Watson v. Meltzer

• Decision Date: 29 December 2011
• Docket Number: 070303137; A139449.
• Citation: 270 P.3d 289,247 Or.App. 558
• Court: Oregon Court of Appeals
• Parties: Perry WATSON, III, and Brookdale Group, Inc., fka Brookdale Dodge, Inc., Plaintiffs–Appellants, v. E. Kelly MELTZER, Lawrence Evans and Grenley, Rotenberg, Evans, Bragg & Bodie, P.C., Defendants–Respondents.

247 Or.App. 558
270 P.3d 289

Perry WATSON, III, and Brookdale Group, Inc., fka Brookdale Dodge, Inc., Plaintiffs–Appellants,
v.
E. Kelly MELTZER, Lawrence Evans and Grenley, Rotenberg, Evans, Bragg & Bodie, P.C., Defendants–Respondents.

070303137; A139449.

Court of Appeals of Oregon.

Argued and Submitted Jan. 11, 2011.Decided Dec. 29, 2011.

[270 P.3d 290]

Thomas W. Sondag, Portland, argued the cause for appellants. With him on the briefs were Lane Powell PC, and John Folawn and Folawn Alterman & Richardson LLP.

Christopher T. Carson, Portland, argued the cause for respondents. On the brief were Stephen C. Voorhees, Graham M. Sweitzer, and Kilmer, Voorhees & Laurick, P.C.

Before HASELTON, Presiding Judge, and DUNCAN, Judge, and LANDAU, Judge pro tempore.^*LANDAU, J. pro tempore.

[247 Or.App. 560] This is a legal malpractice case in which plaintiff contends that defendants were negligent in providing advice to plaintiffs during negotiations for the sale of a business. The jury found that one of defendants was negligent, but that his negligence did not cause plaintiffs any damage. On appeal, the issue is whether the trial court erred in instructing

[270 P.3d 291]

the jury on the subject of causation. Specifically, plaintiffs contend that the trial court erred in delivering Uniform Civil Jury Instruction 45.02—commonly known as the “case-within-a-case” instruction—which requires the jury to determine whether a defendant's negligence caused a “less favorable outcome” for a plaintiff. According to plaintiffs, although the instruction may be appropriate in cases involving legal malpractice during the course of litigation, it is not appropriate when the malpractice occurs during the negotiation of a transaction. Defendants respond that the Oregon courts have never recognized the distinction between litigation and transaction malpractice for which plaintiffs contend, and this court should not do so in this case. Defendants contend that the case-within-a-case instruction states nothing more than the unremarkable principle that, in order to find liability for negligence, a defendant's conduct must have actually caused the plaintiff an ascertainable loss. We agree with defendants and affirm.

We set out the facts relevant to the issue of causation in the light most favorable to the prevailing party, defendants. Holmes v. Morgan, 135 Or.App. 617, 619, 899 P.2d 738, rev. den., 322 Or. 193, 903 P.2d 886 (1995). Plaintiff Watson owned Brookdale Dodge (Brookdale), an automobile dealership. In 2003, Watson decided to sell Brookdale because the dealership was having serious financial troubles. Watson contacted David Luther, the owner of several other dealerships in the area, to see if he would be interested in purchasing Brookdale. Luther responded that he was interested because purchasing Brookdale would enable him to consolidate it with his Jeep–Chrysler dealership to create an “alpha” dealership that sold all makes of vehicles produced by the three different manufacturers owned by DaimlerChrysler.

[247 Or.App. 561] After negotiating the basic terms of the deal, Watson contacted defendant Larry Evans, an attorney at the law firm of defendant Grenley, Rotenberg, Evans, Bragg & Bodie, P.C., to handle the legal paperwork necessary to complete the transaction. Evans agreed, but another lawyer at the firm, Kelly Meltzer, eventually took over responsibility for the case.

Luther's attorney, Dick Hackett, drafted an asset purchase agreement to effectuate the sale of Brookdale's assets. The draft agreement was emailed to Meltzer. One section of the agreement addressed the subject of “withdrawal liability,” which referred to, in essence, any liability to an employee benefit plan that may exist at the time of the sale. Section 4.1(g)(F) of that agreement provided that “[s]eller has no withdrawal liability under any of the Plans.” Later, the parties modified that section to state that “[s]eller has no withdrawal liability under any of the Plans that will not be satisfied by [s]eller.” The problem was that, in fact, there existed substantial withdrawal liability—over $1.9 million—that Meltzer had failed to discover and Watson did not know about before the execution of the asset purchase agreement.

Once Watson realized the extent of his liability, he approached Luther about altering the transaction before closing the sale in order to lessen his withdrawal liability. Luther declined, explaining that it was too late in the closing process to renegotiate or to alter the original agreement. The parties closed the sale. Thereafter, pursuant to the withdrawal liability provision of the sale agreement, Watson began making installment payments, plus interest, on the withdrawal liability. Once Watson completes the installment payments, he will have paid over $2.9 million.

Watson and Brookdale sued Evans, Meltzer, and the law firm for legal malpractice, alleging that defendants were negligent in failing to discover the nature and extent of the withdrawal liability until after Watson signed the asset purchase agreement. Defendants argued that, among other things, plaintiffs could not prove that any negligence that they had committed caused plaintiffs' harm. In particular, defendants argued that plaintiffs could not prove that, if they [247 Or.App. 562] had discovered the nature and extent of the withdrawal liability, it would have made any difference in the outcome of the deal. In response, plaintiffs attempted to elicit from Luther whether he would have been amenable

[270 P.3d 292]

to restructuring the deal, but Luther demurred that he could not say.

In arguments to the trial court, the parties debated precisely what evidence would suffice to establish the element of causation required in legal malpractice cases. Plaintiffs asserted that they could prove causation by presenting evidence that defendants advised Watson to sign the asset purchase agreement before determining the withdrawal liability, which directly resulted in Watson incurring the withdrawal liability. Plaintiffs argued that, if defendants had notified them earlier of the withdrawal liability, they would have had the opportunity to negotiate with Luther regarding methods of restructuring the transaction to avoid or mitigate that liability. Put simply, if Watson had not signed the agreement, he would not owe the withdrawal liability. It was of no import, plaintiffs concluded, that they could not prove that they would have achieved a “better result”— i.e., that Luther would have agreed to restructure the deal—because, in a case regarding transactional legal malpractice, “what would have happened is speculation because it didn't happen.” (Emphasis in original.)

Defendants responded that, under settled principles of negligence and legal malpractice liability law, plaintiffs were required to show that “ ‘but for’ defendants' alleged negligence, [plaintiffs] would have had a better financial outcome in the business sale transaction.” Based on that formulation of causation, defendants requested that the trial court give Uniform Civil Jury Instruction 45.02, which provides:

“If you find that the defendant[s] w[ere] negligent as claimed by the plaintiff[s], then you must decide whether that negligence caused any loss to the plaintiff[s].

“To determine whether the defendant[s'] alleged negligence in fact resulted in a less favorable outcome for the plaintiff[s], you must first determine what the outcome for the plaintiff[s] would have been had the defendant[s] not been negligent. If the outcome that would have occurred is no more favorable than the outcome that did occur, then the [247 Or.App. 563] plaintiff[s'] loss or damage cannot have been caused by the defendant[s].”

Plaintiffs objected to the use of that causation instruction, arguing that it was an incorrect statement of the law because the “case-within-a-case” formulation of causation applied only in litigation malpractice cases, as opposed to this case, which involved transactional legal malpractice. Plaintiffs argued that the instruction would be confusing to the jury because it implies that “plaintiffs must be able to show [what] their precise outcome would have been had defendants not been negligent.” Plaintiffs noted that “defendants' negligence is...