OREGON STEEL MILLS v. Coopers & Lybrand

• Decision Date: 29 August 2001
• Citation: 31 P.3d 1092,176 Or. App. 317
• Parties: OREGON STEEL MILLS, INC., a Delaware corporation, Appellant, v. COOPERS & LYBRAND, LLP, a Delaware limited liability partnership, Respondent.
• Court: Oregon Court of Appeals

31 P.3d 1092

176 Or. App. 317

OREGON STEEL MILLS, INC., a Delaware corporation, Appellant, v. COOPERS & LYBRAND, LLP, a Delaware limited liability partnership, Respondent.

9708-06108; A107366

Court of Appeals of Oregon.

Argued and Submitted February 9, 2001.

Decided August 29, 2001.

Lynn R. Nakamoto, Portland, argued the cause for appellant. With her on the briefs were Peter H. Glade, Lisa A. Kaner, David W. Melville and Markowitz, Herbold, Glade & Mehlhaf, P.C.

Evan L. Schwab argued the cause for respondent. With him on the brief were Curt R. Hineline, Rita V. Latsinova and Dorsey & Whitney LLP.

Before EDMONDS, Presiding Judge, and ARMSTRONG and KISTLER, Judges.

ARMSTRONG, J.

In this professional malpractice and breach of contract action, the trial court granted two motions by defendant for partial summary judgment that had the collective effect of eliminating both of the principal grounds for damages that plaintiff asserted. Plaintiff appeals from the ensuing final judgment¹ and assigns error to the granting of the two motions. We affirm in part and reverse in part.

Plaintiff is a corporation and defendant is an accounting firm that plaintiff retained for accounting, auditing, and tax matters. In 1994, a subsidiary of plaintiff made a stock sale. Pursuant to defendant's advice, the proceeds of the sale were shown as a gain on plaintiff's financial statements and reports and on defendant's audit reports for plaintiff from 1994 through 1995. Viewing the facts favorably to plaintiff, defendant's advice was incorrect and was given negligently.

In early 1996, plaintiff planned an offering of its own stock and debt. Shortly before the planned registration of the offering with the Securities and Exchange Commission (SEC), defendant discovered the apparent incorrectness of the treatment of the 1994 sale; it refused to permit the use of its audit reports in connection with the planned offering or, in other ways, to provide necessary assistance with the offering unless the SEC approved the treatment of the 1994 proceeds. Thereafter, as explained in plaintiff's opening brief:

"[T]he SEC determined that the proceeds from the [1994] transaction could not be reported as a gain and required [plaintiff] to restate its 1994 financial statement and redo its prospectus. As a result, the public offering was delayed for over six weeks."

Plaintiff claims in this action that, because of the lower market price and higher interest rates that obtained on the actual offering date, it "lost" approximately $35 million in additional proceeds that it would have received if the offering had taken place on the earlier date. Plaintiff maintains that that loss was reasonably foreseeable to defendant, in that the original offering date was "timed to take advantage of higher than anticipated first quarter earnings" and "favorable market conditions." Plaintiff also seeks approximately $12 million in "tax damages." Its theory is, as described in the trial court's letter opinion:

"[Plaintiff] concedes that receipt of the proceeds of the 1996 stock offering [was] a non-taxable event to [plaintiff]. In contrast, it asserts that if [plaintiff] ultimately recovers damages for the stock price differential, those damages would be taxable."

In moving for summary judgment on the latter claim of damages, defendant asserted, inter alia, that any recovery plaintiff might obtain on the basis of the stock and debt price differential would be a nontaxable event under federal law. Relying on Tribune Pub. Co. v. United States, 836 F.2d 1176 (9th Cir.1988), and other similar authorities, the trial court agreed with defendant and granted its motion. Plaintiff assigns error to that ruling. As we understand the present law, we agree with the trial court, for the reason that it stated and others, that the claim for "tax damages" cannot be pursued in this action, if at all. We therefore reject plaintiff's assignment.

Plaintiff also assigns error to the court's grant of defendant's motion for summary judgment on the claim for damages attributable to the difference in the amount plaintiff received for the stock and debt and the amount it would have received at the market price and interest rates that prevailed at the earlier planned time for the offering. Defendant and the trial court relied on the doctrine, derived largely from federal securities law cases, that they label "loss causation." Under that doctrine, a defendant's liability does not extend to losses that are caused by fluctuations in market value other than directly by the defendant's wrongful conduct. See, e.g., Movitz v. First Nat'l Bank, 148 F.3d 760 (7th Cir.1998),

cert. den. 525 U.S. 1094, 119 S.Ct. 852, 142 L.Ed.2d 705 (1999); Bastian v. Petren Resources Corp., 892 F.2d 680 (7th Cir.),

cert. den. 496 U.S. 906, 110 S.Ct. 2590, 110 L.Ed.2d 270 (1990).

The apparent premise of the doctrine is that the defendant's conduct is not the efficient cause of ancillary losses resulting from fortuitous movement of the market. However, under the better-reasoned federal cases, the "loss causation" doctrine would not insulate the defendant from damages under circumstances where the defendant's alleged wrongful act "causes some or all of the loss in value" or prevents the plaintiff from entering...