Padrick v. Lyons
| Decision Date | 13 April 2016 |
| Docket Number | A153600.,101217611 |
| Citation | 277 Or.App. 455,372 P.3d 528 |
| Parties | Kevin D. PADRICK, Trustee of the Summit Accommodators Liquidating Trust, Plaintiff–Appellant, v. Lane LYONS and Bryant Lovlien & Jarvis, P.C., Defendants, and Kevin Keillor and Hurley Re, P.C., Defendants–Respondents. |
| Court | Oregon Court of Appeals |
Robyn Ridler Aoyagi, Portland, argued the cause for appellant. With her on the briefs were Daniel H. Skerritt, David S. Aman, Caroline Harris Crowne, and Tonkon Torp LLP.
Stephen C. Voorhees, Portland, argued the cause for respondent Kevin Keillor. With him on the joint answering brief were Graham M. Sweitzer and Kilmer, Voorhees & Laurick, PC, and Peter R. Mersereau, Thomas W. McPherson, and Mersereau & Shannon LLP.
Peter R. Mersereau, Portland, argued the cause for respondent Hurley Re, PC. With him on the joint answering brief were Thomas W. McPherson and Mersereau & Shannon LLP, and Stephen C. Voorhees, Graham M. Sweitzer, and Kilmer, Voorhees & Laurick, PC.
Before ORTEGA, Presiding Judge, and DeVORE, Judge, and HASELTON, Senior Judge.
, J.
Plaintiff Kevin Padrick was appointed by the bankruptcy court as the trustee for the liquidation of Summit Accommodators, Inc., a corporation in Chapter 11 bankruptcy. Plaintiff brought this action against Summit's former attorney, Kevin Keillor, and Keillor's law firm, Hurley Re, PC. (defendants).1 Plaintiff sought damages for defendants' alleged tortious conduct while Keillor was representing Summit. Plaintiff appeals from the trial court's entry of judgment for defendants after the court granted defendants' motion for summary judgment on all of plaintiff's claims. We conclude that the trial court did not err and therefore affirm.
Plaintiff brought his claims in two capacities—as Summit's direct successor in interest and as the assignee of claims by Summit's former clients.2 The trial court ruled against plaintiff on the claims in both capacities. Plaintiff challenges the trial court's ruling that defendants were entitled to summary judgment on plaintiff's “direct” claim for breach of fiduciary duty, which was brought in plaintiff's capacity as successor in interest to Summit. Plaintiff also challenges the court's ruling granting defendants' motion for summary judgment on plaintiff's claim as the assignee of Summit's former exchange clients. In that claim, plaintiff asserts that defendants are jointly liable with Summit's principals on an “aid and abet” theory for the loss of funds entrusted to Summit between May and November 2008.
In reviewing the court's rulings, we view the record on summary judgment in the light most favorable to plaintiff, as the party opposing defendants' motion, for the purpose of determining whether there are genuine issues of material fact and, if not, whether the trial court correctly concluded that defendants were entitled to judgment as a matter of law. ORCP 47
C; Jones v. General Motors Corp., 325 Or. 404, 420, 939 P.2d 608 (1997).
Summit, an Oregon corporation located in Bend, was in the business of facilitating real property exchanges under Internal Revenue Code section 1031
.3 The corporation was started in 1991 by Mark Neuman and Brian Stevens, certified public accountants who had been practicing in Bend for many years. During most of the time relevant to the issues on appeal, Neuman and Stevens were Summit's principals and sole shareholders.
In its business as a “qualified intermediary” for section 1031
exchanges, Summit received funds from clients who were making real property exchanges that qualify for special tax treatment under section 1031. Summit agreed to hold the clients' funds pending the clients' purchase of “like-kind” exchange properties. Summit's agreement with its exchange clients required that Summit “deposit all cash funds received by it from [clients] into one or more deposit accounts established with one or more financial institutions[.]”
In violation of Summit's agreements with its clients, Summit's principals did not confine clients' deposits to financial institutions; they made unauthorized transfers of funds to Inland Capital Corporation, a “pass-through accounting entity” that the principals created in 1993. Initially, Inland existed, at least in part, to facilitate legitimate, more complex, “construction” real estate exchanges. But, beginning in 1993, Summit also began transferring exchange client funds through Inland to finance the Summit principals' private investments. By the time Keillor and his firm began representing Summit in 1995, the practice of using exchange client funds for unauthorized purposes was well-established, and Inland existed primarily for the purpose of diverting exchange client funds to the principals' own personal investments, by lending money to Stevens and Neuman and others.4 Between 1995 and 2001, the period during which Keillor and members of his firm did legal work for Summit and its principals, Summit's principals diverted over $15 million in exchange client funds to their own investments and ventures.
Beginning in 1995, Keillor provided legal work to Summit, Stevens, and Neuman on a project-by-project basis. Keillor did not serve as “general counsel” to Summit. His advice related to specific real estate transactions and transactional documents, as requested by Summit, Stevens, and Neuman. For example, in 1996 and 1999, Keillor reviewed and edited Summit's section 1031
exchange contracts. Consistent with industry practice, Keillor recommended that the contracts include a provision requiring that client funds be deposited with financial institutions; and that provision was, in fact, incorporated into the contracts. Stevens knew about that requirement for the use of exchange client funds and testified that Keillor never advised him that he could disregard it. In November 1998, Summit asked Keillor for advice on whether Summit was required to provide a trust deed to Inland when Inland loaned money in construction exchanges. (He opined that it was not.) For insurance reasons, Summit asked Keillor to advise whether Inland's loan practices made it a “financial institution” subject to federal banking law. (He opined that they did not.) In August 1999, Keillor drafted documents for Summit relating to a transaction known as “Oxford LLC,” and drafted documents for Stevens and Neuman in an investment known as “Doctor's Court.”
Keillor logged relatively few hours of work for Summit over the years. The bulk of Keillor's work for Summit occurred in 1996 and 1997, when he billed about 55 hours per year. In the last years, from 1998 to 2001, Keillor billed an average of 10 hours per year to Summit. Keillor left the private practice of law and ceased doing work for Summit in April 2001.
After that, Summit took its legal work to Lane Lyons, who later became in-house counsel to Summit in 2005 and a principal and shareholder in 2006. After Keillor's departure, Summit's exchange business increased dramatically, as did the principals' unauthorized use of client funds. Between 2001 and 2005, Summit's transfers to Inland grew from $6.5 million to $28.5 million. By the time Lyons became Summit's in-house counsel in 2005, over 40 percent of Summit's exchange client funds were being diverted to Inland for investment by Summit's principals. By 2006, more than 80 percent of Summit's exchange client funds were being funneled to Inland.
Sometime earlier, in the mid–1990s, and before Keillor's involvement, Summit had experienced a liquidity problem, resulting from the unauthorized use of exchange client funds, causing Stevens and Neuman to personally cover losses of $500,000. In 2006, Lyons became concerned that the practice of investing exchange client funds in the Summit principals' personal ventures would interfere with Summit's ability to meet its obligations to its exchange clients. He worried that the practice constituted a violation of the exchange agreements, a misrepresentation to Summit's clients, and a breach of fiduciary duty to Summit's “partners.”5 He expressed those concerns in a strongly worded memorandum to Summit's principals on October 17, 2006:
The principals met the next day, October 18, 2006, and discussed the issues in the memorandum. The minutes of that meeting record that Lyons “went postal” on the topic of Inland and “said it's a common law fraud issue and a fiduciary duty issue regarding our partners.” Despite Lyons' alarm, Summit's principals, however, continued to divert exchange client funds to their personal investments.
Lyons' prediction came true. In December 2008, after the downturn in the real estate market, Summit began to experience liquidity problems and was unable to meet its obligations to its clients. It sought assistance from a bankruptcy attorney, Susan Ford, who advised Summit that the Inland scheme was financially improvident and potentially criminal. Ford advised Summit to stop taking new clients, which it did. In December 2008, Summit filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Exchange clients who had entrusted funds with Summit between May and November 2008 lost their money.6
After the court approved Summit's liquidation plan, Summit's assets were transferred to a...
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