Oregon’s Approach To Limiting Liability Of An Attorney To A Non-Client For Aiding Or Assisting A Client’s Breach Of Fiduciary Duty
By: Thomas W. Brown

Many states have addressed claims made by non-clients against attorneys for aiding or assisting another’s breach of fiduciary duty.  While most of those states have allowed such claims, they have also developed various ways to limit them out of concern for how such claims can affect adversely the legitimate work of attorneys for clients. 

In 1999, the Oregon Supreme Court recognized a claim by a non-client against an attorney for aiding and assisting another’s breach of fiduciary duty.   Seven years later, the Oregon Supreme Court chose to limit that liability.  While an Oregon lawyer can act in ways that aid and assist a client in breaching a client’s fiduciary duty owed to another, the lawyer’s acts are subject to a qualified privilege so long as the lawyer acts on behalf of a client and within the scope of the lawyer-client relationship.

In Granewich v. Harding, 329 Or 47, 985 P2d 788 (1999), an Oregon attorney representing a corporation was sued for allegedly assisting the corporation’s majority directors and officers in a “squeeze out” of a minority shareholder.  Relying on Restatement (Second) of Torts § 876 (1979), the Oregon Supreme Court held that the attorney could be liable for aiding and abetting another person’s breach of fiduciary duty.   In so holding, the court explained that

“Legal authorities * * * are virtually unanimous in expressing the proposition that one who knowingly aids another in the breach of fiduciary duty is liable to the one harmed thereby. That principle readily extends to lawyers. None of those authorities even implies that liability for participants in the breach of fiduciary duty is confined to those who themselves owe such duty. * * * We hold, therefore, that a defendant personally need not have committed a tortious act as a prerequisite to liability for acting in concert with another person who did commit that tortious act.”

Id. at 56-57 (emphasis in original; footnotes omitted).  The court then concluded:

“* * * the theory behind joint liability is that persons acting in concert are liable for all the acts done in furtherance of the conspiracy.  As the minority opinion in the Court of Appeals correctly notes, ‘[c]ivil conspiracy does not merely allow possible tortfeasors to be held liable for a co-conspirator's tort; it makes joint tortfeasors of those who conspire to commit the tort.’ Indeed, it especially would be odd for the law to afford beneficiaries of fiduciary relationships less protection from the malfeasance of third parties than would be available to the victims of other kinds of tortious conduct. We hold, therefore, that a defendant personally need not have committed a tortious act as a prerequisite to liability for acting in concert with another person who did commit that tortious act.”

Id.at 57 (internal citations omitted).

In Reynolds v. Schrock, 341 Or 338, 142 P3d 1062 (2006), the Oregon Supreme Court addressed whether Granewich applied to attorneys representing clients who owed fiduciary duties to another.  In Reynolds, the plaintiff and one of the defendants – Schrock -- bought two parcels of land together.   Schrock eventually filed two separate actions against the plaintiff.  The first action concerned the jointly owned land, and the second one alleged that the plaintiff had engaged in improper sexual conduct with Schrock. The two actions were consolidated, and the parties later settled them in an agreement negotiated and drafted by their respective lawyers, including Schrock's lawyer, Markley.

The settlement agreement provided, in part, that the plaintiff would transfer his share of one of the two jointly owned properties (the lodge property) to Schrock and that Schrock and the plaintiff together would sell the second property (the timber property) and transfer the proceeds to plaintiff.  If the proceeds of the timber property sale were less than $500,000, then Schrock would pay the plaintiff the difference and Schrock would grant the plaintiff a security interest for that amount in the lodge property to secure the payment. If the proceeds of the timber property sale equaled or exceeded $500,000, then Schrock would owe the plaintiff nothing and he would have no security interest in the lodge property.

After the parties signed the settlement agreement, the plaintiff transferred his interest in the lodge property to Schrock.  Markley then advised Schrock that, in his opinion, nothing in the settlement agreement expressly required her to retain the lodge property in anticipation of the possible creation of a security interest in the plaintiff's favor.  Schrock, with Markley's assistance and without plaintiff's knowledge, sold the lodge property to a third party before the parties sold the timber property. Markley asked the escrow officer handling the sale to keep the sale confidential. Markley also advised Schrock that she could revoke the consent that she had given earlier to the plaintiff's plan to sell the jointly owned timber property.  In Markley's view, the plaintiff had failed to provide Schrock with information about the value of the timber property prior to arranging to sell it, contrary to a requirement in the settlement agreement, and that breach freed Schrock from any obligation to consent to the sale of the timber property.  Based on Markley's advice, and with Markley's assistance, Schrock revoked her consent to the sale of the timber property.
The plaintiff's complaint alleged that Markley was jointly liable with Schrock because he had aided and abetted Schrock's torts by giving her “substantial assistance and encouragement” in the commission of the torts and acting “in concert with [her] pursuant to a common design * * *.”  The plaintiff also alleged that Markley had interfered improperly with the settlement agreement between the plaintiff and Schrock.  The trial court granted Markley’s motion for summary judgment.  In a divided en banc decision, The Oregon Court of Appeals affirmed.

On review, the Supreme Court saw Granewich as a “reasonable starting point,” but observed that Granewich

“specifically noted that the defendant lawyer in that case had represented the corporation, not the other defendants (the majority shareholders), and that the plaintiff had alleged that the lawyer's actions had fallen ‘outside the scope of any legitimate employment on behalf of the corporation.’  Therefore, in Granewich, this court did not consider or answer the question that is at the core of this case: whether, and under what circumstances, a third party may assert a claim against a lawyer, acting in a professional capacity, for assisting a client in breaching the client's fiduciary duty.” 

Reynolds, 341 Or at 344-45 (emphasis and internal citations deleted).  The court further observed:

“Under Granewich and [section 876(a) and (b)], a person who acts ‘in concert with’ or ‘gives substantial assistance or encouragement’ to a fiduciary who breaches a duty to a third party may be liable for the resulting harm.  Markley argues, however, that that general rule does not apply when a lawyer, in the context of a lawyer-client relationship, advises a client who breaches a fiduciary duty to a third party.  The Restatement labels any such exemption from liability that the law otherwise would impose as a “privilege.”  See Restatement [(Second) of Torts] § 890 (‘One who otherwise would be liable for a tort is not liable if he acts in pursuance of and within the limits of a privilege * * *.’).”

Reynolds, 341 Or at 346.  Based on that observation, the court considered “whether the fact that Markley was acting as Schrock's lawyer when he engaged in the challenged conduct created a privilege that protects Markley from liability.  Drawing on its prior qualified privilege cases not involving attorneys, the court stated:

“Not every relationship between a person who breaches a contract or a fiduciary duty and one who substantially assists in such a breach necessarily justifies recognition of a privilege against liability. However, we think that the lawyer-client relationship is one that does.”

Reynolds provides an appropriate measure of protection to the important interests inherent in conduct that falls legitimately within the attorney-client relationship, while ensuring that actions a plaintiff can prove fall outside of that relationship won’t insulate an attorney from non-client recovery.  In light of Reynolds, Oregon now falls clearly within the majority of courts that, while recognizing attorney liability under section 876, place reasonable and appropriate limitations on that liability thus ensuring for attorneys the protections they need to fulfill properly the duties they owe clients without fear of non-client liability claims.

Mr. Brown is a partner at ALFA’s Portland, Oregon member firm, Cosgrave, Vergeer & Kester, LLP and the chairman of the firm’s commercial litigation practice group.