Harkness v. Platten
| Decision Date | 08 April 2015 |
| Docket Number | C092970CV,A147439. |
| Citation | 270 Or.App. 260,348 P.3d 1145 |
| Parties | John HARKNESS and Sherri Harkness, Plaintiffs–Appellants, v. Jack R. PLATTEN, Defendant–Respondent. |
| Court | Oregon Court of Appeals |
Emil R. Berg argued the cause for appellants. With him on the briefs were Leonard D. Duboff, and The DuBoff Law Group, LLC.
James C. Tait, Oregon City, argued the cause for respondent. With him on the brief was Tait & Associates, P.C.
Before ARMSTRONG, Presiding Judge, and NAKAMOTO, Judge, and EGAN, Judge.
In this legal malpractice and negligent misrepresentation action, plaintiffs appeal a judgment directing a verdict in favor of defendant. In the underlying case, defendant was one of the attorneys representing plaintiffs against Joanne Kantor and her successive employers Sunset Mortgage Company (Sunset) and Directors Mortgage, Inc. (Directors). The underlying action arose out of the misconduct of Kantor in inducing plaintiffs to borrow money from Sunset and Directors and then give that money to Kantor to invest in private, hard-money loans that were supposed to have been secured. Shortly before trial in the underlying action, plaintiffs agreed to settle the entire matter for $600,000, an amount significantly less than their damages.
In bringing this action against defendant, plaintiffs asserted that, but for defendant's legal malpractice and negligent misrepresentation during the settlement negotiations, they would have proceeded to trial and obtained a more favorable result against Sunset and Directors than the settlement amount. After plaintiffs put on their case in chief, the trial court granted defendant a directed verdict based on its conclusion that plaintiffs had not presented evidence that Kantor had apparent authority from either Sunset or Directors to engage in the hard-money loan investment scheme with plaintiffs and that, without that showing, plaintiffs would not have prevailed at trial against Sunset or Directors in the underlying action. We conclude that the trial court did not err and affirm.
In reviewing the grant of defendant's motion for a directed verdict, “we view the evidence and all reasonable inferences in the light most favorable to the plaintiff.” Patton v. Mutual of Enumclaw Ins. Co., 238 Or.App. 101, 124, 242 P.3d 624 (2010), rev. den., 349 Or. 654, 249 P.3d 542 (2011). “A directed verdict for the defendant on a negligence claim is proper only if there is no evidence from which the jury could have found the facts necessary to establish the elements of the claim.” Id. Based on that view of the evidence, the relevant facts are as follows.
Plaintiffs—John and Sherri Harkness—were interested in using the equity in their home to invest when John saw a homemade flyer for various businesses at work. The flyer included a photocopy of Kantor's business card that indicated Kantor was a loan officer with Sunset. After John spoke with a coworker who had worked with Kantor to purchase an apartment complex, plaintiffs set up and attended a meeting with Kantor at her Sunset office. Kantor proposed that plaintiffs borrow money from Sunset, using the equity in their house as collateral, and then she would invest those proceeds in short-term, high-interest loans to developers and building contractors (hard-money loans). She told plaintiffs that those hard-money loans would be secured by first or second liens on real property with “lots” of equity. Kantor explained that she and Sunset would get paid from the commission on plaintiffs' conventional loan on their house and from the conventional construction loans that Sunset would do for the builders.
After meeting with Kantor at Sunset again, plaintiffs agreed to the proposal, took out a conventional loan from Sunset, and turned over the loan proceeds to Kantor. Kantor did use those proceeds to make hard-money loans to several people and prepared certain documentation on Sunset letterhead. For the first of those loans, which was not funded from the Sunset loan proceeds turned over to Kantor, Sherri gave Kantor a cashier's check made out to Sunset. Sherri always met with Kantor at her Sunset office to learn about additional hard-money loan opportunities and to receive copies of notes for the loans Kantor made, which were always closed outside of plaintiffs' presence. Kantor later went to work as a loan officer at Directors. Plaintiffs continued their same investment relationship with Kantor at Directors and met with her at her Directors' office in the same manner as when Kantor was at Sunset. Plaintiffs also took out an additional loan from Directors, using their rental house as collateral, the proceeds of which were paid directly to Kantor to make hard-money loans to people Kantor found. Kantor's assistant at Directors was knowledgeable about all of plaintiffs' hard-money loans and would assist plaintiffs with information on those matters.
Plaintiffs did not get loan payments directly from borrowers and did not know how borrowers made payments, but Kantor arranged deposits into plaintiffs' bank account to service plaintiffs' personal loans. Sherri testified that certain notes directed payments to be made at addresses that corresponded to Sunset's or Directors' office address. Plaintiffs did not receive the proceeds from some of the note payoffs; instead, when a note was paid off or came due but not paid off, Kantor would recommend that plaintiffs immediately invest payoffs into new loans or roll over unpaid loans into a new loan to the same borrower, which plaintiffs would then do.
Sherri testified that she would not have dealt with Kantor if she were not working through Sunset. She also testified that she would not have continued working with Kantor if Kantor had not been at Directors. Sherri believed that Kantor was a representative of Sunset, and then Directors, and was acting within the scope of her employment in all her dealings with plaintiffs. However, it was undisputed that Kantor, in fact, was not performing duties for which she was hired as a loan officer with regard to the investment scheme and hard-money loan arrangements—that type of transaction was not part of the business of either Sunset or Directors—and neither Sunset nor Directors received any fees or commissions from the hard-money loans. There also was no evidence that the control persons at Sunset or Directors were aware of Kantor's arrangement with plaintiffs.
After about two years of investing with Kantor, plaintiffs were contacted by an attorney for one of the borrowers on a hard-money loan financed by plaintiffs. Kantor told Sherri that she just had forgotten to record a lien, so Sherri accompanied Kantor to record the lien. The borrower then sued plaintiffs. At the end of that lawsuit, plaintiffs learned that Kantor had forged the documents for at least that loan, and, for other loans, Kantor had not recorded any liens, or had recorded a lien in third position behind a lien Kantor had placed in favor of Directors on the property. Kantor also had been running all the money through her personal accounts. At the conclusion of that lawsuit, plaintiffs held notes to five outstanding loans, including the one deemed a forgery by the court, that totaled approximately $980,000, and at least one of the borrowers had already filed bankruptcy.
Plaintiffs then retained attorney Flaherty to represent them in a suit against Kantor, Sunset, and Directors (the underlying action).1 Sometime after filing the underlying action, Flaherty contacted defendant to be a securities law expert in the case, but, instead, defendant fully associated with Flaherty as co-counsel in the case to assist with securities law issues. Defendant advised Flaherty to have plaintiffs amend their complaint to include the control persons for Sunset and Directors as defendants in the action, which they did.2 Plaintiffs were not informed at that time about any risks associated with doing so or as to any defenses that the control persons might have.
Defendant often acted as co-counsel in the underlying action after being brought in, including preparing a response to a significant summary judgment motion that plaintiffs allege was inadequate. From that motion, Sunset obtained summary judgment on plaintiffs' contract claims against Sunset, and the trial court indicated it would entertain a similar motion from Directors.
About six days before trial, the parties in the underlying action engaged in a two-day mediation. At a summary judgment hearing one day before mediation, plaintiffs learned, for the first time, that Sunset and Directors contended that the statute of limitation barred certain claims, but Flaherty and defendant downplayed the contention, which Sherri took to mean that it was not true. During mediation, however, Flaherty and defendant confirmed to plaintiffs that there was a real risk of them being ordered to pay attorney fees to the control persons because the statute of limitation had run on those claims.
Also before the mediation, Flaherty and defendant had told plaintiffs only that they had a good case without exposure of counterclaims against them, and that they were prepared to take the case to trial. However, during the second day of the mediation, Flaherty and defendant indicated to John that they were not fully prepared for the trial that was to begin in five days, and they told plaintiffs that, if they settled, plaintiffs could go after the borrowers of the hardmoney loans for additional funds. Defendant specifically told them that “[t]here's ways of getting money from the borrowers.” At the time of that statement, Sherri knew that at least one borrower on a big loan was not in bankruptcy.
At the end of the two-day mediation, the parties settled the underlying action for $600,000. Plaintiffs testified that that amount could not make them whole because it would leave them with significant amounts owing on their residential mortgage. Plaintiffs' expert in the...
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Harkness v. Platten
...more favorable than the settlement. Plaintiffs appealed the trial court ruling, and the Court of Appeals affirmed. Harkness v. Platten , 270 Or.App. 260, 348 P.3d 1145 (2015). For the reasons explained below, we reverse the decisions of the trial court and the Court of Appeals.The facts as ......