Victim-Protecting “Discovery Rule” Properly Applied in Oregon – Unlike Washington

Kelly v. Lessner, --- P.3d ----, (Or.App. Nov 19, 2008) (NO. 060809121, A135003)

The courts and statutes in most states have created the “discovery rule” to prevent the statute of limitations from running where the defendant has concealed his misdeeds or has lulled the plaintiff into inaction. The discovery rule starts the time limit for filing an action when the plaintiff knew or should have known of the facts giving rise to the cause of action. Washington State courts, which generally favor the tortfeasor over the victim, have devised various interpretations to limit the protection the discovery rule provides. Washington law often does not require that all the elements of a cause of action be known, tends to ignore lulling, makes civil actions more difficult than criminal actions, and will look for any hint in the public record that could have put the victim on “discovery notice.”

In Kelly, the Oregon Court of Appeals was given the opportunity to follow Washington law and favor the tortfeasor. Instead it kept a robust discovery rule in place to protect victims.

Plaintiff Kelly invested $100,000 on the recommendation of the CPA for the company and was promised a fully secured interest in a home as collateral. Kelly could have learned that the trust deed did not protect her if she had checked the public records. Kelly waited more than two years (the period provided by the statute of limitations) to file her complaint after Defendant defaulted on the investment. The trial court dismissed the action, ruling the statute of limitations began to run when plaintiff became aware that defendant's representations regarding the stability of the Defendant’s business and the soundness of the investment were false. It also concluded that the statute of limitations on plaintiff's breach of fiduciary duty claim expired before plaintiff filed her complaint, reasoning that a reasonable person, in light of Defendant's default on the loan, would have investigated the priority of the trust deed.

The Court of Appeals reversed. It held that a jury could find that a reasonable person in Plaintiff Kelly's circumstances could believe, despite the default, the loan was fully secured and that no harm would arise from defendant's representations about the wisdom of the investment or the adequacy of the security.

Oregon is following a higher path than Washington in regards to the discovery rule. Courts should craft decisions regarding the discovery rule to protect victims whose primary “fault” is trusting someone else to tell the truth.