DeVORE, 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
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.
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.
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
Beginning in 1995, Keillor provided legal work to Summit, Stevens, and Newman 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."
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.
After the court approved Summit's liquidation plan, Summit's assets were transferred to a liquidating trust, and the bankruptcy court appointed plaintiff, who had been Summit's Chapter 11 trustee, as trustee for the liquidation of Summit's assets. In that role, plaintiff is authorized to bring claims as Summit's successor in interest against those who might owe damages to Summit or to Summit's creditors, and plaintiff is also the assignee of Summit's clients who lost their money because of the diversion of funds through Inland between May and November 2008.
In 2010, plaintiff brought this action against defendants, seeking damages as Summit's successor in interest and as the assignee of claims by Summit's 2008 clients. Among other claims, plaintiff alleged in his capacity as Summit's successor in interest that defendants breached their fiduciary duty to Summit by providing representation and advice to Summit's principals and to other entities whose interests were adverse to Summit's interests.
In his capacity as the assignee of the claims of Summit's 2008 clients, plaintiff alleged a claim asserting defendants' joint liability with the Summit principals. He alleged that defendants "aided and abetted" the principals by acting in concert with the principals pursuant to a common plan or design and by "substantially assisting" the principals and encouraging their tortious conduct. Plaintiff alleged that defendants are jointly liable with Summit's principals for "providing legal advice to the Principals and Inland to facilitate their diversion of Exchange Funds to and through Inland" and "actively encouraging the Principals and their related entities to continue to engage in tortious conduct."
Both of plaintiff's claims depend in part on an inference that plaintiff asserts may be drawn from evidence in the record on summary judgment that Keillor knew that the Summit principals were using client funds for their personal investments. Thus, a major dispute in this case is how much, if anything, Keillor knew about the Summit principals' diversion of client exchange funds to their personal investments. Plaintiff contends that the necessary result of Keillor's legal work for Summit and its principals is that Keillor had to have known the principals were misusing exchange client funds for nonexchange purposes. Plaintiff believes that, because Keillor advised about legal documents, he had to have known about the money flow.
Keillor acknowledges that he was aware of the existence of Inland, that it was owned by Stevens and Neuman, that funds were transferred from Summit to Inland, and that Inland loaned money to Stevens and Neuman. Keillor contends that his legal work for Summit and its principals, consisting primarily of drafting project-specific transactional documents, did not require that he know the sources of Inland's funds. He attested that, to the extent exchange client funds were transferred to Inland, the transfers were for legitimate exchange purposes, including "construction" exchanges. Keillor denies that he knew that the Inland funds transferred from Summit were used for nonexchange purposes or that Inland loaned exchange client money to Stevens and Neuman.
The trial court resolved the claims on defendants' motion for summary judgment. The trial court acknowledged that the question about what Keillor knew was a close one but agreed with plaintiff that there was evidence, "definitely of the circumstantial nature and very tenuous," from which an inference could be drawn that Keillor was aware that client funds were being used for nonexchange purposes. The trial court concluded that that factual question precluded summary judgment for defendants on that ground. The court recognized that there was evidence from which a reasonable jury could find that Keillor knew that Summit's principals were diverting exchange client funds through Inland to be used by Summit's principals for nonexchange purposes.
Nonetheless, the court granted summary judgment to defendants on plaintiff's direct claim for breach of fiduciary duty on several other grounds. The court ruled that plaintiff's direct claim was barred by the statute of limitations, determining that Summit and its principals had learned, no later than October 18, 2006, that the failure of Keillor to advise against the use of client funds had caused Summit's harm. Additionally, the trial court ruled that plaintiff's direct claim for breach of fiduciary duty was barred by the doctrine of in pari dilecto, because Summit, through its principals, was equally or more at fault than defendants for Summit's losses. See McKinley v. Weidner, 73 Or.App. 396, 401, 698 P.2d 983 (1985) (describing doctrine). The court ruled, further, that the record on summary judgment did not permit a finding that Summit's damages on the direct
The trial court also granted defendants' motion for summary judgment on plaintiff's claim as the assignee of Summit's 2008 exchange clients. The court concluded that, despite the existence of a factual question as to whether Keillor knew of the improper use of exchange client funds, the record on summary judgment did not include evidence that Keillor was involved in a way that would give rise to joint liability on an "aid and abet" theory under Oregon law. Alternatively, the court concluded that any alleged misconduct by Keillor could not provide a basis for defendants' joint liability as a matter of law, because the record on summary judgment shows that defendants' acts occurred within the scope of a lawyer-client relationship, which, under Reynolds v. Schrock, 341 Or. 338, 142 P.3d 1062 (2006), is subject to immunity.
On appeal, plaintiff challenges the trial court's rulings. We address first plaintiff's contention that the trial court erred in granting defendants' motion for summary judgment on plaintiff's direct claim for breach of fiduciary duty, based on the court's conclusion that the claim is barred by the statute of limitations. It is undisputed that, as the liquidation trustee, plaintiff is Summit's successor in interest. In that role, plaintiff steps into Summit's shoes for purposes of any affirmative defenses that might be raised by defendants, including the statute of limitations. See Geroy v. Upper and Knight v. Barry, 182 Or. 535, 546, 187 P.2d 662 (1948) (a receiver stands in the shoes of the corporation or person whose property is in receivership with exactly the same rights and obligation); see also Ahcom, Ltd. v. Smeding, 623 F.3d 1248, 1250 (9th Cir.2010) (bankruptcy trustee stands in shoes of the bankrupt party in asserting claims owned by debtor). It is also undisputed that the two-year limitation period set forth in ORS 12.110(1) applies to plaintiff's breach of fiduciary duty claim, as does the rule of discovery described in that statute.
A plaintiff discovers an "injury" when the plaintiff knows or should have known the existence of three elements: (1) harm; (2) causation; and (3) tortious conduct. Gaston v. Parsons, 318 Or. 247, 255, 864 P.2d 1319 (1994) (so stating with regard to ORS 12.110(4)). "[T]he facts that a plaintiff must have discovered or be deemed to have discovered include not only the conduct of the defendant, but also, under Gaston, the tortious nature of that conduct." Doe v. Lake Oswego School District, 353 Or. 321, 331, 297 P.3d 1287 (2013).
For purposes of determining what facts a plaintiff knows or should have known, "[t]he discovery rule applies an objective standard — how a reasonable person of ordinary prudence would have acted in the same or a similar situation." Kaseberg v. Davis Wright Tremaine, LLP, 351 Or. 270, 278, 265 P.3d 777
Although plaintiff filed this action in December 2010, the pertinent date to consider for the purpose of determining whether plaintiff brought the breach of fiduciary duty claim within the statutory period is December 19, 2008, the date when Summit filed its petition in bankruptcy. That is because, under federal law, 11 USC section 108(a), if the limitation period has not expired before the filing of the petition in bankruptcy, it is suspended by the filing of a bankruptcy petition.
It would ordinarily be a question of fact precisely when Summit's principals knew or reasonably should have known facts that would make them aware of a substantial possibility that Summit had suffered harm as a result of Keillor's alleged breach of fiduciary duty, unless the facts are such that no triable issue exists and the matter may be resolved as a matter of law. See T.R., 344 Or. at 296, 181 P.3d 758; Kelly, 224 Or.App. at 36, 197 P.3d 52; Cairns v. Dole, 195 Or.App. 742, 745, 99 P.3d 781 (2004). Here, the trial court concluded that defendants were entitled to judgment as a matter of law based on the statute of limitations, because Summit's principals knew or reasonably should have known no later than October 18, 2006, based on Lyons' memorandum, that defendants' failure to advise them not to engage in self-dealing with exchange client funds had caused Summit's damages.
In reviewing the trial court's ruling, we must ask, does the record give rise to a triable issue of fact as to whether, more than two years before Summit filed its petition in bankruptcy, Summit's principals knew, or in the exercise of reasonable care, should have known facts that would have made a reasonable person aware of a substantial possibility that defendants had breached a fiduciary duty to Summit and that that breach had resulted in financial loss to Summit? See Gaston, 318 Or. at 256, 864 P.2d 1319. If there is a triable issue of fact on the question, we must reverse the trial court's ruling granting summary judgment to defendants on plaintiff's direct claim for breach of fiduciary duty based on the statute of limitations.
In support of his contention that the record nevertheless presents a question of fact as to what Summit knew, plaintiff contends that, despite the memorandum's general warnings and the principals' general knowledge of the wrongfulness and risks of their conduct, the memorandum made no reference to the primary factual basis for plaintiff's breach of fiduciary duty claim — Keillor's representation of Summit's principals on personal matters that conflicted with Summit's interests because they involved the use of exchange client funds. Plaintiff argues that the memorandum did not specifically connect Summit's problems to that conduct. Thus, in plaintiff's view, the memorandum cannot provide the relevant basis for the discovery of defendants' alleged breach of fiduciary duty through a conflict of interest or that that breach was the cause of Summit's loss.
Defendants correctly respond that to trigger the running of the statute of limitations, it is not necessary that a plaintiff be aware of every potential breach of duty. A claim accrues when the plaintiff knew or reasonably should have known of "legally cognizable harm." Gaston, 318 Or. at 255 n. 8, 864 P.2d 1319 ("Although tortious conduct' is an element of injury under the discovery rule, a plaintiff does not need to identify a particular theory of recovery before the statute of limitations begins to run. All that is required is that the plaintiff discover that some invasion of the legally protected interest at stake has occurred.").
Although plaintiff contends that Lyons' memorandum did not explicitly mention Keillor's role in the financial and legal crisis presented in 2006, it nonetheless provided Summit's principals the information from which Summit reasonably should have known that defendants' alleged advice, facilitating the conflicting interests, had helped create the crisis. Summit's principals reasonably should have known, at least by the time of Lyons' memorandum, that their use of exchange client funds for their private investments was a breach of their agreements with their clients. They were aware by that time that their personal use of exchange client funds posed a risk of loss to Summit and put Summit in a financially impaired position. From that knowledge, Summit's principals who, as CPAs, were subject to their own standards of professional conduct, see ORS 673.445; OAR 801-030-0010; OAR 801-040-0010, reasonably should have known that, to the extent Keillor represented them on or failed to advise them not to engage in those activities, Keillor had acted in conflict with Summit's interests.
We conclude, as a matter of law, that Summit's principals knew or reasonably should have known, more than two years before the filing of the bankruptcy petition, and at least by October 18, 2006, of a substantial possibility that harm suffered by Summit had been caused by defendants' alleged representation of Summit's principals on matters that conflicted with Summit's interests. Thus, we conclude that the trial court correctly granted defendants' motion for summary judgment on plaintiff's direct claim for breach of fiduciary duty based on the statute of limitations.
We next address plaintiff's contention that the trial court erred in granting defendants' motion for summary judgment on plaintiff's claim, as the assignee of the exchange clients who placed their money with Summit between May and November 2008, that defendants "aided and abetted" the wrongdoing of Summit principals, such that defendants are jointly liable for the principals' wrongdoing. The theory of joint liability is premised on the Restatement (Second) of Torts (1979), section 876, which the Supreme Court indicated in Granewich v. Harding, 329 Or. 47, 53, 985 P.2d 788 (1999), "reflect[s] the common law of Oregon" with respect to the circumstances in which a person who assists another in committing a tort may be liable to the third party.
As summarized in section 876, a person is subject to liability for harm to a third person from the tortious conduct of another if the person:
Here, plaintiff focuses on subsections 876(a) and (b) and asserts that there is evidence from which the trier of fact could find that defendants either acted in concert with or "substantially assisted" the Summit principals in their wrongdoing that caused loss to Summit's clients who deposited their funds with Summit between May and November 2008. The trial court concluded that plaintiff's claim asserting aid-and-abet liability fails because the record on summary judgment does not include evidence that Keillor either acted in concert with Summit's principals or gave them "substantial assistance."
We readily agree that the record contains no evidence to support a finding that defendants acted "in concert." As we held in Slagle v. Hubbard, 176 Or.App. 1, 5, 29 P.3d 1195 (2001), adh'd to on recons, 178 Or.App. 632, 37 P.3d 256, rev. den., 334 Or. 260, 47 P.3d 486 (2002), a person commits a tortious act "in concert" with another person when the person performs an action that is "mutually contrived or planned," "agreed on," "performed in unison," or "done together." Id. at 5, 29 P.3d 1195 (citing Webster's Third New Int'l Dictionary, 470 (unabridged ed. 1993) (defining "concerted")). There is no evidence in this record that would support a finding of conduct of that nature.
We further agree with the trial court's conclusion that the record on summary judgment does not support liability based on the theory that defendants provided "substantial assistance." The cases that have addressed "aider and abettor" liability based on a theory of "substantial assistance" have required active complicity, with an actual awareness of the party's role in furtherance of the tortious objective. In Granewich, 329 Or. at 54, 985 P.2d 788, the court cited a discussion from its opinion in Perkins v. McCullough, 36 Or. 146, 149, 59 P. 182 (1899), as an example of Oregon's common law application of the concepts later adopted in Restatement (Second) of Torts subsection 876(b):
Thus, the substantial assistance must be directed to the commission of the tort itself. In Reynolds v. Schrock, 197 Or.App. 564, 576, 107 P.3d 52 (2005), rev'd on other grounds, 341 Or. 338, 142 P.3d 1062 (2006), we said that an attorney may be jointly liable with the client under subsection 876(b) when the attorney provides substantial assistance or encouragement by affirmative conduct that
There are also foreseeability and causation components to "substantial assistance." The comment to Restatement subsection 876(b) states that the third person may be liable based on substantial assistance or encouragement if
(Footnotes omitted.)
Plaintiff's theory is that the advice that Keillor gave to Summit and its principals between 1995 and 2001 permitted and encouraged them to continue their unauthorized practice of using exchange client funds. Plaintiff contends that that practice, allegedly known to Keillor, continued and expanded over the next seven years after Keillor had ceased doing legal work for Summit, so as to cause the loss to the exchange clients who deposited funds with Summit from May to November 2008.
We conclude that the inference that plaintiff seeks — that Keillor's legal advice from 1995 to 2001 encouraged the Summit principals to continue and magnify their wrongdoing fully seven years later — is simply too speculative and remote. Parker v. Pettit, 171 Or. 481, 490, 138 P.2d 592 (1943) ("No recovery can be had where resort must be had to speculation or conjecture for the purpose of determining whether the damages resulted from the act of which complaint is made or from some other cause."); see also Chapman v. Mayfield, 263 Or.App. 528, 535-36, 329 P.3d 12 (2014) (evidence is insufficient when the stacking of inferences becomes speculative) aff'd, 358 Or. 196, 361 P.3d 566 (2015) (affirmed on other grounds). And, even if it were not speculative, we agree with the trial court that the record on summary judgment simply does not support the critical determination that defendants provided the requisite "substantial assistance" to the bad actors in 2008.
We recognize that there is circumstantial evidence in the record on summary judgment from which the trier of fact could find that Keillor knew, at the time he did work for Summit, that Summit's principals were then diverting client exchange funds to nonexchange purposes. However, it is undisputed that Keillor was not engaged in advising Summit or its principals in 2008, nor was he engaged in transactions involving the exchange clients' investments made between May and November 2008. Keillor was long gone, having left private practice in 2001. It is undisputed that the exchange agreement from Keillor's days was an agreement that required Summit to deposit funds in a "financial institution," which Keillor had told the principals that Inland was not.
In 2008, seven years after Keillor's departure, Summit and its principals acted without Keillor's involvement. As a result, there is no evidence from which it could be found that Keillor acted in furtherance of a tortious objective, such that his conduct could constitute "substantial assistance" as to the wrongs committed by Summit or its principals in 2008. Therefore, we conclude that the trial court correctly granted defendants' motion for summary judgment on the "aid and abet" claim.
Affirmed.
Summit held itself out to its clients as a qualified intermediary that would keep clients' money while they concluded their qualifying 1031 transactions. Pursuant to agreements with its clients, Summit could charge fees for its services and could keep as profit a return on clients' funds in excess of the one percent interest paid to clients. During its years of existence, Summit facilitated thousands of exchanges and controlled millions of dollars of client funds at any given time.
