Rowlett v. Fagan

• Decision Date: 03 March 2016
• Docket Number: CC 090101006,CA A146351,SC S062451.
• Parties: Gerald L. ROWLETT, an individual; Westlake Development Company, Inc., an Oregon corporation; and Westlake Development Group, LLC, an Oregon limited liability company, Respondents on Review, v. David G. FAGAN, an Oregon resident; James M. Finn, an Oregon resident; and Schwabe Williamson & Wyatt, PC, an Oregon professional corporation, Petitioners on Review.
• Court: Oregon Supreme Court

358 Or. 639

369 P.3d 1132

Gerald L. ROWLETT, an individual; Westlake Development Company, Inc., an Oregon corporation; and Westlake Development Group, LLC, an Oregon limited liability company, Respondents on Review,

v.David G. FAGAN, an Oregon resident; James M. Finn, an Oregon resident; and Schwabe Williamson & Wyatt, PC, an Oregon professional corporation, Petitioners on Review.

CC 090101006

CA A146351

SC S062451.

Supreme Court of Oregon.

Argued and Submitted May 12, 2015.

Decided March 3, 2016.

Christopher T. Carson, Kilmer, Voorhees & Laurick, P.C., Portland, argued the cause for petitioners on review. Stephen C. Voorhees filed the brief. With him on the brief was Candice R. Broock.

David W. Melville, The Law Offices of David Melville, Portland, argued the cause and filed the brief for respondents on review. With him on the brief was Katherine R. Heekin, The Heekin Law Firm, Portland.

Scott A. Shorr, Stoll Stoll Berne Lokting & Shlachter PC, Portland, filed the brief for amicus curiae Oregon Trial Lawyers Association.

Janet M. Schroer, Hart Wagner LLP, Portland, filed the brief for amicus curiae Professional Liability Fund. With her on the brief was Matthew J. Kalmanson.

Before BALMER, Chief Justice, and KISTLER, WALTERS, LANDAU, BALDWIN, and BREWER, Justices.^**

WALTERS

, J.

Rowlett and his two companies, Westlake Development Company, Inc., and Westlake Development Group, LLC (plaintiffs), filed an action for malpractice against the law firm Schwabe, Williamson, and Wyatt, PC, (Schwabe) and lawyers Fagan and Finn (collectively, defendants), alleging claims for negligence, negligent misrepresentation, breach of fiduciary duty, and claims related to attorney fees. Defendants had represented plaintiffs in an action against plaintiffs' business partners in Sunrise Partners, LLC (Sunrise). Plaintiffs settled the Sunrise litigation in 2007, and, soon thereafter, initiated the malpractice action, alleging that they would have had a better outcome in the Sunrise litigation but for the mishandling of their case by defendants. A jury ultimately found that defendants were negligent in their representation of plaintiffs, but that defendants' negligence did not cause plaintiffs any damage. The jury also reached a defense verdict on the breach of fiduciary duty, negligent misrepresentation, and attorney fee claims. Plaintiffs appealed, asserting seven assignments of error. The Court of Appeals reversed as to two of those assignments of error and remanded the case for a new trial. Rowlett v. Fagan, 262 Or.App. 667, 327 P.3d 1 (2014)

. For the reasons we discuss below, we now reverse the decision of the Court of Appeals as to those two assignments of error and remand the case to the Court of Appeals to address plaintiffs' remaining assignments of error.¹

The facts of this case are complicated and are explained in detail in the Court of Appeals' decision. For our purposes here, the following summary suffices. Rowlett is a real estate developer and is the sole principal in his two companies. He had an option to purchase for development a property in Gresham, Oregon, referred to as the Kelley Creek property. Rowlett's companies also obtained options to purchase three properties in Happy Valley, known as the Sunnyside Road properties, which Rowlett also wished to develop. In the fall of 2000, Rowlett and two other individuals, Pruett and Baron, formed Sunrise, a limited liability corporation (LLC), to finance both projects. After Sunrise was formed, Rowlett assigned his options to purchase the Kelley Creek property and the Sunnyside Road properties to Sunrise. Sunrise initially struggled to find other investors and had difficulty raising money. It soon stopped making payments on the Kelley Creek option and lost the option to purchase that property. Sunrise also defaulted on a purchase agreement for one of the Sunnyside Road properties. Sunrise sought other investors, and Baron and Pruett then began taking actions that, in Rowlett's view, disregarded his interest in Sunrise. Among other things, for example, they excluded Rowlett from meetings and made another investor, Keys, a member of Sunrise over Rowlett's objection.

In June 2002, Rowlett contacted Schwabe for advice. Rowlett had lost approximately $90,000 when the Kelley Creek purchase option lapsed, and he was concerned about the actions that Baron and Pruett had taken at Sunrise. Schwabe assigned the matter to Fagan, a junior lawyer with only three to four years of experience. In November 2002, Fagan filed a complaint on behalf of plaintiffs in Multnomah County Circuit Court, against Pruett, Baron, Keys, and others, alleging that those defendants had intentionally allowed the Kelley Creek option to lapse, causing Rowlett to lose the value of his investment in that property. The complaint sought general damages in the amount of $670,000. However, a clause in the Sunrise operating agreement required arbitration of disputes. That fact was called to Fagan's attention, and, in January 2003, Rowlett stipulated to dismissal of the complaint pending arbitration.

Fagan did not file an arbitration demand until December 2003. That arbitration demand's "statement of claim" contained the same claims as had been alleged in the circuit court complaint, and also contained allegations relating to actions that Sunrise members had taken, allegedly to the detriment of Rowlett's interests, after the circuit court complaint was filed. Specifically, the 2003 arbitration statement alleged that, in March and April 2003, the Sunrise members removed Rowlett as manager of Sunrise, admitted another new member, Robinson, without Rowlett's consent, called meetings without telling him, and took other actions to dilute the value of Rowlett's stock. The arbitration statement alleged that those facts established a breach of fiduciary duty by Baron and Pruett. Unlike a later-filed arbitration statement, the 2003 statement did not specifically allege an additional claim for oppression, nor did it contain a demand for the compulsory buyout of Rowlett's interest.² The 2003 arbitration demand sought damages for the diminution in the number and value of Rowlett's shares in Sunrise, as well as $675,000 in damages for defendants' breach of fiduciary duty, fraud, conspiracy, and misrepresentation.

Fagan took no significant additional steps thereafter to pursue Rowlett's claims; he left Schwabe in May 2005 to take another position. When Fagan left, another Schwabe lawyer, Finn, took over the case, met with Rowlett, and began reviewing the file. Finn also began looking for an arbitrator and reinitiated communication with Sunrise, sending a letter to opposing counsel in October 2005 discussing discovery issues in the arbitration. At that point, Keys' counsel objected to further arbitration and, in March 2006, filed a motion to reinstate the 2002 case and dismiss it with prejudice for lack of prosecution.

Meanwhile, in October 2005, Baron, Keys, and Robinson arranged for Sunrise to distribute $5.8 million to all Sunrise members except Rowlett. Rowlett received nothing. Additionally, Baron, Keys, and Robinson amended the Sunrise operating agreement to remove Rowlett as a member of Sunrise.

In April 2006, Finn filed an amended arbitration statement naming Baron, Keys, and Sunrise as respondents and adding allegations pertaining, among other things, to the capital distribution to all Sunrise partners other than Rowlett and his removal as a member of Sunrise. The statement alleged a claim for breach of fiduciary duty and, for the first time, specifically alleged a claim for oppression. The arbitration statement alleged that Rowlett had been deprived of the entire value of his ownership interest in Sunrise and that he was entitled to a buyout of that ownership interest in an amount of at least $900,000.

In September 2006, the circuit court granted Keys' motion to reinstate and dismiss the 2002 complaint. In a letter opinion, the court stated that it would dismiss all claims that had been pleaded in the original complaint with prejudice. In March 2007, Finn filed a second complaint in Multnomah County Circuit Court, against Sunrise, Baron, Keys, Robinson, and others, alleging essentially the same claims as had been alleged in the 2006 arbitration statement, and again seeking approximately $900,000 in damages. Like the 2006 arbitration statement, the 2007 complaint included an oppression claim against all defendants, as well as breach of fiduciary duty claims that plaintiffs or Rowlett asserted against the defendants, individually and as a group, and a breach of contract claim against Sunrise.

By late 2007, the real estate market had dropped. In November 2007, Sunrise offered to settle the case for $200,000 and plaintiffs' reasonable attorney fees as determined by the circuit court, and Rowlett accepted the offer. The court awarded part of the fees Schwabe had billed plaintiffs for work on the 2007 litigation, approximately $60,000.

In 2009, plaintiffs filed this malpractice action against defendants, alleging that defendants had committed malpractice in the Sunrise litigation and had caused plaintiffs to settle for significantly less than what the Sunrise defendants would have paid if the case had been litigated properly. The complaint alleged negligence claims against all defendants, based on allegations that defendants had failed to act promptly and competently in various respects after filing the 2002 complaint in circuit court.³ Specifically, the complaint alleged that defendants were negligent in failing to arbitrate the Sunrise dispute within six months as required by the Sunrise operating agreement, in failing in various ways to gather evidence to support and prove plaintiffs' claims, in failing to competently represent plaintiffs' interests in various ways, in failing to adequately communicate with plaintiffs, and, as relevant here, in "[f]ailing to allege plaintiffs' [oppression] claims in a timely manner" and in "fail[ing] to...