Rowlett v. Fagan

• Decision Date: 21 December 2016
• Docket Number: A146351
• Citation: 283 Or.App. 1,388 P.3d 407
• Parties: Gerald L. ROWLETT, an individual; Westlake Development Company, Inc., an Oregon corporation; and Westlake Development Group, LLC, an Oregon limited liability company, Plaintiffs-Appellants, v. David G. FAGAN, an Oregon resident; James M. Finn, an Oregon resident; and Schwabe Williamson & Wyatt, PC, an Oregon professional corporation, Defendants-Respondents.
• Court: Oregon Court of Appeals

283 Or.App. 1

388 P.3d 407

Gerald L. ROWLETT, an individual; Westlake Development Company, Inc., an Oregon corporation; and Westlake Development Group, LLC, an Oregon limited liability company, Plaintiffs-Appellants,

v.David G. FAGAN, an Oregon resident; James M. Finn, an Oregon resident; and Schwabe Williamson & Wyatt, PC, an Oregon professional corporation, Defendants-Respondents.

A146351

Court of Appeals of Oregon.

Submitted on remand April 5, 2016

December 21, 2016

David W. Melville, The Law Offices of David Melville and Katherine R. Heekin and The Heekin Law Firm, filed the brief for appellants.

Graham M. Sweitzer, Stephen C. Voorhees, and Kilmer, Voorhees & Laurick, P.C., filed the brief for respondents.

Before Armstrong, Presiding Judge, and Hadlock, Chief Judge, and Egan, Judge.

ARMSTRONG, P.J.

This legal malpractice case is before us on remand from the Supreme Court, which reversed in part and affirmed in part our decision in Rowlett v. Fagan , 262 Or.App. 667, 327 P.3d 1 (2014) (Rowlett I ), rev'd in part, aff'd in part , 358 Or. 639, 369 P.3d 1132 (2016) (Rowlett II ). Rowlett and his two companies, Westlake Development Company, Inc., and Westlake Development Group, LLC, (collectively plaintiffs) brought a malpractice action against Schwabe Williamson & Wyatt, PC (Schwabe), and two attorneys, Fagan and Finn, (collectively defendants) alleging claims of negligence, negligent misrepresentation, and breach of fiduciary duty, and entitlement to attorney fees. The malpractice action stemmed from defendants' representation of plaintiffs in an action by plaintiffs against plaintiffs' business partners related to their jointly owned limited liability company, Sunrise Partners, LLC. After procedural errors by defendants in their representation of plaintiffs, plaintiffs settled the Sunrise case and eventually initiated this malpractice action. Following a jury verdict for defendants, plaintiffs appealed, asserting seven assignments of error, three of which have been resolved.¹ The Supreme Court remanded the case to us to resolve the four remaining assignments of error, all of which bear on the calculation of damages on plaintiffs' negligence claim. See Rowlett II , 358 Or. at 641 n. 1, 369 P.3d 1132.

Defendants contend, and plaintiffs concede, that plaintiffs' second assignment of error—viz. , that the trial court erred by denying plaintiffs' motion in limine to limit the use of evidence of the Sunrise settlement—was not preserved. We agree and, accordingly, reject that assignment without written discussion. Next, in their fourth and fifth assignments, plaintiffs assign error to the trial court's admission of testimony by defendants' accounting expert that rebutted testimony by plaintiffs' business-valuation expert. At issue in the trial was the value of Sunrise as of two dates, March 13, 2003, and October 7, 2005. Plaintiffs argue that the accounting expert should not have been permitted to testify under OEC 702 as an expert, and, because she was not a business-valuation expert, she should not have been allowed to testify about the value of Sunrise.² Defendants respond that their expert, a forensic accountant, testified within her area of expertise and, accordingly, that the trial court did not err in overruling plaintiffs' objections to her testimony. As explained below, we agree with defendants that the trial court properly admitted the expert testimony.

Finally, in their seventh assignment of error, plaintiffs contend that the trial court erred in granting summary judgment to defendants on plaintiffs' claim for attorney fees. Plaintiffs argue that the attorney-fee clause in the Sunrise operating agreement entitled them to recover the attorney fees that they incurred in litigating their malpractice action. Defendants respond that the attorney-fee clause did not entitle plaintiffs to recover those fees, and, accordingly, that the trial court did not err. Again, as explained below, we agree with defendants. Thus, with regard to plaintiffs' four remaining assignments of error on remand, we affirm the trial court.

The facts of this case are long and complex. We summarize from the Supreme Court opinion in Rowlett II the facts necessary to resolve the legal issues on remand.

Rowlett is a real estate developer who had an option in 2000 to purchase two properties. In order to purchase and develop the properties, Rowlett formed Sunrise with two other people. Rowlett assigned to Sunrise his purchase options for the two properties, but Sunrise struggled to find investors and soon lost the option to purchase one of the properties. Sunrise also defaulted on the purchase agreement for the second property, Sunnyside Road. In June 2002, Rowlett hired the Schwabe firm for legal advice because he was concerned about the actions of the other Sunrise members and because the defaulted purchase agreement had caused Rowlett to lose $90,000. In November 2002, Fagan, an associate attorney with Schwabe, filed a complaint in Multnomah County Circuit Court on plaintiffs' behalf against Sunrise and its members other than Rowlett. However, Fagan failed to follow a clause in the Sunrise operating agreement that required arbitration of disputes. Accordingly, in January 2003, plaintiffs stipulated to dismissal of the complaint pending arbitration. However, Fagan did not file an arbitration demand until December 2003 and took no further action before he left Schwabe in May 2005. After Fagan left the firm, another Schwabe attorney, Finn, took over the case. In October 2005, Finn sent a letter to opposing counsel regarding discovery. Opposing counsel responded by objecting to further arbitration and by moving to reinstate the 2002 case and dismiss it with prejudice for lack of prosecution. The circuit court granted that motion in September 2006 and dismissed the 2002 complaint with prejudice.

While those events were transpiring, the other Sunrise members removed Rowlett as a Sunrise manager in March 2003. Then, in October 2005, the other members distributed $5.8 million of Sunrise funds to themselves, with Rowlett receiving nothing, and acted to remove Rowlett as a Sunrise member. In March 2007, Finn filed a new complaint in Multnomah County Circuit Court against Sunrise and the other members. But, by that time, the real estate market had fallen. Sunrise and the other members offered to settle the 2007 case for $200,000 and payment of plaintiffs' reasonable attorney fees, as determined by the circuit court. Plaintiffs accepted the offer, and the court awarded plaintiffs a portion of the attorney fees that they had incurred in the 2007 litigation, roughly $60,000.

In 2009, plaintiffs filed this malpractice action, alleging that defendants' negligent representation of plaintiffs had caused plaintiffs to settle the Sunrise case for significantly less than they would have received had defendants handled the case properly. Plaintiffs alleged that their damages were the difference between the 2007 settlement amount and "the value of Plaintiff Rowlett's equity interest in Sunrise Partners LLC as of either March 13, 2003 or October 7, 2005, which is $2,200,000." Before trial, defendants moved for summary judgment and to dismiss some of plaintiffs' claims. As relevant here, defendants moved for summary judgment on plaintiffs' claim for attorney fees. Plaintiffs contended in response that the attorney-fee clause in the Sunrise operating agreement entitled them to recover the attorney fees that they incurred in prosecuting the malpractice action. The trial court disagreed with plaintiffs and granted summary judgment to defendants on plaintiffs' claim for those fees.

At trial, both parties presented evidence and testimony about the value of Rowlett's interest in Sunrise on March 13, 2003, when Rowlett was removed as a Sunrise manager, and on October 7, 2005, when the other Sunrise members disbursed $5.8 million from Sunrise to themselves and allegedly removed Rowlett as a Sunrise member. Plaintiffs presented evidence that, on March 13, 2003, Rowlett's interest in Sunrise was worth over $1 million, and on October 7, 2005, his interest was worth over $2.2 million. Defendants responded with evidence that valued Rowlett's Sunrise interest at a much lower value, around $30,000 in March 2003 and either $108,000 or $355,000 in October 2005, depending on which Sunrise operating agreement controlled. Ultimately, the jury found that defendants were negligent in their representation of plaintiffs, but that that negligence had not caused plaintiffs damage.

With that factual background in mind, we return to the issues on remand. As noted, plaintiffs contend in their fourth and fifth assignments of error that the trial court erred in overruling their objections to testimony by defendants' forensic accountant about calculations that she had made regarding plaintiffs' damages. According to plaintiffs, the trial court erred by permitting defendants' accountant to testify as an expert and by allowing her to base her testimony on an unsubstantiated valuation methodology. Defendants respond that their forensic accountant was qualified to testify as an expert, and her testimony was appropriately admitted because she had used the methodology employed by plaintiffs' expert to value Sunrise and had merely made arithmetic and accounting calculations. We agree with defendants.

We review for legal error whether an expert is qualified to testify about a particular subject. See, e.g. , State v. Rogers , 330 Or. 282, 315, 4 P.3d 1261 (2000). As part of their evidence on damages, plaintiffs presented testimony by a business-valuation expert, Dr. Shannon Pratt. The basic point of Pratt's testimony was to establish the value of Rowlett's interest in Sunrise on March 13, 2003, and October 7, 2005. Pratt explained that there are three approaches used by business-valuation experts to value businesses—the market approach, the income approach, and the asset approach—and that he had used the asset...