Lahn v. Vaisbort

• Citation: 369 P.3d 85,276 Or.App. 468
• Decision Date: 18 February 2016
• Docket Number: 10CV0382ST,A154575.
• Parties: Elizabeth LAHN, Plaintiff, and Alexis Scharff, individually and as assignee of rights and claims of Elizabeth Lahn; and Alexis Scharff as Trustee of the Alexis G. Scharff Revocable Trust, Plaintiffs–Appellants, v. Edward Daniel VAISBORT, Defendant–Respondent, and Bennett H. Goldstein, Mark Knapp, and Peter Scharff, Defendants.
• Court: Court of Appeals of Oregon

276 Or.App. 468

369 P.3d 85

Elizabeth LAHN, Plaintiff,andAlexis Scharff, individually and as assignee of rights and claims of Elizabeth Lahn; and Alexis Scharff as Trustee of the Alexis G. Scharff Revocable Trust, Plaintiffs–Appellants,

v. Edward Daniel VAISBORT, Defendant–Respondent,andBennett H. Goldstein, Mark Knapp, and Peter Scharff, Defendants.

10CV0382ST

A154575.

Court of Appeals of Oregon.

Argued and Submitted Aug. 13, 2015.

Decided Feb. 18, 2016.

Barton C. Bobbittargued the cause and filed the briefs for appellants.

Peter Hawkes, Portland, argued the cause for respondent. On the brief were Thomas W. Sondagand Lane Powell PC.

Before DUNCAN, Presiding Judge, and DeVORE, Judge, and FLYNN, Judge.

DeVORE, J.

Plaintiff Alexis Scharff appeals from a judgment entered for defendant Edward Vaisbort after the trial court granted his motion for summary judgment against plaintiff's claims for breach of contract, professional negligence, and securities fraud.¹ Her claims arose when she provided a renewed loan to a real estate entity, then learned, upon its default, that her loan was essentially unsecured. Defendant had drafted the transaction documents.

As to each of her claims, plaintiff separately assigns error to the trial court's decision to grant summary judgment. We reject without written discussion plaintiff's assignment regarding her breach of contract claim. As to her negligence and securities claims, we address several issues: first, whether there was evidence from which a reasonable juror could find that plaintiff had a lawyer-client relationship with defendant; second, whether plaintiff's securities claim was barred by the statute of limitations; and, third, whether plaintiff's note could constitute a security. For the reasons below, we reverse and remand on plaintiff's securities fraud claim, and otherwise affirm.

I. FACTS

"We take the following facts from the summary judgment record, viewing the facts and all reasonable inferences that may be drawn from them in the light most favorable to plaintiff, as the nonmoving party." Oregon Steel Mills, Inc. v. Coopers & Lybrand, LLP, 336 Or. 329, 332, 83 P.3d 322 (2002). Plaintiff alleged a substantial history of loan transactions culminating in an ill-fated loan renewal. In prior transactions, defendant, a California attorney, had represented plaintiff and other lenders, although in the ill-fated transaction, his communication and documents declared that he represented only plaintiff's brother, Peter Scharff (hereafter "Scharff"), who played a key role among three lenders.

Beginning in the 1990s, plaintiff, Scharff, and Elizabeth Lahn made a series of private loans to Dorn–Platz Properties, a California-based development corporation (hereafter "Dorn–Platz" or "borrower"). An investment broker working on behalf of Dorn–Platz had approached lenders to put together the transactions. In addition to participating as a lender, Scharff acted as an agent for plaintiff and Lahn by negotiating and closing the loans. Scharff "reviewed and made recommendations as to the making of the loans," held power of attorney, and "maintained all the documents and records" for plaintiff. Plaintiff did not independently review documents to ensure that the loans were secured because she relied solely on her brother's judgment. Defendant prepared loan documents and represented the group of lenders in some of the transactions with Dorn–Platz.² Defendant began representing plaintiff in 1997.

In November 2003, loans from plaintiff and other lenders to Dorn–Platz were coming due. The borrowers' broker encouraged plaintiff and the other lenders to roll over their outstanding loans into new loans to Dorn–Platz.³ The broker explained that defendant would "represent the lenders and prepare the documents" for a new loan for development of "The Round," a mixed-use property in Beaverton. The lenders were presented with the opportunity either to end or to increase their loans to Dorn–Platz. Scharff recommended to plaintiff and Lahn that they extend their loans. Plaintiff, Scharff, and Lahn rolled their loans over and, at the same time, increased the amount of their loans.

In January 2004, Scharff, on behalf of plaintiff, signed an "Inter Creditor Agreement" for her rollover loan to Dorn–Platz. The collateral for the loan was described as a note "that was originally given to CHUO Bank and Trust by * * * [Mr. Platz]," an interest in the Round, and real property owned by Platz in California.⁴ A loan summary advised that the lenders would be "represented by [defendant] who will draw all the documents and do all the legal work."⁵

In October 2004, the lenders received another memorandum from the broker urging yet another loan rollover with Dorn–Platz. The broker stated that, "[b]asically, the partners are 'splitting the sheets.' " The broker declared, "If you want out, we need to know right away. If you want to add money we need to know right away. Peter Scharff is putting in $100,000 more. * * * Our attorney, [defendant], will do the documents. This must close before Christmas." A loan summary prepared in December described the new loan arrangement as a "Rollover/Recast" of the January 2004 loan.⁶ The rollover/recast arrangement entailed the lenders' release of the Chuo note and the real property in California, in exchange for Dorn–Platz's minority partnership interest in The Round development project. The loan summary indicated that the lenders would be able to record a trust deed on three undeveloped commercial lots at an unspecified time "[a]fter closing" but did not otherwise provide for the lenders' security in real property. The agreement extended the loan term until 2010, a period of 60 months, at an interest rate of 12 percent.⁷

In January 2005, plaintiff and defendant exchanged email communications in which defendant provided plaintiff with a new "Inter Creditor Agreement" for the proposed rollover/recast loan to Dorn–Platz. Defendant explained in an email to plaintiff that "[t]he Inter Creditor Agreement is intended to permit Mr. Scharff to execute the necessary documents to originate the proposed loan and subsequent to funding act as the lead participant in connection with any enforcement issues." Defendant stated, "You are encouraged to seek independent counsel to review these and any documents in connection with this matter. Please remember, as it is expressly stated in the Inter Creditor Agreement, we are representing Mr. Scharff in the transaction. " (Emphasis added.) In that email chain with plaintiff, plaintiff referred to other counsel of her own but wrote that her attorney had not "assigned the original loan to [her] trust." As part of the transaction-related documents, defendant offered to revise the power of attorney forms to involve Scharff as to plaintiff's trust and to provide an acknowledgement form for plaintiff's trust. Doing so, he explained, would avoid the trouble of revising and redistributing the Inter Creditor Agreement to all of the lenders. Defendant provided plaintiff with the forms granting Scharff powers of attorney and requested that plaintiff notarize and return them.

Plaintiff, Scharff, and Lahn all signed the second "Inter Creditor Agreement" reflecting the new loan summary for the rollover/recast loan and, for the second time, significantly increased the amount of their loans to Dorn–Platz.⁸ Plaintiff increased the amount of her loan by $125,000 by rolling over another of her loans to Dorn–Platz ("San Fernando Retail Rollover"). The Inter Creditor Agreement recounted that Scharff, with "Limited Special Powers of Attorney," would execute the loan documents on behalf of the lenders, including plaintiff. The agreement also contained the following provisions:

"12. Waiver of Potential or Actual Conflict. Each of the Parties understands and expressly agrees that [defendant] has represented Scharff⁹ in connection with this transaction and the preparation of certain documents including this Agreement. The Parties further agree that [defendant], acting solely as counsel for Scharff, shall prepare documents related to the Loan, that [defendant's] firm shall continue solely to represent Scharff in connection with the Loan, and that to the extent such representation creates any potential or actual conflict of interest, Scharff and the Parties hereby waive such conflict of interest.

"13. Review by Independent Counsel. Each of the undersigned is and has hereby been advised to obtain separate and independent legal and business [advice] from their own lawyers, accountants and advisors concerning this Agreement and all transactions contemplated herein or in connection with the Loan, and the signers hereof have done so or have deliberately and independently refrained from doing so."

(Emphases added.)

The loan eventually closed in June 2005. The trust deed was never recorded as to the three commercial lots that had been promised as collateral "after closing," leaving the lenders' loans unsecured by any real property. By that time, plaintiff had loaned $400,000 to Dorn–Platz, and Lahn had loaned $500,000. In January 2008, Dorn–Platz began to miss payments and to issue checks to the lenders drawn on insufficient funds. In December 2009, the lenders were informed that their loans were unsecured and that Dorn–Platz was unable to repay them.¹⁰

Plaintiff filed a complaint alleging, among other things, that defendant had negligently represented her in relation to the 2005 loan agreement. Plaintiff specified numerous failures, including failures to investigate, failures to advise, failures to provide copies of communications, and failures to disclose. She also alleged that defendant had violated Oregon's securities law. She alleged violations of ORS 59.135(1), (2), and (3)by materially aiding in making untrue statements when circulating false loan summaries, failing to disclose several circumstances, and failing to disclose that the trust deed for real property was not obtained as part of the...