacted Adair Homes, Inc., a company that markets lower cost “starter” homes and which builds hundreds of houses a year in the Northwest. The Haynes family planned to upgrade into a somewhat larger house. Adair Homes, Inc. showed them a house package that costs around $ 67,000 to erect on site. Adair Homes’s program usually requires the homeowner to provide the land and do certain finish work such as painting and final landscaping.

Adair Homes commenced construction in the winter of 2001, one of the wettest winters in recent memory. The Hayneses videotaped the house and took many photos during construction, never expecting that they were documenting evidence to be used against Adair Homes in court later. Their photos and videos showed standing water on the floor decking. At trial they were able to prove that Adair Homes closed up and insulated the walls before the house was thoroughly dried out. As a result, mold began to grow inside the wall cavities. When the Haynes family moved into the house in March, they began to feel ill and their symptoms worsened with time. Finally, they discovered the mold in what Renee Haynes described in court as a “happy accident.”

In July 2002 Mr. Haynes used a small backhoe to landscape around the house. He was momentarily distracted by his son’s scream while playing with his brother and accidentally rammed the machine into the wall, knocking a stud off center and popping open a panel of drywall inside a bedroom. Upon assessing the damage, he discovered slimy mold growing inside the wall cavity. Further inspection revealed that the home was contaminated by toxigenic mold, including Stachybotrys chartarum, Chaetomium, Curvularia, Cladosporium, Alternaria, Aspergillis niger, various forms of Penicilium and other forms of toxigenic fungi. Moisture tests of the framing wood at floor level revealed a moisture content of 32 percent, in July 2002, months after the house was completed, and after several months of hot, dry weather.

The Haynes family put the contractor on notice and asked it to honor the warranty. When the builder refused, the Haynes filed suit. At that point, Adair Homes commenced an arbitration claim against them with Construction Arbitration Services (“CAS”) out of Dallas, Texas and moved to stay the court case pending arbitration. Adair Homes claimed that the Haynes family was contractually bound to arbitrate their dispute, but the contract had both an arbitration clause and an attorney fee provision allowing fees for any pretrial, trial or appellate work. Mr. and Mrs. Haynes submitted affidavits saying that their Adair Homes salesman represented to them (and other Adair Homes customers) that Adair Homes’s arbitration clause only applied to disputes that occurred in the course of construction and that any disputes that occurred after the house was completed were to be resolved in court. Adair Homes’s arbitration claim alleged that they breached their contract by not arbitrating and sought unspecified damages of $ 15,000. Adair Homes had been fully paid for its contract work. In the year between when the house was completed and the dispute arose, Adair Homes never once asserted that it was due any money from the homeowner.

The court stayed part of the case involving claims between Mr. and Mrs. Haynes and Adair Homes, but allowed the claim by Michael Haynes to proceed in court. On August 21, 2003, Adair Homes and the Hayneses attended an arbitration hearing, at which Adair Homes’s alleged “damages” were shown to be nothing but a claim for attorney fees incurred in connection with the motion to stay. Since Adair Homes had requested those fees at the court hearing, but had not received an award, the Haynes’s counsel was able to show that the court had already rejected Adair Homes’s “damages.” The arbitrator said during the hearing that he viewed Adair Homes’s dispute resolution provision as applying only to disputes which arose during construction, and not to post construction disputes. On August 26, 2003, before the arbitrator could issue a written decision, Adair Homes voluntarily withdrew from arbitration and CAS refused to proceed.

After Adair Homes withdrew from the arbitration, the Hayneses learned that an affidavit filed by the owner of CAS, Mr. Marshall Lippman, contained false information. Mr. Lippman is one of two principal owners of CAS. In his affidavit dated February 11, 2003, Mr. Lippman claimed to be an attorney admitted before all courts in the District of Columbia. In fact, he had previously been disbarred in that jurisdiction several months before his affidavit for convictions he received while being disbarred in New York.

The State Bar of New York disbarred Mr. Marshall Lippman for ethics violations involving five clients. The convictions included two charges of stealing from clients, three charges of “conduct involving dishonesty, fraud deceit or misrepresentation,” as well as convictions for “conduct prejudicial to the administration of justice,” perjury during the ethics investigation and “conduct reflecting adversely upon his fitness to practice law.” The District of Columbia imposed a reciprocal disbarment on September 26, 2002, nearly five months before Adair Homes filed his affidavit in the Haynes case.

After learning the truth about Mr. Lippman’s disbarment, the Haynes family moved to strike his affidavit and to reinstate the case into court. Plaintiffs pointed out in the motion that defendant had used the perjured Lippman affidavit to abate the case. Plaintiffs also provided evidence that Mr. Lippman had also falsely claimed on a web site that he was once Dean of the New York University Law School. The Ralph Nader group, Public Citizen, had opined in a report to several states that CAS’s modus operandi, and that of other arbitration companies that cater to a specific industry, may create an institutional bias in favor of contractors because they give it repeat business. Plaintiffs also provided evidence to the court that Adair Homes had withdrawn from the arbitration, and that the arbitration company had refused to proceed.

Presiding Judge Selander granted the motion to strike the Lippman affidavit and motion to reinstate the case on September 1, 2004. In a written order dated October 6, 2004, he made specific findings that Mr. Lippman had knowingly given false testimony in his affidavit and that his statements were unreliable. Judge Selander reinstated the case in court and the Haynes family prepared for a jury trial. A number of plaintiffs’ attorneys across the country have used the information about CAS uncovered in Haynes v Adair Homes to avoid arbitrating before CAS. That arbitration company has since moved to Michigan.

Before trial, Adair Homes sued the Haynes for defamation, based on a few news reports about the case. But of the three news stories, two did not even mention Adair Homes by name. Adair Homes withdrew the defamation claim on the first day of the trial.

The trial resulted in a jury verdict for plaintiffs and a general money judgment in their favor for an aggregate $ 498,417.94. The Haynes family also received a supplemental judgment for their attorney fees and costs in the amount of $ 291,353.77. Adair Homes’s appeal on the merits was dismissed but the appeal of the fee award is pending as of this writing. The prevailing party on appeal is also entitled to attorney fees.

Issues in Haynes v Adair Homes

There were many issues raised in this case, besides the question of arbitrability. One of the issues raised by Adair Homes before trial was whether a claim for negligent construction was barred under the economic loss doctrine. As discussed above, that doctrine had held, inter alia, that a party who had a contract with a defendant must seek his contact damages by way of a breach of contract claim, instead of a negligence claim. But the negligence claim in Haynes v Adair Homes did not merely include claims that Adair Homes breached provisions of its contract or warranty. The negligence claim asserted by the Haynes family fell outside the four corners of the agreement. The allegation that Adair Homes failed to perform to the standard of care or workmanship prevailing in the construction industry was based not on the specific terms of the contract, but upon standard imposed by the law and which is implicit in every contract. The Hayneses relied upon Securities-Intermountain, Inc. v. Sunset Fuel Co., discussed above.
The judge made an interesting decision, which predated Harris v Suniga by three years. He decided to allow any claim for property damage or cost of repair to be pursued on a breach of contract theory, and any claim for tort damages, such as personal injury, other personal property damage or consequential losses to be pursued on a negligence theory. This essentially split the Hayneses’ causes of action and the various categories of damages they had suffered. The judge seemed to agree that the negligence claim was not defeated by the seeming lack of any special relationship between the Haynes family and their builder. The Oregon Supreme Court has apparently ratified this approach in Harris v Suniga, discussed above.

Challenging plaintiffs’ medical expert

The defense attorney in the Haynes case, as most defense counsel are wont to do, tried to exclude plaintiffs’ medical experts from testifying. The lead medical expert was the late Dr. Vincent Marinkovich, a renowned immunologist formerly of Stanford University Medical School. Dr. Marinkovich had treated thousands of mold victims over his career and was well qualified to render an expert opinion based on his experience and training. The defense seized upon the idea that he had invented a new kind of blood test for mold antibodies, using a thread upon which mold antigens were imbedded. Other blood tests utilized different means to introducing the blood to mold antigens, such as a porous jell or plastic plate. But the essence of all bloods tests was to see if the blood reacted with the antigens. If a reaction occurred, then the body had been exposed to the mold because it had started developing an immunological response (antibodies). Dr. Marinkovich had developed this thread test and sold it to a private entity because he did not want to be accused of having a conflict of interest when he used his own test. That company had not marketed it effectively, leading defense to claim that the test was not genuinely accepted in the medical community.

Overcoming the challenge

We pointed out that, regardless of methodology, all of the various types of blood tests did essentially the same thing: they introduced blood to mold antigens held in some place to see if antibodies formed. The tests all looked to see if antibodies to certain molds were formed in the blood. If so, then mold was present in the blood and the body had developed an immunological response to those substances. It made no difference how we introduced the blood to the antigens, because any one of the blood tests used would lead to the same result. My argument went like this: The court can observe for itself, that we are all here today. But you do not know how we got here. Maybe we drove a car, took a bus, got a ride from someone or even walked. But the proof that we are here is that you can observe us with your own eyes. These blood tests represent different means of transporting the blood to the antigens, but the issue is whether or not there are antibodies present, not how you introduced the blood to the antigens. The trial judge agreed that there was not a significant difference from the Marinkovich blood test to other tests. He also noted that Dr. Marinkovich had performed a medical examination to document symptoms, had conducted medical diagnostic work that was clearly mainstream and that his qualifications were “superior.”

The Haynes family introduced several different blood tests from different doctors who were mold experts and who used different labs to interpret the results. All of the plaintiffs’ blood tests were off-the-chart high for several kinds of mold found in the house. The defense used OHSU in Portland and its blood tests came back negative. The jurors rejected the OHSU test results and one juror was physically angry when the defense expert introduced the negative result. During the defense expert’s testimony, not one juror was taking notes. In a rare expression of trust in the jury’s collective wisdom, we did not ask the defendant’s medical expert a single question.

Sometimes you get lucky

After the verdict, we executed on the judgment and moved for attorney fees. In the battle over that execution and the size of the appellate bond to be posted, the defense moved for a new trial asserting that it was error to allow Dr. Marinkovich to testify. But defense counsel spent so much time dealing with the fact that we were executing on the judgment that he was one day late in filing his motion for a new trial.

The court considered the motion even though it was filed a day late, but denied the motion for a new trial. In the wake of that decision, the Oregon Court of Appeals noted that the late motion for new trial did not toll the 30 day window to file an appeal, which would have been the case had the motion been timely filed. The Oregon Court of Appeals held that the defendant’s appeal on the merits was, therefore, untimely and dismissed it. I feel confident that the verdict would have been upheld on appeal, but this dismissal prevented the Haynes family from having to wait two years or so for a decision affirming the trial court. Sometimes you get lucky.

Practice tip: Anticipate challenges to your medical expert by “shadow boxing” your own case. Think about how the defense might attack your experts. Also please note that there is a need for a medical doctor to not merely rely on blood testing, but to perform an evaluation and objective medical examination to document symptoms common to mold victims, like decreased lung capacity, reddened sinus passages, fluid behind the eardrum etc.

Another tip: Never give up and never let up. I received a telephone voicemail from defense counsel after we served a writ of garnishment on a number of banks in execution of the judgment. He condescendingly told me that it wasn’t going to do me any good to try to execute. In fact, it did tremendous good because it distracted him from getting his motion for a new trial in on time. In fact, he blew his appeal because of it.

Yet another tip: It is a mistake to plead a damages case so high that you make the jury thinks your plaintiffs are greedy. Most jury verdicts in Clackamas county before the Haynes case where the plaintiffs sought in excess of $1 million resulted in defense verdicts. Don’t be greedy. Choose an appropriate number you can defend and expect and request that the jury will be fair.

Attorney fees issues

The Haynes family was entitled, as prevailing parties, to an award of their reasonable attorney fees. The defense objected to the amount requested, but conceded that the plaintiffs were entitled to some fee award. After briefing and a full evidentiary hearing, the court awarded the Haynes family every penny of their documented costs and fees. One of the reasons for this was that the Haynes’s attorney charged a very modest rate ($ 170 to $190 per hour) compared with other attorneys (defense counsel billed $ 225) and wrote off almost 70 hours of time to try to relieve financial pressure on his clients. The plaintiffs expert at the attorney fee hearing testified that, in his experience, a plaintiff attorney usually has twice as much time into a case than defense counsel because plaintiffs’ counsel have to do more work to sustain their burden of proof. I billed only slightly more than the defendant’s attorney in the Haynes case.

On appeal, Adair Homes claims that the trial court should not have awarded the Haynes children any fees because the children were not parties to the contract. The trial court at the attorney fee hearing pointed out that Adair Homes’s attorney fee clause is extremely broad and authorizes an award of fees for claims that arise out of “the construction of the structure.” Therefore, Mrs. Haynes had a right to fees related to prosecuting the negligence claim and any work involving the children also arose out of construction of the structure. The work performed by plaintiffs’ counsel in furtherance of the negligence claim was also common to the contract claim, for which Adair Homes admits fees are recoverable. Under Oregon law the trial court need not apportion fees between claims involving common issues. Adair Homes’s second assignment of error on appeal was that mediation and filing a claim in arbitration was a condition precedent to a right to seek an attorney fee award. This argument was not preserved below and will likely be dismissed because Adair Homes cannot raise it for the first time on appeal. We anticipate the Court of Appeals will affirm the award by the trial court and award further attorney fees on appeal.

 

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