O'Kain v. Landress

• Decision Date: 18 September 2019
• Docket Number: A162859
• Citation: 299 Or.App. 417,450 P.3d 508
• Parties: Alan N. O’KAIN; Victoria E. O’Kain; Cambridge Land Company, LLC; and Cambridge Land Company, II, LLC, Plaintiffs-Appellants, v. Sanford LANDRESS; Greene & Markley PC, an Oregon professional corporation; and Charles Markley, Defendants-Respondents.
• Court: Oregon Court of Appeals

299 Or.App. 417

450 P.3d 508

Alan N. O’KAIN; Victoria E. O’Kain; Cambridge Land Company, LLC; and Cambridge Land Company, II, LLC, Plaintiffs-Appellants,

v.Sanford LANDRESS; Greene & Markley PC, an Oregon professional corporation; and Charles Markley, Defendants-Respondents.

A162859

Court of Appeals of Oregon.

Argued and submitted December 12, 2017.

September 18, 2019

Margaret H. Leek Leiberan, Portland, argued the cause and filed the briefs for appellants.

Nena Cook, Portland, argued the cause for respondents. Also on the brief were Lori Irish Bauman and Ater Wynne LLP.

Before Hadlock, Presiding Judge, and Egan, Chief Judge, and Mooney, Judge.^*

EGAN, C. J.

Plaintiffs Alan and Victoria O’Kain (the individual plaintiffs), Cambridge Land Company, LLC (Cambridge), and Cambridge Land Company II, LLC (Stoneridge) (together the LLC Plaintiffs), appeal from a judgment of the trial court dismissing with prejudice their legal malpractice claim against defendants Sanford Landress, Charles Markley, and their law firm, Greene & Markley. Plaintiffs assign error to the trial court’s granting of defendants’ motion for summary judgment on the claim and the trial court’s denial of plaintiffs’ motions for partial summary judgment on the issue whether defendants represented the individual plaintiffs as well as the LLC Plaintiffs. We conclude that the trial court did not err in rejecting the individual plaintiffs’ motion for partial summary judgment, but erred in granting defendants’ motion and therefore reverse.

On review of cross-motions for summary judgment, we view the record for each motion in the light most favorable to the party opposing it to determine whether there is a genuine issue of material fact and, if not, whether either party is entitled to judgment as a matter of law. ORCP 47 C; Yartzoff v. Democrat-Herald Publishing Co ., 281 Or. 651, 655, 576 P.2d 356 (1978) ; Vision Realty, Inc. v. Kohler , 214 Or. App. 220, 222, 164 P.3d 330 (2007).

The LLC Plaintiffs were in the business of owning and managing the Stoneridge and Cambridge apartments in Salem, Oregon. The LLC Plaintiffs had defaulted on their loans and were subject to a foreclosure action in Marion County Circuit Court. The lender, Fannie Mae, sought the appointment of a receiver, and the court set a hearing date of September 27, 2013.

Plaintiff Alan O’Kain is an attorney licensed to practice law in California. He was the person in control of both LLC Plaintiffs. Alan and his revocable living trust were the primary investors in Cambridge and the sole investors in Stoneridge.¹ Alan did not want to lose management of the properties, and he believed that the filing of Chapter 11 bankruptcy on behalf of each LLC would stay the foreclosure proceeding and prevent the appointment of a receiver so that he could retain management and control of the properties, to allow him to preserve his existing and future equity. See 11 USC § 362(d) (providing for automatic stay of judicial proceedings upon filing of petition for bankruptcy).

Alan is married to plaintiff Victoria O’Kain, who is an inactive member of the Oregon State Bar and a former associate attorney with Greene & Markley. Victoria O’Kain does not have a direct financial interest in or formal control of the LLC Plaintiffs.² Defendants are a law firm and attorney members of the firm who have extensive experience in insolvency law.

In her declaration in opposition to defendants’ motion for summary judgment and in support of plaintiffs’ motion for partial summary judgment, Victoria O’Kain averred that she chose to consult defendants for advice about preserving the equity and managerial control of Stoneridge and Cambridge. In their declarations, the individual plaintiffs averred that defendant Markley had represented them on multiple occasions in the past and that, prior to meeting in person with defendants, plaintiffs had several telephone conversations with defendants in which they discussed their concern that a receiver appointed by the Marion County Circuit Court would represent only Fannie Mae’s creditor interest in the properties and would not manage the properties so as to preserve Alan’s equity.

On September 25, 2013, two days before the scheduled hearing on the appointment of a receiver in the foreclosure action, the individual plaintiffs met with defendants Markley and Landress at the Greene & Markley firm. Plaintiffs’ legal counsel in the foreclosure proceeding also attended. In their declarations, the individual plaintiffs stated that, at the September 25 meeting, defendant Landress advised plaintiffs not to worry about the appointment of a receiver in the foreclosure proceedings. He told them that, even if the state court appointed receivers, the Bankruptcy Court in a later Chapter 11 bankruptcy proceeding would remove the receiver and return managerial control to Alan as the debtor in possession. Plaintiffs stated in their declarations that defendants advised plaintiffs to have their foreclosure counsel attend the receivership hearing before filing for Chapter 11 bankruptcy. Defendants also advised Alan not to restructure his personal investment interest in the LLCs before filing a Chapter 11 bankruptcy. The individual plaintiffs stated in their declarations that they believed at the September 25 meeting that defendants were representing them personally as well as the LLC Plaintiffs and were giving them advice on how to protect Alan’s interest in the properties. Defendants did not tell plaintiffs at the September 25 meeting that they were representing only the LLC Plaintiffs. Alan relied on defendants’ advice and did not have the LLC Plaintiffs file for Chapter 11 bankruptcy in advance of the receivership hearing.

After the September 25 meeting, Alan signed a "retainer contract" providing that Green & Markley was retained "to represent [the LLC Plaintiffs] as legal counsel for research and advice concerning feasibility of Ch. 11 Bankruptcy filing."

At the receivership hearing for Stoneridge on September 27, 2013, the Marion County Circuit Court entered an order appointing a receiver selected by Fannie Mae. On October 14, the court entered an order appointing the same receiver in the Cambridge foreclosure action.

After the appointment of a receiver on Stoneridge, on September 30, 2013, Landress sent an email to Alan and Victoria advising them against Chapter 11 bankruptcy, because of the costs and the risks of failure, and recommending Chapter 7 bankruptcy instead, which would require a sale of the properties.³

Alan sought advice from different counsel. On October 16, Stoneridge filed for Chapter 11 bankruptcy with different legal counsel, and on October 18, Cambridge filed for Chapter 11 bankruptcy with the same counsel. On November 14, 2013, over plaintiffs’ objections, the Bankruptcy Court determined that the receiver selected by Fannie Mae and appointed in the foreclosure proceedings would serve as receiver in the bankruptcy proceeding.

While the matter was in Chapter 11 bankruptcy, in August 2014, Alan and Victoria found a purchaser for the properties for a combined price of $9.7 million, which exceeded the LLC Plaintiffs’ debt to Fannie Mae. With the court’s approval, the properties were sold and, in December 2014, the court dismissed the bankruptcy proceeding.

In September 2015, plaintiffs brought this legal malpractice action, alleging that defendants were negligent in advising them at the September 25 meeting to wait until after the receivership hearing to file for bankruptcy. Plaintiffs alleged that, as a result of defendants’ negligence, the management of the properties was removed from Alan’s control and remained within the control of the receiver selected by Fannie Mae. Plaintiffs alleged that, as a result of defendants’ negligence, they incurred costs in the bankruptcy proceeding relating to the appointment of the receiver that would not otherwise have been incurred, including the receiver’s fees of $60,000, the receiver’s legal fees of $350,000, and an extraordinary bankruptcy administration fee of $150,000. Plaintiffs alleged that they were further damaged by a reduction in the properties’ values and loss of rental revenues as a result of the receiver’s maintenance of vacancies.⁴

As noted, the trial court granted defendants’ motion for summary judgment on plaintiffs’ claim and denied plaintiffs’ motion for partial summary judgment. The trial court granted defendants’ motion on the grounds that (1) only the LLC Plaintiffs, and not the individual plaintiffs, were clients of defendants, and (2) the damages that the LLC Plaintiffs claim they suffered as the result of the appointment of a receiver were not foreseeable by defendants. The court denied without further explanation plaintiffs’ motion for partial summary judgment seeking a determination that the individual plaintiffs were defendants’ clients.

On appeal, plaintiffs assign error to the granting of defendants’ motion for summary judgment and the denial of plaintiffs’ motion for partial summary judgment. Because it is potentially dispositive, we first address plaintiffs’ contention, raised in their third assignment of error, that the trial court erred in granting defendants’ motion on the ground that the LLC Plaintiffs’ damages alleged to have been caused by the receiver’s mismanagement were not reasonably foreseeable by defendants as a matter of law.

Initially, we note what is not at issue in the third assignment. Defendants do not dispute plaintiffs’ contentions in their declarations that defendants advised against the need to rush to file for bankruptcy before the appointment of a receiver.⁵ Defendants also have not challenged in their motions for summary judgment the LLC Plaintiffs’ allegation of damages that they assert are attributable to the appointment of a receiver or whether defendants’ conduct was the factual cause of plaintiffs’ damages. The only issue raised in the motion for summary judgment on which the trial court ruled was...