Authored by Jason Specht of Stoel Rives LLP (Portland).

The Oregon Court of Appeals re-affirmed its commitment to applying Oregon’s attorney fee provision, ORS 20.083, as establishing a broad reciprocity principle: in contract disputes, where the contract or a statute would entitle one party to attorney fees if it prevails, then the other party is likewise entitled to attorney fees if it prevails.

In A & E Security and Electronic Solutions, Inc. v. Fortalesa, Incorporation (PDF), the plaintiff brought a breach of contract claim alleging that it installed a security system at the defendant’s store, but the defendant had refused to pay for the work. The defendant asserted a counterclaim to rescind the contract based on the plaintiff’s misrepresentations. Both parties sought attorney fees under contract. An arbitrator rescinded the contract, and the trial court awarded the defendant attorney fees as the prevailing party.

The plaintiff objected to the attorney fee award, claiming that a rescinded contract cannot provide grounds for the award. A party, like the defendant, that has been induced to enter a contract through misrepresentations can either affirm the contract and seek damages through a misrepresentation claim or can rescind the contract and restore the parties to their positions prior to entering the contract. In this case, the defendant sought to rescind the contract, which absolved the defendant of its contractual obligations, including having to pay the plaintiff, but also forfeited the defendant’s contractual rights. According to the plaintiff, that included forfeiting the defendant’s contractual right to the attorney fees.

The Court of Appeals disagreed. The attorney fee provision, ORS 20.083, states,

A prevailing party in a civil action relating to an express or implied contract is entitled to an award of attorney fees that is authorized by the terms of the contract or by statute, even though the party prevails by reason of a claim or defense asserting that the contract is in whole or part void, a claim or defense asserting that the contract is unenforceable or a claim or defense asserting that the prevailing party was not a party to the contract.

It would seem easy enough to reject the plaintiff’s argument by holding that the defendant’s rescission claim asserts that the contract is void and unenforceable. But in King v. Neverstill Enterprises, LLC, 240 Or App 727 (2011), the Court of Appeals held that the language about void and unenforceable contracts is merely “explanatory,” while the “operative” clause is the first one, stating that the prevailing party is entitled to an award “authorized by the terms of the contract or by statute.” As a result, the Court of Appeals in this case held that its task was “not to determine whether a rescinded contract falls within the meaning of a contract that is ‘void’ or ‘unenforceable,’” but rather to determine whether the operative clause covers rescinded contracts.

To undertake this analysis, the Court of Appeals did not break down the statutory language of the operative clause, which would require addressing whether a rescinded contract can authorize an award. Instead, the Court of Appeals focused on the statutory context, including the legislative history of ORS 20.083. It held that the legislature enacted ORS 20.083 in 2003 with the intent to establish a broad reciprocity principle and overturn cases narrowly interpreting the prior attorney provision, including Bodenhamer v. Patterson, 278 Or 367 (1977), which held that a rescinded contract does not provide grounds for an attorney fees award. To support this, the Court of Appeals cited extensive testimony during legislative hearings on the bill. Based on this analysis, the Court of Appeals affirmed the trial court’s attorney fees award and re-affirmed the broad reciprocity provision.