Hoeck v. Schwabe, Williamson & Wyatt

• Decision Date: 10 September 1997
• Citation: 149 Or.App. 607,945 P.2d 534
• Court: Oregon Court of Appeals
• Parties: Hans HOECK and Hoeck & Associates, a limited partnership, Appellants, v. SCHWABE, WILLIAMSON & WYATT, a law partnership, John Guinasso and Mark Stayer, Respondents. 9409-06750; CA A88827.

Page 534

945 P.2d 534

149 Or.App. 607

Hans HOECK and Hoeck & Associates, a limited partnership, Appellants, v. SCHWABE, WILLIAMSON & WYATT, a law partnership, John Guinasso and Mark Stayer, Respondents.

9409-06750; CA A88827.

Court of Appeals of Oregon.

Argued and Submitted Nov. 25, 1996.

Decided Sept. 10, 1997.

Clayton C. Patrick, Salem, argued the cause for appellants. With him on the briefs was Patrick & Meadowbrook.

Peter Bunch, Spokane, WA, argued the cause for respondents. With him on the brief were Garr M. King and Kennedy, King & Zimmer, Portland.

Before RICHARDSON, Senior Judge, and LANDAU and LEESON, JJ.

LANDAU, Judge.

Plaintiffs initiated this action for legal malpractice, alleging that defendants failed to provide adequate advice regarding the availability of reorganization under Chapter 11 of the Bankruptcy Code as a means of satisfying creditors without losing certain real property. The trial court entered summary judgment in favor of one of the attorneys on the ground that the action was time barred. The court dismissed the law firm and the remaining attorney after quashing service of the summons and complaint. Plaintiffs appeal, contending that the trial court erred in entering summary judgment and in quashing service of the summons and complaint. We agree with plaintiffs and reverse and remand.

We first address plaintiffs' assignment of error concerning the entry of summary judgment, reciting the facts relevant to that assignment. Following our disposition of that assignment, we address plaintiffs' contentions concerning the trial court's decision to quash service of the summons and complaint, reciting separately the facts relevant to those contentions on appeal. In reviewing the trial court's entry of summary judgment, we view the evidence in the light most favorable to the nonmoving party to determine whether there is a genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law. ORCP 47 C.

Plaintiff Hoeck & Associates is a limited partnership, of which plaintiff Hans Hoeck (Hoeck) is the general partner. The partnership owned and operated a storage business, and Hoeck had a substantial equity interest in the Morrison Building, in which the storage business was located. Hoeck was purchasing the building from Embarcadero Investments (Embarcadero). Under the terms of the purchase agreement, Hoeck was to make a balloon payment by a predetermined date. When Hoeck could not meet the balloon payment deadline, plaintiffs retained defendant Schwabe, Williamson & Wyatt (Schwabe) and two of its attorneys, defendants Stayer and Guinasso. In a conversation in 1991, Guinasso briefly mentioned to Hoeck the option of bankruptcy. Hoeck understood from that discussion that, if he were to file for bankruptcy, he would "lose everything," but nevertheless would obtain a "new beginning." Stayer confirmed that conversation in a letter dated June 18, 1991:

"I wanted to confirm in writing some of our previous conversations where we discussed your various options and alternatives. I know the thought of bankruptcy is distasteful to you, but we mention that option so that you know there is a way to preserve the status quo and prevent a third party from taking action adverse to your interests * * *. Please let us know if you would like to pursue this option."

On July 24, 1991, defendants negotiated a final extension of the balloon payment deadline to October 1, 1991. Defendants advised Hoeck to sign an estoppel deed to Embarcadero, with the understanding that the deed would relinquish all rights to the Morrison Building if he could not obtain financing by the deadline. When the deadline arrived and Hoeck was unable to tender the balloon payment, defendants delivered the estoppel deed to Embarcadero. On October 2, 1991, defendants ceased representing plaintiffs.

A year later, Hoeck spoke with a mortgage broker about the failed Morrison Building transaction. The mortgage broker suggested that Hoeck consult a bankruptcy attorney. Hoeck did that on October 1, 1992. Bankruptcy counsel explained to Hoeck that he could have filed a reorganization plan under Chapter 11 of the Bankruptcy Code at any time prior to the recording of the estoppel deed to Embarcadero, which would have preserved his interests in the Morrison Building.

On September 30, 1994, plaintiffs filed their complaint initiating this action, alleging that defendants were negligent in failing to explain to Hoeck his rights under Chapter 11 of the Bankruptcy Code, both before and after the delivery of the estoppel deed to Embarcadero. Defendants Schwabe and Guinasso obtained judgments of dismissal, which judgments we review presently. Meanwhile, defendant Stayer moved for summary judgment on the ground that plaintiffs' action was time barred, because it was filed more than two years after the alleged professional negligence occurred. In response to the motion, plaintiffs conceded that the action was initiated more than two years after Stayer's alleged negligence occurred, but argued that the action nevertheless was timely because the complaint was filed within two years of the date that they first learned that Stayer's advice had caused them unnecessarily to lose the Morrison Building. The trial court granted Stayer's motion.

On appeal, plaintiffs argue that the trial court erred in granting summary judgment to Stayer, because there is at least a genuine issue of material fact as to when they knew or reasonably should have known of the connection between Stayer's inadequate advice and the loss of the Morrison Building. They contend that, before October 1992, when a mortgage broker first suggested consulting with a bankruptcy expert, no one had suggested that Stayer's advice had been anything but correct, and they were entitled to rely on that advice at least until that point. Stayer contends that plaintiffs "had a duty to use due diligence in an effort to discover the facts regarding Stayer's allegedly inadequate advice about bankruptcy, but failed to do so." Stayer does not explain why plaintiffs were not entitled to rely on the advice that they had received; his argument is that, to prevail on the summary judgment motion, plaintiffs were required to offer some affirmative explanation as to why it took so long to find out that Stayer's advice had been incorrect. At the very least, Stayer contends, plaintiffs were on notice that Stayer's advice might have been inadequate when they lost the Morrison Building in October 1991. In a supplemental memorandum, Stayer suggests that his allegedly errant advice was "inherently discoverable." ¹

In an action for professional malpractice, the applicable statute of limitations is ORS 12.110(1), which provides that the action must be initiated within two years of a plaintiff's injury. U.S. Nat'l Bank v. Davies, 274 Or. 663, 665-66, 548 P.2d 966 (1976). The two-year period, however, is subject to the "discovery" rule for establishing when a claim accrues for statute of limitations purposes. As the Supreme Court explained in Stevens v. Bispham, 316 Or. 221, 851 P.2d 556 (1993), in a legal malpractice action the statute of limitations does not begin to run

"until the client knows or, in the exercise of reasonable care, should know, 'every fact which it would be necessary for the [client] to prove * * * in order to support his right to judgment.' Thus, the claim accrues and the statute of limitations begins to run when the client both suffers damage and knows or, in the exercise of reasonable care, should know that 'the substantial damage actually suffered was caused by' the lawyer's acts or omissions."

Id. at 227, 851 P.2d 556 (emphasis in original; citations omitted) (quoting U.S. Nat'l Bank, 274 Or. at 666-67, 670, 548 P.2d 966).

Precisely when a person reasonably should have known that the harm suffered was caused by another's negligence generally presents a question of fact. See Gaston v. Parsons, 318 Or. 247, 256, 864 P.2d 1319 (1994) (applying parallel provision of ORS 12.110(4) and holding that "[w]hether a reasonable person of ordinary prudence would be aware of a substantial possibility of tortious conduct is a question of fact"). Still, in some cases, the facts may be such that no triable issue exists as to when a plaintiff knew or should have known that the defendant caused the harm suffered, and, in those cases, the matter may be resolved as a matter of law. Stevens, 316 Or. at 228, 851 P.2d 556.

A plaintiff has a duty to act diligently in discovering relevant facts. Branch v. Hensgen, 90 Or.App. 528, 531, 752 P.2d 1275, rev. den. 306 Or. 527, 761 P.2d 928 (1988). Whether a plaintiff has acted diligently depends on the facts of each case. Of particular relevance in some cases may be the nature of the relationship between the plaintiff and the defendant. In Gaston, for example, the plaintiff patient was assured by his physician that the physical symptoms he was experiencing were merely temporary and would abate in six months to two years. The court explained that such assurances

"may be particularly influential on a plaintiff because the physician-patient relationship is 'a relationship of trust and confidence * * * in which continued treatment or other resort to the skills of the defendant is required.' If the physician makes a representation on which a plaintiff reasonably relies, it could have the effect of delaying a reasonable person from becoming aware of a substantial possibility of tortious conduct."

Gaston, 318 Or. at 257, 864 P.2d 1319 (citation omitted) (quoting Cavan v. General Motors, 280 Or. 455, 458, 571 P.2d 1249 (1977)). The physician's assurance, the court concluded, "raises a genuine issue of fact as to its effect upon a reasonable person." Id. at 258.

We turn to the facts of this case, allowing plaintiffs the benefit of every reasonable inference. In this case, as in Gaston, plaintiffs and Stayer stood in a relationship of...