Case Title: Oregon Steel Mills, Inc. v. Coopers & Lybrand, LLP

Citation: 

Docket Number: S48978

State: oregon

Court: Oregon Supreme Court

Date: 2004-01-23T00:00:00Z

Document:
FILED:  January 23, 2004
IN THE SUPREME COURT OF THE STATE OF OREGON
OREGON STEEL MILLS, INC.,
a Delaware corporation,
Respondent on Review,
v.
COOPERS & LYBRAND, LLP,
a Delaware limited liability partnership,
Petitioner on Review.
(CC 9708-06108; CA A107366; SC S48978)
On review from the Court of Appeals.*
Argued and submitted November 4, 2002.
Michael L. Rugen, of Heller Ehrman White & McAuliffe, LLP,
San Francisco, California, argued the cause and filed the brief
for petitioner on review.  With him on the brief were Natalie L.
Hocken, Evan L. Schwab, and Rita V. Latsinova.
Lynn R. Nakamoto, of Markowitz Herbold Glade & Mehlhaf,
P.C., Portland, argued the cause and filed the brief for
respondent on review.  With her on the brief was Peter H. Glade.
David F. Rees, of Stoll Stoll Berne Lokting & Schlachter,
P.C., Portland, filed a brief on behalf of amicus curiae Oregon
Trial Lawyers Association.  With him on the brief was Gary M.
Berne.
Before Carson, Chief Justice, and Gillette, Durham, Riggs,
De Muniz, and Balmer, Justices.**
BALMER, J.
The decision of the Court of Appeals is reversed.  The
judgment of the circuit court is affirmed.
*Appeal from Multnomah County Circuit Court, Robert W. Redding, Judge. 176 Or App 317, 31 P3d 1092 (2001).
**Leeson, J., resigned January 31, 2003, and did not
participate in the decision of this case.  Kistler, J., did not
participate in the consideration or decision of this case.
BALMER, J.
This case requires us to consider once again difficult
issues of causation and foreseeability in tort law.  We are asked
to decide whether defendant, an accounting firm, may be held
liable for damages suffered by plaintiff, its client, due to
changes in the market price of plaintiff's stock that defendant's
negligent conduct did not cause.  The trial court granted
defendant's motion for summary judgment, and the Court of Appeals
reversed.  Oregon Steel Mills, Inc. v. Coopers & Lybrand, LLP,
176 Or App 317, 31 P3d 1092 (2001).  We allowed review and, for
the reasons that follow, reverse the decision of the Court of
Appeals and affirm the judgment of the trial court.
I. FACTS
We take the following facts from the summary judgment
record, viewing the facts and all reasonable inferences that may
be drawn from them in the light most favorable to plaintiff, as
the nonmoving party.  Jones v. General Motors Corp., 325 Or 404,
408, 939 P2d 608 (1997).  Plaintiff Oregon Steel Mills, Inc., a
company whose stock is traded on the New York Stock Exchange,
retained defendant Coopers & Lybrand, LLP, for many years to
provide accounting and auditing services.  In 1994, plaintiff
entered into a transaction that involved the sale of stock in one
of plaintiff's subsidiaries.  Defendant advised plaintiff that
the transaction should be reported as a $12.3 million gain on
plaintiff's financial statements and reports.  Pursuant to that
advice, plaintiff reported the transaction as a gain and, when
defendant audited plaintiff's 1994 financial statements in early
1995, defendant gave its opinion that plaintiff's consolidated
financial statements fairly represented plaintiff's financial
position in accordance with generally accepted accounting
principles.  Plaintiff alleges in its complaint, and for purposes
of its summary judgment motion defendant does not dispute, that
defendant's accounting advice regarding the 1994 transaction was
incorrect and that defendant gave that advice negligently.
During late 1995 and early 1996, plaintiff was planning
to make a public offering of its stock and debt.  Defendant knew
of plaintiff's plans and had known, since at least 1994, that
plaintiff would be selling stock and debt at some time in the
future.  Plaintiff anticipated that it would file the necessary
documents with the Securities and Exchange Commission (SEC) on
February 27, 1996, and that, barring unforeseen problems in the
SEC approval process, the securities would be priced and sold on
or about May 2, 1996.  Defendant provided accounting advice to
plaintiff in connection with the planned offering, and the
documents that plaintiff filed with the SEC included the 1994
financial statements that defendant had audited.  
Shortly before the initial SEC filing, defendant
advised plaintiff that the 1994 transaction might have been
reported incorrectly and that defendant would not approve the
audit of plaintiff's 1995 financial statements or allow use of
the 1994 audit unless the SEC approved the accounting treatment
of the 1994 transaction.  Subsequently, the SEC concluded that
the accounting treatment for the 1994 transaction was incorrect
and required plaintiff to restate its 1994 financial statements. 
Because of the time required to restate the 1994 financial
statements and change other documents related to the planned
offering, plaintiff was unable to make its initial filing with
the SEC until April 8, 1996, and the public offering did not
occur until June 13, 1996.  On that date, plaintiff sold $80
million of newly issued stock and $235 million of debt.  Although
the price of plaintiff's stock was $13.50 on February 22, 1996,
when defendant discovered the accounting error, and,
coincidentally, also was $13.50 when plaintiff issued the stock
on June 13, 1996, the stock price had risen and fallen between
those dates.  On May 2, 1996, the date that plaintiff alleges
that it would have issued the stock but for defendant's
negligence, plaintiff's stock sold for $16 per share.  
II. PROCEEDINGS BELOW     
Plaintiff brought this action in 1997, claiming that
defendant's negligent conduct caused the delay that resulted in
the stock being offered at $13.50 per share, rather than at $16
per share. (1)  Plaintiff therefore seeks as damages from
defendant the difference between what plaintiff actually received
for its stock and debt and what it alleges that it would have
received if the securities offering had occurred on May 2, 1996,
an amount plaintiff asserts to be approximately $35
million. (2)
As noted above, defendant moved for summary judgment. 
Defendant argued that, even if its negligent conduct had caused
the delay in plaintiff's offering, defendant could not be liable
for any "loss" resulting from plaintiff's stock being sold at
$13.50 per share rather than at $16 per share because that "loss"
was due to market factors unrelated to defendant's negligent
conduct.  The material facts underlying defendant's summary
judgment motion are undisputed.  Both parties agree on the
historical facts summarized above and, in particular, that, but
for defendant's negligent conduct, plaintiff would have sold its
securities at an earlier date and at more favorable prices.  It
also is undisputed that the increase in the market price of
plaintiff's stock in late April 1996 and its decrease in early
June 1996 were unrelated to defendant's conduct and instead
resulted from market forces affecting all steel stocks.
Based on those facts, defendant argued in the trial
court that, as a matter of law, its negligent conduct was not the
legal cause of plaintiff's "loss."  Defendant relied on cases
holding that a plaintiff cannot recover losses resulting from
market fluctuations unless the defendant's misconduct caused the
change in the market price.  That concept, sometimes labeled
"loss causation," requires that a plaintiff prove not only that
its loss would not have occurred "but for" a defendant's
negligent conduct, but also that defendant's negligence itself
had some impact on the market price.  See Movitz v. First Nat'l
Bank, 148 F3d 760 (7th Cir 1998), cert den, 525 US 1094 (1999)
(where real estate investor purchased building in reliance on
bank's negligent evaluation of building, investor could not
recover from bank for damages attributable to collapse of real
estate market because bank's conduct did not cause market
collapse).  
Defendant also argued that its liability was limited to
the reasonably foreseeable consequences of its actions, citing
Buchler v. Oregon Corrections Div., 316 Or 499, 853 P2d 798
(1993).  Defendant asserted that the June 1996 decline in steel
company stock prices, including plaintiff's stock price, which
resulted in plaintiff raising less money from its securities
offering than it would have raised absent the decline, was not a
"reasonably foreseeable" consequence of defendant's accounting
errors in 1994. (3)  Defendant distinguished cases in which
courts have held defendants liable for losses due to market
fluctuations, arguing that those cases involved situations in
which the defendant had a specific legal duty to maximize a
plaintiff's stock market return. (4)  In this case, defendant
argued, its role as plaintiff's accountant involved no such duty.
In response, plaintiff argued that it was not required
to show that defendant's negligent conduct "actually caused the
market downturn."  Plaintiff had a "professional relationship"
with defendant and, plaintiff asserted, if the other elements of
a negligence claim could be proved, then "causation" was a jury
question that would turn on whether defendant's conduct was a
"substantial factor" in producing the damage to plaintiff. 
Because this was a professional malpractice case, plaintiff
argued, the issue was not whether plaintiff's damage was the
foreseeable result of defendant's negligent conduct, but whether
defendant's breach of its duty to plaintiff caused plaintiff's
damage.  Plaintiff also argued that, even if the appropriate
analysis was whether a loss due to market fluctuations was
"foreseeable," such a loss clearly was "foreseeable" because it
is common knowledge that stock prices fluctuate.
The trial court agreed with defendant that plaintiff
could not recover for losses based on the decline in the market
price of plaintiff's stock because that decline was unrelated to
defendant's negligent acts.  In its letter opinion, the trial
court stated:
"Every public stock issue involves the inherent risk of
market fluctuations affecting the securities price at
the time of issue.  Plaintiff's theory would shift the
risk of that fluctuation to the professionals assisting
in the offering wherever negligence of the professional
caused a delay in the sale, even though market factors
wholly unrelated to the professional negligence were
the sole cause of the drop in the issuing price.  At
the same time, the benefit of any market increase
occurring during the delay would inure to the benefit
of the issuing business.
"It is reasonably foreseeable that bad accounting
practices may cause the client harm in a myriad of
ways.  For a large publicly owned corporation such as
[plaintiff], one of those anticipated harms would be an
impairment of the client's ability to raise capital. 
From an impaired ability to raise capital, there then
can flow a myriad of damaging consequences, including
business failure, lost opportunity, and lost profits. 
All these damages are reasonably foreseeable
consequences of an impaired ability to raise capital,
and are recoverable if proven with the requisite degree
of certainty.  While [plaintiff] was at risk of
suffering this type of damage, it did not suffer, or in
any event it is not seeking recovery for, this type of
damage.
"Here, the alleged damaging consequence is a decline in
market value during the delay in getting the security
issue to market.  While [defendant's] accounting errors
caused [plaintiff's] delay in getting the security
issue to market, these errors had nothing to do with
the decline of the price of [plaintiff's] stock and the
rise in interest rates."
The trial court thus recognized that defendant's accounting
errors "caused" plaintiff's harm in the sense that the harm would
not have occurred "but for" those errors, but concluded that,
because unrelated market factors caused the decline in the price,
plaintiff could not hold defendant liable for plaintiff's losses.
Plaintiff appealed, and the Court of Appeals reversed
the trial court's summary judgment. (5)  The Court of Appeals
agreed with plaintiff's causation argument:  that whether
"defendant's negligence was the cause of plaintiff's damages
presents a triable question for the factfinder."  176 Or App at
322 (emphasis added).  The Court of Appeals reached that
conclusion by first considering the loss causation cases relied
on by defendant and the trial court.  It summarized that doctrine
as providing that "a defendant's liability does not extend to
losses that are caused by fluctuations in market value other than
directly by the defendant's wrongful conduct."  Id. at 320.  The
court stated that the "apparent premise of the doctrine is that
the defendant's conduct is not the efficient cause of ancillary
losses resulting from fortuitous movement of the market."  Id.  
The Court of Appeals suggested, however, that the
"better-reasoned" federal cases would not preclude the recovery
of damages based on market fluctuations from a defendant whose
negligent conduct prevents the plaintiff from entering or exiting
the market at a planned and foreseeably favorable time.  As an
example, the Court of Appeals stated that "a broker who forgets
and fails to execute a customer's sell order the day before the
bottom falls out of the market would not be insulated" from
liability for the customer's losses resulting from the market
drop.  Id. at 321.  
The Court of Appeals, however, found it unnecessary to
rely on any differences between the loss causation doctrine and
Oregon tort law "because the allegations here are to the effect
that plaintiff's damage was foreseeably caused by defendant's
negligent acts that directly led to plaintiff's inability to
enter the market at a planned and more favorable time."  Id.
(Emphasis added.)  Hence, according to the Court of Appeals,
plaintiff's damages could be recovered under both the loss
causation doctrine and general principles of Oregon tort law. 
The court expanded on its view of the causation requirement in a
footnote:
"[T]he consequence of defendant's alleged malpractice
was that plaintiff suffered a delay in the sale of its
securities and debt.  The consequence of that delay is
that plaintiff received less money from the sale than
it would have received if the sale had occurred when it
would have occurred but for defendant's malpractice. 
The difference in sales price constitutes damages that
plaintiff can recover from defendant, because that
difference is the direct consequence of the delay that
defendant's alleged malpractice caused.  That is
consistent with a basic principle of Oregon negligence
law, which imposes liability for harm on any person
whose negligent conduct was a substantial factor in
causing the harm. See, e.g., Brennen v. City of Eugene,
285 Or 401, 413, 591 P2d 719 (1979)."
Id. at 321 n 2.  As noted above, the Court of Appeals concluded
that "plaintiff's contention that defendant's negligence was the
cause of plaintiff's damages presents a triable question for the
factfinder."  Id. at 322. 
III. ANALYSIS
On review, defendant argues, as it did in the trial
court, that a plaintiff in a professional malpractice case may
not recover economic damages that are caused by market forces
unrelated to the defendant's wrongful conduct.  Defendant asserts
that the Court of Appeals erred when it applied the
"foreseeability" test of Fazzolari v. Portland School Dist. No
1J, 303 Or 1, 734 P2d 1326 (1987), and held that plaintiff was
entitled to a trial to determine whether "plaintiff's damage was
foreseeably caused by defendant's negligent acts."  Oregon Steel
Mills, 176 Or App at 321.  In defendant's view, the extent of the
economic damages for which a defendant may be held liable depends
on the relationship between a plaintiff and a defendant. 
Defendant argues that, because plaintiff did not allege that
defendant had any duty to protect plaintiff from changes in the
market price of plaintiff's stock, defendant can be liable to
plaintiff for harm resulting from adverse changes in that price
only if its wrongful conduct was the cause of those changes.
Plaintiff responds that a defendant in a professional
malpractice case "causes" a plaintiff's damages, and is liable
for those damages, when the defendant's negligent conduct is a
"substantial factor" in causing the damages.  According to
plaintiff, the fact that the damages occur "within a market and
are measured by market price change" does not preclude plaintiff
from showing that defendant's misconduct was a substantial factor
in causing the damages.  Alternatively, plaintiff argues that, if
defendant's liability depends on the scope of its duty to
plaintiff, the record does not contain sufficient evidence to
affirm summary judgment for defendant on that ground.
A.  Causation
We begin with a discussion of causation, because the
trial court based its conclusion that plaintiff's "loss" was not
a reasonably foreseeable result of defendant's conduct on the
fact that "market factors unrelated to [defendant's] negligence   
* * * caused the offering price to decline" (emphasis added), and
the Court of Appeals, in reversing, concluded that a jury should
determine whether defendant's negligence "foreseeably caused"
plaintiff's loss.  176 Or App at 321-22.
Common-law courts traditionally have required that, to
recover damages for a defendant's negligent conduct, a plaintiff
must establish both (1) that the defendant's conduct was, as a
factual matter subject to pleading and proof, one of the "causes"
of the plaintiff's injury (often called "factual causation,"
"but-for causation," or "cause-in-fact"), and (2) that the
defendant's conduct "has been so significant and important a
cause [of the plaintiff's injury] that the defendant should be
legally responsible" (a concept usually referred to as
"proximate" or "legal" cause).  W. Page Keeton, Prosser and
Keeton on Torts 273 (5th ed 1984); see generally id. at 263-80
(discussing cause-in-fact and proximate cause).  The idea of
"proximate cause" has been criticized, both because it so
frequently is confused with factual or but-for causation and
because it obscures the actual effect of applying the concept,
which is to determine whether a plaintiff will be able to recover
from a defendant whose conduct was a cause-in-fact of the
plaintiff's harm.  Id. at 273.  
This court has rejected the use of the traditional
concept of proximate or legal cause as a means of "express[ing]
the limits of the harm for which a negligent defendant would be
liable," Fazzolari, 303 Or at 11, in favor of subsuming such
limits "as part of the definition of negligence," id. at 12,
quoting Stewart v. Jefferson Plywood Co., 255 Or at 606.  A
plaintiff, of course, still must prove "factual" or "but-for"
causation -- that there is a causal link between the defendant's
conduct and the plaintiff's harm -- but, if the plaintiff proves
factual causation, whether the defendant is legally responsible
for the plaintiff's harm depends on what constitutes negligence
in a particular case.  
B.  Negligence:  Foreseeability and Duty of Care
We next consider Oregon law on what constitutes
"negligence" in a professional malpractice case such as this one. 
In Fazzolari, this court reviewed its earlier negligence cases
and restated the circumstances in which one party can recover
damages for harm caused by another:
"[U]nless the parties invoke a status, a
relationship, or a particular standard of conduct that
creates, defines, or limits the defendant's duty, the
issue of liability for harm actually resulting from
defendant's conduct properly depends on whether that
conduct unreasonably created a foreseeable risk to a
protected interest of the kind of harm that befell the
plaintiff."
303 Or at 17.  Following Fazzolari, this court has discussed a
defendant's liability for harm that the defendant's conduct
causes another in terms of the concept of "reasonable
foreseeability," rather than the more traditional "duty of care." 
A claim for common-law negligence thus includes, among other
elements, a foreseeable risk of harm to the plaintiff and conduct
by the defendant that is unreasonable in light of that risk. 
Solberg v. Johnson, 306 Or 484, 490, 760 P2d 867 (1988). 
However, as the passage from Fazzolari quoted above indicates, if
the plaintiff invokes a special status, relationship, or standard
of conduct, then that relationship may "create," "define," or
"limit" the defendant's "duty" to the plaintiff.
Duty also becomes an issue when, as here, the plaintiff
seeks damages for purely economic losses.  "[O]ne ordinarily is
not liable for negligently causing a stranger's purely economic
loss without injuring his person or property."  Hale v. Groce,
304 Or 281, 284, 744 P2d 1289 (1987).  Instead, the plaintiff is
required to allege "[s]ome source of a duty outside the common
law of negligence."  Id.  Put another way, liability for purely
economic harm "must be predicated on some duty of the negligent
actor to the injured party beyond the common law duty to exercise
reasonable care to prevent foreseeable harm."  Onita Pacific
Corp. v. Trustees of Bronson, 315 Or 149, 159, 843 P2d 890
(1992).  In this case, of course, plaintiff seeks damages for
purely economic losses, and Oregon law, therefore, required it to
allege the existence of such a duty to state a claim for relief. 
Here, plaintiff did so by alleging a special relationship with
defendant.
Defendant suggests that Fazzolari divides the world of
torts into two categories:  (1) tort claims in which the
plaintiff invokes a special relationship, liability depends
solely on the scope of the duty associated with that
relationship, and the foreseeability standard of Fazzolari plays
no role; and (2) tort claims in which the plaintiff invokes no
special relationship, and the general negligence standard of
reasonable foreseeability applies. (6)  Our review of the cases
does not reveal such a clear division between different types of
tort claims and, in any event, this case does not require us to
address that issue.  Here, as noted, there was a special
relationship between defendant and plaintiff that established the
existence of a duty of care on the part of defendant.  However,
as discussed below, the scope of that particular duty in that
particular relationship turns out to be limited to harms to
plaintiff that were reasonably foreseeable.
Even when a special relationship is the basis for the 
duty of care owed by one person to another, this court has held
that, if the special relationship (or status or standard of
conduct) does not prescribe a particular scope of duty, then
"[c]ommon law principles of reasonable care and foreseeability of
harm are relevant."  Cain v. Rijken, 300 Or 706, 717, 717 P2d 140
(1986) (quoted with approval in Fazzolari, 303 Or at 16-17). 
This court further elucidated the relationship between
foreseeability and duty in Buchler, in which it held that the
state was not liable to persons harmed by an escaped prison
inmate, in the absence of allegations that the state knew or
should have known that the inmate was likely to cause bodily harm
to others.  This court stated:
"Either formulation -- duty or foreseeability --
is a method of describing how the law limits the
circumstances or conditions under which one member of
society may expect another to pay for a harm suffered." 

316 Or at 509.  This court in Buchler held that "there [was] a
status occupied by [the] defendant that raise[d] duties of care." 
Id. at 505 (emphasis in original).  On examination, however, this
court determined that those duties of care were based on common-law principles and did not provide a separate basis for liability
in that case, in part because the harm to plaintiff was not
foreseeable:
"It is not possible for a reasonable person to
find from this record that a custodian would have known
that this particular prisoner was 'likely to cause
bodily harm' of the kind that befell plaintiffs two
days after his escape.  The tragic death and injuries
were not legally foreseeable results of this particular
prisoner's escape.  They are not risks unreasonably
created by that escape, nor did they occur because of
violation by defendant of any duty arising out of any
special relationship between the plaintiffs and the
defendant or defendant's status as the prisoner's
jailer." 
Id. at 507 (emphasis added).  
Thus, under Fazzolari, Cain, and Buchler, when a
plaintiff alleges a special relationship as the basis for the
defendant's duty, the scope of that duty may be defined or
limited by common-law principles such as foreseeability. (7)
C.  Application
With that background in mind, we return to defendant's
argument that the Court of Appeals erred in reversing the summary
judgment and concluding that, because plaintiff alleged that its
damage was "foreseeably caused by defendant's negligent acts," a
triable issue existed as to whether "defendant's negligence was
the cause of plaintiff's damages."  Oregon Steel Mills, 176 Or
App at 321-22.  For the reasons that follow, we agree with
defendant.
Before examining "foreseeability," we digress briefly
to discuss the Court of Appeals' analysis of causation.  The
Court of Appeals stated that plaintiff had to show only that
plaintiff's damage was, in fact, "caused" by defendant's
negligent acts. (8)  In the context of the trial court's
opinion and the parties' briefs, that conclusion confused the
issues of factual cause and proximate cause that we discussed
above. (9)  If the Court of Appeals meant that defendant's
conduct was a cause-in-fact or a but-for cause of plaintiff's
harm, the trial court, as noted, also recognized that fact, and
we do as well.  If the Court of Appeals meant instead that
plaintiff sufficiently had alleged that defendant's conduct was a
proximate or legal cause of plaintiff's harm, (10) that
conclusion ignores this court's cases, discussed above, rejecting
reliance on proximate cause to determine the limits of liability
for negligence.  In either event, the appropriate focus is not
causation:  There is sufficient evidence of factual causation,
and proximate cause is not a useful inquiry in Oregon tort law. 
Rather, the critical issue is whether plaintiff's market losses
were a reasonably foreseeable result of defendant's wrongful
conduct.
Our discussion above of recent Oregon tort cases sets
the stage for consideration of that issue.  The Court of Appeals
concluded that the issue of whether plaintiff's damage was
"foreseeably" caused by defendant's negligent acts should be
tried to a jury.  The problem with that conclusion is that no one
could foresee, at the time of defendant's accounting errors in
1994 and early 1995, the risk that plaintiff would suffer a loss
because its securities would be sold at market-determined prices
on June 13, 1996, rather than on May 2, 1996.  Plaintiff argues
that it is foreseeable that stock prices will fluctuate, and that
is certainly true.  It also is foreseeable, as the trial court
stated, that negligent conduct by an accounting firm may harm a
client by impairing its ability to raise capital.  With
appropriate proof, the client of a negligent accounting firm may
recover damages for lost profits or lost business opportunities
that result from the accounting firm's negligent acts.  Here,
however, plaintiff seeks damages based solely on a decline in the
price of  plaintiff's stock during the delay that defendant
caused in getting the offering to market, yet plaintiff admits
that the price decline affected all steel stocks and was
unrelated to defendant's misconduct.
Although the context of the alleged negligence was
quite different, we see significant parallels between this case
and Buchler.  In that case, this court held, as a matter of law,
that a prison escapee's crimes committed two days after his
escape were not "reasonably foreseeable" consequences of a prison
employee's failure to remove the keys from the prison van in
which the inmate escaped.  This court noted that "[an]
intervening criminal instrumentality caused the harm and created
the risk," and although 
"it is generally foreseeable that criminals may commit
crimes and that prisoners may escape and engage in
criminal activity while at large, that level of
foreseeability does not make the criminal's acts the
legal responsibility of everyone who may have
contributed in some way to the criminal opportunity."  
316 Or at 511.  Despite the fact that the state employee's action
in leaving the keys in the van facilitated "an unintended adverse
result, where intervening intentional criminality of another
person is the harm-producing force, [the employee's act] does not
cause the harm so as to support liability for it."  316 Or at
511-12.
Similarly, in this case, defendant's conduct caused the
delay in the offering that led to an "unintended adverse result." 
However, the intervening action of market forces on the price of
plaintiff's stock was the "harm-producing force," and defendant's
actions did not "cause" the decline in the stock price so as to
support liability for that decline.  As a matter of law, the risk
of a decline in plaintiff's stock price in June 1996 was not a
reasonably foreseeable consequence of defendant's negligent acts
in 1994 and early 1995.
That conclusion is similar to the conclusions reached
by other courts that have considered whether a client in a
professional malpractice action can recover for losses caused by
market forces.  In First Federal Savings & Loan Ass'n v. Charter
Appraisal, 247 Conn 597, 724 A2d 497 (1999), a client sued an
appraiser for negligently overvaluing a piece of property, which
led the client to make a loan secured by the property.  The court
agreed that the client could recover damages that were directly
attributable to the overvaluation, but declined to award damages
for the loss suffered by the client as a result of a general
decline in real estate prices.  Similarly, in Movitz v. First
Nat'l Bank, 148 F3d 760 (7th Cir 1998), cert den, 525 US 1094
(1999), the plaintiff had purchased a commercial property based,
in part, on a negligent evaluation by the defendant bank.  After
a decline in real estate prices, the plaintiff argued that it
would not have purchased the property if the defendant had not
prepared the faulty evaluation, and sought damages for the loss
it incurred when it sold the property.  The court concluded that,
even though the plaintiff would not have purchased the property
but for the negligent evaluation, the bank could not be held
liable for the decline in the market value of the property that
its misconduct did not cause.  Those cases help explain why
plaintiff in this case should be able to recover all the out-of-pocket expenses it incurred because of defendant's accounting
errors -- and perhaps other identifiable damages -- but cannot
recover damages measured by the decline in the price of its stock
in June 1996.
Plaintiff argues that, even if losses due to market
forces are not recoverable from a defendant whose negligent
behavior did not cause those losses, the losses in this case were
foreseeable because defendant knew that plaintiff intended to
enter the market and sell its securities at a specific and
favorable time.  The Court of Appeals relied on that argument,
stating that the offering date was timed to take advantage of
higher-than-expected first-quarter earnings and favorable market
conditions.  176 Or App at 320.  However, the record does not
support plaintiff's assertion or the Court of Appeals'
statements.  First, plaintiff's second amended complaint does not
allege that the securities offering was scheduled to occur at a
specific, advantageous time.  The only negligent acts alleged in
the complaint are defendant's improper tax advice in 1994 and its
audit and approval of the financial statements for the year ended
December 31, 1994.  Yet, according to the complaint, plaintiff
planned the securities offering "during the later part of 1995
and early 1996."  Although defendant knew in 1994 that plaintiff
contemplated a public offering at some point, the timing of that
offering, at least according to the record here, was known only
in the most general sense at the time of defendant's wrongful
conduct.
Second, to the extent that plaintiff intended to time
its offering to take advantage of a favorable quarterly earnings
report, as the Court of Appeals suggested, the delay caused by
defendant's conduct did not deprive plaintiff of any advantage
from that report because, in fact, plaintiff released the report
before the public offering.  For plaintiff to have been harmed
because the offering was delayed too long after the release of
the favorable earnings report, plaintiff would have to present
evidence that defendant knew or should have known that
plaintiff's stock would have risen briefly after the release of
the earnings report and then fallen back to its post-release
level.  Such a market prediction would be surprising -- as well
as quite speculative -- but, in any event, plaintiff made no such
contention in any affidavit, deposition, or document submitted as
part of the summary judgment record.  Nor does the summary
judgment record contain any other suggestion by plaintiff that it
expected that market conditions would be favorable at the time
the offering was originally planned, why those conditions were
favorable, or why conditions would be any less favorable six
weeks later.  On the contrary, the uncontroverted evidence in the
record shows (1) that plaintiff wished to issue its securities as
expeditiously as possible because it needed cash to finance a
capital improvement program and to remain in compliance with bank
covenants, (11) and (2) that the increase and then decrease in
steel company stock prices, including plaintiff's, between April
and June 1996 was due to market forces unrelated to plaintiff's
financial condition or to defendant's conduct.
For the reasons set out above, we agree with the trial
court that, as a matter of law, the decline in plaintiff's stock
price in June 1996 was not a "reasonably foreseeable" consequence
of defendant's accounting errors, and defendant therefore cannot
be liable for damages based on that decline.
We return briefly to the role that "duty" plays in this
case to determine whether there is any basis for imposing on
defendant a standard of conduct beyond protecting plaintiff from
the reasonably foreseeable consequences of defendant's negligent
conduct.  Nothing in the complaint or in the summary judgment
record indicates that defendant's duty to plaintiff was any
broader than to act with reasonable competence in performing the
professional services for which it was retained.  Plaintiff
asserted the "special relationship" of accountant and client, and
defendant admitted that it was negligent in performing its work
as plaintiff's accountant, but nothing in the record suggests
that the relationship between the parties imposed a duty on
defendant to protect plaintiff from market losses.  
For the reasons discussed above, we conclude that,
although defendant breached its duty to plaintiff by failing to
provide competent accounting services, defendant had no duty to
protect plaintiff against market fluctuations in plaintiff's
stock price.  The decline in plaintiff's stock price in June 1996
was, as a matter of law, not reasonably foreseeable, and
defendant cannot be liable for damages based on that
decline. (12)  The trial court correctly granted defendant's
motion for summary judgment on that ground.
The decision of the Court of Appeals is reversed.  The judgment of the circuit court is affirmed.
1. Plaintiff's complaint also alleged that plaintiff was damaged because the delay caused the
debt component of the offering to be sold at a higher interest rate.  The applicable interest rate
was higher on June 13, 1996, than it had been on May 2, 1996.  The parties' arguments about
whether defendant can be held liable for the "loss" due to the lower stock price apply equally to
any "loss" due to the higher interest rate, as does our analysis of those arguments.  
2. Plaintiff's second amended complaint also claimed damages for "extra expenses incurred
as a direct result of the delay in the offering" -- presumably including legal, accounting, and
related costs.  In the trial court, however, plaintiff waived its claim for those "out-of-pocket"
expenses. 
3. Defendant noted that its "unforeseeability" argument was similar to the argument that
defendant's negligent conduct was not the "proximate cause" of plaintiff's harm, but
acknowledged that, under Oregon tort law, the concept of proximate cause is subsumed within
the notion of foreseeability.  See Buchler, 316 Or at 509 n 6 ("In Stewart v. Jefferson Plywood
Co., 255 Or 603, 606, 469 P2d 783 (1970), the court erased 'proximate cause' from the lexicon in
favor of 'foreseeability.'"). 
4. Defendant cited, inter alia, Carich v. James River Corp., 958 F2d 861 (9th Cir 1992)
(employee benefits administrator had duty to maximize return on stock sales on behalf of
investor) and Flickinger v. Brown & Co., 789 F Supp 616 (WDNY 1992) (stock broker had duty
to maximize return to client). 
5. The trial court also granted defendant's separate motion for summary judgment against
plaintiff's claim for "tax damages" that plaintiff would incur if plaintiff recovered on the other
claims in its complaint.  The Court of Appeals affirmed the trial court ruling, Oregon Steel Mills,
176 Or App at 320, and plaintiff has not raised that issue on review.  We, therefore, do not
discuss the issue further.    
6. Defendant, for example, quotes this court's statement in Onita Pacific that,
"[f]oreseeability alone is not a sufficient basis to permit the recovery of economic losses on a
theory of negligence."  315 Or at 165.  That statement is correct, but it does not follow that
"foreseeability" is not, at least in some cases, a necessary element of a negligence claim for
economic damages.
7. We note that, although this court has not had occasion to discuss in depth the role, if any,
of foreseeability when a plaintiff asserts a special relationship in seeking damages for purely
economic losses, the Court of Appeals has addressed that issue on several occasions.  Roberts v.
Fearey, 162 Or App 546, 549-50, 986 P2d 690 (1999); Allstate Ins. Co. v. Tenant Screening
Services, Inc., 140 Or App 41, 47-51, 914 P2d 16 (1996). 
8. At one point, the Court of Appeals phrased the issue this way: 
176 Or App at 321 n 2 (emphasis added).
9. One source of the Court of Appeals' confusion might be its reliance on Brennen, 285 Or
at 413, for the proposition that one whose negligent conduct "causes" harm to another is liable
for that harm if that conduct was a "substantial factor" in causing the harm.  Oregon Steel Mills,
176 Or App at 321 n 2.  This court previously has cautioned against reliance on Brennen. 
Fazzolari, 303 Or at 15.  Moreover, Brennen is particularly mischievous in this context, because
it refers to both "cause-in-fact" and "legally cognizable damage," 285 Or at 405, without
explaining the relationship between the two; it incorrectly uses the term "legal causation" when
discussing "cause-in-fact," id. at 413; and it states that the "substantial factor" test is to be used in
determining "legal causation," id., when that standard is more appropriately applied in
determining cause-in-fact (see Keeton, Torts at 278).
10. That interpretation is supported by the Court of Appeals' use, at one point, of the term
"efficient cause," 176 Or App at 320, a variation of the discredited (in Oregon) term "proximate
cause."  Bryan A. Garner, Black's Law Dictionary 213 (7th ed 1999).  As with "proximate
cause," caution should be exercised in using that term in discussions of Oregon tort law.
11. Plaintiff did not seek damages for any harm that the delay in its offering caused to its
capital improvement program or to its relationship with its banks.
12. For those reasons, we disagree with the Court of Appeals' stock broker analogy,
summarized above at ___ Or at ___ (slip op p. 9).  That court supported its conclusion that
defendant can be liable for plaintiff's market losses because "a broker who forgets and fails to
execute a customer's sell order the day before the bottom falls out of the market would not be
insulated" from recovery for the customer's losses resulting from the market drop.  176 Or App at
321.  Assuming, without deciding, that a stock broker owes a specific duty to a customer to
protect the customer from market declines, the Court of Appeals' statement, of course, would be
correct.  Here, however, neither the Court of Appeals nor plaintiff points to a source of law to
support the proposition that the scope of an accountant's duty to a client similarly encompasses a
duty to protect its client from fluctuations in the market, and our discussion of foreseeability and
duty suggests that it does not.