Berg v. Hirschy

• Decision Date: 14 June 2006
• Docket Number: 0301-01065; A122624.
• Citation: 136 P.3d 1182,206 Or. App. 472
• Parties: Arthur BERG, as Trustee and on behalf of the KJJ Trust, and Catherine A. Mick, Appellants, v. John A. HIRSCHY and Hagen Dye Hirschy & Dilorenzo, PC, an Oregon professional corporation, Respondents.
• Court: Oregon Court of Appeals

136 P.3d 1182

206 Or. App. 472

Arthur BERG, as Trustee and on behalf of the KJJ Trust, and Catherine A. Mick, Appellants, v. John A. HIRSCHY and Hagen Dye Hirschy & Dilorenzo, PC, an Oregon professional corporation, Respondents.

0301-01065; A122624.

Court of Appeals of Oregon.

Argued and Submitted June 3, 2005.

Decided June 14, 2006.

R. Daniel Lindahl, Portland, argued the cause for appellants. With him on the briefs were Robert B. Lowry and Bullivant Houser Bailey, PC.

Brian R. Talcott, Portland, argued the cause for respondents. With him on the brief were Thomas H. Tongue and Dunn Carney Allen Higgins & Tongue LLP.

Before LINDER, Presiding Judge, and HASELTON^* and ORTEGA, Judges.

ORTEGA, J.

Plaintiffs appeal the trial court's dismissal of their declaratory judgment action at the pleading stage. They assign error to the trial court's determination that granting defendants' motion to dismiss was proper because the case presented no justiciable controversy. We review for errors of law, Huang v. Claussen, 147 Or.App. 330, 332, 936 P2d 394, rev. den., 325 Or. 438, 939 P.2d 622 (1997), and affirm.

In considering the sufficiency of plaintiffs' complaint, we accept as true its well-pleaded allegations and the reasonable inferences that may be drawn therefrom, but disregard any allegations that are conclusions of law. Id. The complaint posits the following facts. Plaintiffs were shareholders of Berg Wholesale Hardware, Inc. (Berg Inc.). Defendants are attorney John Hirschy and his law firm. Defendants provided legal advice, including tax advice, to plaintiffs about converting Berg Inc. from a subchapter S corporation to a limited liability company. In reliance on that advice, plaintiffs chose to make that conversion, and defendants performed legal services in connection with that decision.

Plaintiffs allege that defendants negligently failed to advise them that converting Berg Inc. to a limited liability company could potentially cause adverse tax consequences if a tax authority were to ascribe what is commonly described as "goodwill" and/or "going concern" value to the corporation, thereby increasing its fair market value.¹ Plaintiffs filed tax returns ignorant of any "goodwill" or "going concern" value that would have required them to report a taxable gain. However, no tax authority has as yet required Berg Inc. to pay additional taxes, interest, or penalties as a result of that omission, although that possibility exists.

Plaintiffs filed this declaratory judgment action seeking declarations establishing defendants' negligence and liability for taxes that might be assessed against plaintiffs in the future or, in the alternative, a declaration that no malpractice claim has yet accrued for statute of limitations purposes.² Defendants moved to dismiss on the ground that the complaint did not present a justiciable controversy. The trial court agreed and dismissed the case with prejudice. We agree with the trial court that plaintiffs' claims are not justiciable.

Oregon's Uniform Declaratory Judgments Act, ORS 28.010 to 28.160,³ confers on Oregon courts the "power to declare rights, status, and other legal relations, whether or not further relief is or could be claimed." ORS 28.010. The Act aims "to settle and to afford relief from uncertainty and insecurity with respect to rights, status and other legal relations, and is to be liberally construed and administered." ORS 28.120.

Nevertheless, for a court to entertain an action for declaratory relief, the complaint must present a justiciable controversy—that is, an actual and substantial controversy between parties having adverse legal interests that results in specific relief through a binding decree. Brown v. Oregon State Bar, 293 Or. 446, 449, 648 P.2d 1289 (1982). A justiciable controversy must involve present facts, not future events or hypothetical issues. Johnson v. Miller, 113 Or.App. 98, 101, 831 P.2d 71 (1992). Where the rights of the plaintiff are contingent on the happening of some event that cannot be forecast and that may never take place, the dispute is not justiciable. Hale v. Fireman's Fund Ins. Co. et al, 209 Or. 99, 103-04, 302 P.2d 1010 (1956).

Plaintiffs' claims here depend on the occurrence of future events that may or may not happen. A cause of action for negligence does not arise until the defendant's negligence causes harm and results in damages to the plaintiff. DeJonge v. Mutual of Enumclaw, 90 Or.App. 533, 536-37, 752 P.2d 1277, rev. den., 306 Or. 155, 758 P.2d 346 (1988). However, by plaintiffs' own admission, they have yet to incur any damages; no tax authority has imposed on them any additional tax liability, and it is impossible to know when or even if they will incur such liability. Indeed, the relevant tax authority may never decide to review plaintiffs' tax returns at all, or may never decide that Berg Inc. experienced a taxable gain that subjects plaintiffs to additional liability. The declaratory relief that plaintiffs seek will not prevent them from incurring damages; rather, it depends on the hypothetical event that such damages will be incurred.⁴ Accordingly plaintiffs may not obtain declaratory relief because their claim is not justiciable.

We held that a similar controversy was not justiciable in 1000 Friends of Ore. v. Deva, 64 Or.App. 755, 669 P.2d 1183 (1983). There, the plaintiffs sought a declaration that, if the incorporation of a city were to be declared illegal in another pending case, various actions taken by that city were also illegal. 64 Or.App. at 757, 669 P.2d 1183. We explained:

"Underlying all of the allegations of plaintiffs' complaint is the hypothetical assumption that the incorporation of [the city] ultimately will be declared illegal in another case * * *. Plaintiffs are thus seeking declaratory and injunctive relief which would only become effective if they prevail in other pending litigation."

Id. Because the complaint sought hypothetical relief, we held that it did not involve an actual or justiciable controversy. Id.

Likewise here, plaintiffs seek a declaration that defendants were negligent based on hypothetical damages that they will incur only if a tax authority finds that they owe additional taxes. They attempt to distinguish 1000 Friends by noting that the declaration sought in that case depended on the outcome of an "entirely different case," but that plaintiffs here are not waiting for another tribunal to establish that defendants were negligent. That is hardly a distinction. The declaration that plaintiffs seek does, in fact, depend on what can be characterized as a finding in an entirely different case—that is, a finding by a tax authority that plaintiffs owe additional taxes. Indeed, the declarations sought by plaintiffs here are even more hypothetical because they depend on an entirely different hypothetical case, rather than an actual pending case like the one involved in 1000 Friends. In both circumstances, the relief sought would be awarded only if speculative future events come to pass. Accordingly, just as in 1000 Friends, plaintiffs' claim is not justiciable.

Plaintiffs' request for a declaration that their cause of action has not yet accrued likewise is not justiciable. In Lawson v. Coos Co. Sch....