Title: Granewich v. Harding

State: oregon

Issuer: Oregon Supreme Court

Document:

Filed:  July 9, 1999 

IN THE SUPREME COURT OF THE STATE OF OREGON

WILLIAM R. GRANEWICH, II,

	Petitioner on Review,

	v.

BEN HARDING; JEANNIE

ALEXANDER-HERGERT; FOUNDERS

FUNDING GROUP, INC., an

Oregon corporation,

	Defendants,

	and

MICHAEL J. FARRELL; and

MARTIN, BISCHOFF, TEMPLETON, 

LANGSLET & HOFFMAN, a

partnership,

	Respondents on Review.

(CC 9401-00097; CA A88174; SC S45041)

	On review from the Court of Appeals.*

	Argued and submitted March 4, 1999.

	James R. Cartwright, Portland, argued the cause and filed
the brief for petitioner on review.

	Thomas W. Brown, Portland, argued the cause and filed the
brief for respondents on review.  With him on the brief were
Wendy M. Margolis and Cosgrave, Vergeer & Kester, LLP, Portland.

	Michael A. Greene, Portland, filed briefs for amicus curiae
Oregon Trial Lawyers Association.  With him on the March 16,
1998, brief was B. Carlton Grew, Portland.  With him on the
September 15, 1998, brief were Richard H. Braun and Rosenthal &
Greene, PC, Portland.

	Thomas W. Sondag, of Lane Powell Spears Lubersky LLP,
Portland, filed the brief for amicus curiae Oregon Association of
Defense Counsel. 

	Before Carson, Chief Justice, and Gillette, Van Hoomissen,
Durham, and Kulongoski, Justices.**

	GILLETTE, J.

	The decision of the Court of Appeals is reversed in part. 
The judgment of the circuit court is reversed in part.  The case
is remanded to the circuit court for further proceedings.

	*Appeal from Multnomah County Circuit Court,

	 Michael H. Marcus, Judge.

	 150 Or App 34, 945 P2d 1067 (1998).

    **Leeson and Riggs, JJ., did not participate in the
consideration or decision of this case.

		GILLETTE, J.

		This is a civil action for damages based on allegations
that the controlling shareholders and directors of a closely held
corporation breached their fiduciary duties to plaintiff, a
minority shareholder and director, through a corporate "squeeze-out."  Plaintiff named as defendants the majority shareholders
and directors, the corporation itself, the corporation's lawyer,
and that lawyer's firm.  As the case comes to us, all claims
against the corporation and the shareholders have been dismissed,
and only the allegations concerning the lawyers' role in the
alleged squeeze-out are at issue.  

		The amended complaint alleges, among other things, that
the controlling shareholders and directors amended the corporate
by-laws to exclude plaintiff from the corporation and issued new
shares of stock to themselves to dilute plaintiff's ownership
interest in the corporation.  The complaint also alleges that the
lawyers are liable directly to plaintiff for breach of their own
fiduciary duties to him as a director by assisting in those
actions and that they are jointly liable with the majority
shareholders and directors for breach of their fiduciary duties
to him as a minority shareholder and director.  The trial court
dismissed the amended complaint as to the lawyers under ORCP 21
A(8) for failure to state a claim.  A divided Court of Appeals,
sitting en banc, affirmed that judgment, holding that the lawyers
owed no direct fiduciary duty to plaintiff and that they could
not be liable vicariously for the majority shareholders' and
directors' alleged breach of fiduciary duty, if the lawyers
themselves owed no such duty to plaintiff.  Granewich v. Harding,
150 Or App 34, 945 P2d 1067 (1998). 

		Plaintiff seeks review of only that part of the Court
of Appeals decision that affirmed the trial court's judgment
dismissing his claim against the lawyers.  We limit our review
accordingly.  Because the case comes to us on an ORCP 21 A motion
to dismiss, our only task at this stage is to determine whether
the complaint adequately states a claim against the lawyers for
joint tort liability for the alleged actions of the controlling
shareholders and directors.  We conclude that the amended
complaint states a legally cognizable claim against the lawyers
as joint tortfeasors.  We therefore reverse that part of the
decision of the Court of Appeals.

		In determining the sufficiency of plaintiff's
complaint, we accept as true all well-pleaded allegations in the
complaint and give plaintiff the benefit of all favorable
inferences that may be drawn from the facts alleged.  Fearing v.
Bucher, 328 Or 367, 371, 977 P2d 1163 (1999).   

		The amended complaint alleges the following facts: 
Founders Funding Group, Inc. (FFG) was incorporated in 1992.  By
early 1993, plaintiff and defendants Harding and Alexander-Hergert each owned one-third of the shares of FFG stock. 
Plaintiff, Harding, and Alexander-Hergert all were directors and
officers of FFG as well as its employees.  All three agreed
initially that each would receive inadequate compensation for
their respective services to the company but that each would
receive the same amount of compensation from FFG, with the
expectation and agreement that each ultimately would receive
ample compensation for his or her efforts.  They also agreed that
each would be employed continually and perpetually by the
corporation, with salaries and benefits commensurate with their
services to it.  

		After a short time, FFG's business became substantially
more successful and profitable.  The complaint alleges that, at
that point, Harding and Alexander-Hergert devised a plan to
squeeze plaintiff out of the corporation.  On May 5, 1993, they
met with plaintiff and informed him that they had removed him as
a director of FFG, relieved him of his executive position, and
terminated him as an employee, all effective immediately. 
Plaintiff objected on the grounds that he had not received proper
notice of any shareholders' or directors' meeting as required by
FFG's by-laws, that his position as a director was protected by
the cumulative voting requirements of the by-laws, that the
actions of Harding and Alexander-Hergert represented a breach of
the agreement between plaintiff and the others that each would be
employed perpetually and continually by FFG, and that those
actions represented a breach of the fiduciary duty that Harding
and Alexander-Hergert owed to plaintiff by virtue of their
ownership of two-thirds of the corporation's stock and their
holding of two out of three positions on FFG's board of
directors.  

		Soon thereafter, Harding and Alexander-Hergert, in
their corporate capacities, met with and hired lawyer Farrell and
his law firm, Martin, Bischoff, Templeton, Langslet & Hoffman
(collectively, the lawyers), to provide legal services to the
corporation.  The complaint alleges that the lawyers then entered
into an agreement with Harding and Alexander-Hergert to assist
them in depriving plaintiff of his position as a director, of the
value of his shares of stock, of his further employment with and
compensation from FFG, and of the benefits of participating in
the corporate affairs of FFG.  The complaint alleges that, at all
material times, the lawyers knew that the purpose of that
agreement was to violate Harding's and Alexander-Hergert's
fiduciary duties to plaintiff.  Additionally, the complaint
alleges that FFG itself "had no legitimate corporate interest in
resolving the disputes between plaintiff * * * and defendants
Harding and Alexander[-Hergert] in a manner which favored
defendants Harding and Alexander[-Hergert] over plaintiff * * *." 

		The lawyers are alleged to have assisted Harding and
Alexander-Hergert by drafting and sending two letters to
plaintiff, at Harding's and Alexander-Hergert's request,
containing statements that the lawyers knew to be false
concerning the effectiveness of Harding's and Alexander-Hergert's
previous efforts to remove plaintiff from the corporation.  It
also is alleged that, in their further efforts toward the same
end, the lawyers knowingly provided legal assistance to Harding
and Alexander-Hergert that substantially assisted Harding and
Alexander-Hergert in breaching the fiduciary duties that they
allegedly owed to plaintiff.  Specifically, the complaint alleges
that the lawyers assisted Harding and Alexander-Hergert in
exercising actual control of the management and policies of FFG
in ways inconsistent with their claimed fiduciary duties by
calling special meetings, amending corporate by-laws, removing
plaintiff as a director, and taking other actions to dilute the
value of plaintiff's FFG stock.  Finally, the complaint alleges
that the lawyers' actions were outside the scope of any
legitimate employment by FFG and that plaintiff suffered damages
as a consequence of those actions. 

		The foregoing allegations concerning the role of the
lawyers are set out or incorporated by reference in two claims
for relief in the amended complaint.  In analyzing the
sufficiency of the specific allegations, the Court of Appeals
considered whether those allegations constituted a legally
cognizable claim under either a "conspiracy" or an "aid and
assist" theory of joint liability.  Granewich, 150 Or App at 38-49.  

As a preliminary matter, defendant lawyers argue that
the Court of Appeals erred in considering the "aid and assist"
theory and urge this court not to address it, on the ground that
plaintiff neither mentioned "aid and assist" as a separate theory
of recovery in the complaint nor argued it below.  Therefore,
defendant lawyers argue, the matter is not preserved.(1)  

		Defendant lawyers' argument is not well taken.  For
reasons explained more fully below, neither "conspiracy" nor "aid
and assist" is a separate theory of recovery.  See Bonds v.
Landers, 279 Or 169, 175, 566 P2d 513 (1977) (so explaining with
respect to "conspiracy"); Bliss v. Southern Pacific Co., 212 Or
634, 642, 321 P2d 324 (1958) (same).  Rather, conspiracy to
commit or aiding and assisting in the commission of a tort are
two of several ways in which a person may become jointly liable
for another's tortious conduct.  

		Section 876 of the Restatement (Second) of Torts (1979)
(Restatement) sets out three ways in which persons acting in
concert may be held accountable for each other's tortious
conduct:

	"For harm resulting to a third person from the tortious
conduct of another, one is subject to liability if he

		"(a) does a tortious act in concert with the other
or pursuant to a common design with him, or 

		"(b) knows that the other's conduct constitutes a
breach of duty and gives substantial assistance or
encouragement to the other so to conduct himself, or

		"(c) gives substantial assistance to the other in
accomplishing a tortious result and his own conduct,
separately considered, constitutes a breach of duty to
the third person."

		Each of the three foregoing statements already is
reflected in existing Oregon case law governing the liability of
persons acting in concert.  Therefore, to state that this court
recognizes section 876 as reflecting the common law of Oregon
breaks no new ground.  For example, this court's decision in
Sprinkle v. Lemley, 243 Or 521, 414 P2d 797 (1966), embodies the
principle set out in subsection(a) of section 876.  Sprinkle was
a case in which a patient injured by a doctor's negligence sued
both the general practitioner who treated her for her injuries
and the specialist called in to assist him.  The court there
stated that persons acting in concert can be liable to a third
person for harm resulting from the other's negligence, but one is
not liable for the acts of another if each is acting
independently.  Id. at 528 (citing generally to a substantially
similar prior version of section 876, Restatement of Torts,
(1939) § 876). 

		Additionally, as early as the turn of the century, the
court stated in Perkins v. McCullough, 36 Or 146, 59 P 182
(1899), that  

	"'all who aid, command, advise, or countenance the
commission of a tort by another, or who approve of it
after it is done, if done for their benefit, are liable
in the same manner as they would be if they had done
the same tort with their own hands.'"  

Id. at 149 (quoting Judson v. Cook, 11 Barb. 642 (NY 1852)).  

That principle is reflected in section 876(b) of the Restatement,
a prior version of which this court quoted with approval in
Lemons v. Kelly, 239 Or 354, 359, 397 P2d 784 (1964).  

		Finally, the principle articulated in subsection(c) of
section 876 of the Restatement is exemplified by this court's
decision in Blank v. Far West Federal Savings, 281 Or 397, 575
P2d 148 (1978).  The plaintiff in Blank was a real estate broker
with an exclusive listing agreement who contractually was
entitled to a commission from the sale of certain real estate. 
Each defendant agreed to a scheme to induce plaintiff to cancel
the agreement before the closing of a sale on the property to
avoid paying the commission.  The court held that each defendant
participated in all or different acts of the fraud, either by
failing to disclose the imminent sale or by affirmatively
averring that no such sale was pending.  Id. at 408.  All were
obligated to deal truthfully and fairly with plaintiff and all,
therefore, jointly were liable to plaintiff for the harm done to
him.  Ibid.

		The court did not employ the words "conspire" or
"conspiracy" in Lemons, Sprinkle, or Perkins, nor did it
expressly examine or purport to delineate in any of those cases
whether particular elements that must be pled to state a claim
for relief under a "conspiracy" theory were present.  As noted,
Bonds and Bliss, among other cases, hold that a "conspiracy" is
not, standing alone, a tort.  Nonetheless, each case proceeded
under the same fundamental assumption for assessing the liability
of persons acting in concert, i.e., that, under certain
circumstances, it is permissible to impute the tortious acts of
one defendant to others acting in concert with that defendant.

We conclude that persons acting in concert may be
liable jointly for one another's torts under any one of the three
theories identified in Restatement section 876.(2)  See Gabriel v.
Collier, 146 Or 247, 255, 29 P2d 1025 (1934) (conspiracy
allegations serve "to connect a defendant with the transaction
and to charge him with the acts and declarations of his co-conspirators, without which he would not be implicated").(3)  It
follows that the Court of Appeals did not err in considering
whether the lawyers jointly could be liable for the breach of
fiduciary duty, either by doing a tortious act in concert with
the others, as described in section 876(a) of the Restatement, or
by knowingly providing substantial assistance to the others in
their commission of that tort, as described in section 876(b). 
We turn to that issue.

There is no Oregon law directly addressing whether
someone can be held liable for another's breach of fiduciary
duty.  Legal authorities, however, virtually are unanimous in
expressing the proposition that one who knowingly aids another in
the breach of a fiduciary duty is liable to the one harmed
thereby.(4)  That principle readily extends to lawyers.(5)

  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.				

		Nothing in this court's prior decisions compels a
different conclusion in this case.  Indeed, 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." 
Granewich, 150 Or App at 51 (Armstrong, J., concurring in part
and dissenting in part) (emphasis in original).  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.  

		In reaching a contrary conclusion, the Court of Appeals
found dispositive the absence of any duty flowing directly from
the lawyers to plaintiff.  That court stated that "because the
tort of breach of fiduciary duty depends on a duty that the law
implies from a fiduciary relationship between the parties, it
necessarily follows that a fiduciary relationship must exist
between the plaintiff and all joint tortfeasors."  Granewich, 150
Or App at 41.  That conclusion was based, in part, on the court's
interpretation of section 876(a) of the Restatement, which
provides that an actor's liability can be based on the commission
of "a tortious act in concert with" another.  According to the
Court of Appeals, even if Harding's and Alexander-Hergert's acts
were imputed to the lawyers, the lawyers' conduct still cannot be
viewed as tortious as to plaintiff, because the lawyers
themselves owed no fiduciary duty to plaintiff.

		That analysis is faulty for two reasons.  First,
interpreting the term, "tortious act," in the way that the Court
of Appeals' majority did requires, in the traditional tort law
vernacular, that the actor owe a duty of care to the third
person.  Thus, that interpretation erroneously fuses together the
elements of liability set out in subsection 876(a) with those in
subsection 876(c), which outlines liability for persons who
assist in the accomplishment of a tortious result in
circumstances where their "own conduct, separately considered,
constitutes a breach of duty to the third person."  Such an
approach would render subsection (c) surplusage.

		Second, the Court of Appeals' analysis relies on the
premise that, under subsection 876(a), each actor's conduct
itself must constitute a tort before liability attaches.  That
reliance is misplaced.  This court previously has suggested that
a plaintiff need not establish that each person acting in concert
himself committed a tort.  In Still v. Benton, 251 Or 463, 466,
445 P2d 492 (1968), the court stated that,

	"[w]hen a plaintiff alleges and proves that several
defendants conspired to commit a tort upon him, all the
defendants involved in the conspiracy can be held
liable for the overt act which is committed by one of
the defendants pursuant to the conspiracy.  If a
conspiracy is not proved, only those defendants can be
held liable who are alleged and proved to have
personally committed a tortious overt act against the
plaintiff."

That statement necessarily assumes that not all persons acting in
concert need to have committed an overt tortious act against the
plaintiff.(6)  

The Court of Appeals also declined to rule that lawyers
can be held liable as co-conspirators merely for aiding and
assisting in the commission of the tort of breach of fiduciary
duty, on the ground that it unduly would interfere with lawyer-client relations if lawyers could be held liable for actions
performed on behalf of their clients that only indirectly result
in their clients' breach of their fiduciary duties.  Granewich,
150 Or App at 48.  In that regard, we note that the Court of
Appeals interchangeably refers to Harding and Alexander-Hergert
and to the corporation as the lawyers' clients.  The complaint,
however, alleges that the corporation hired the lawyers, that the
corporation had no interest in the dispute between plaintiff and
Harding and Alexander-Hergert, and that the work that the lawyers
performed was outside the scope of any legitimate employment on
behalf of the corporation.  We must accept those allegations as
true for purposes of our analysis.  Under that circumstance, the
lawyers stand in no different position in relation to plaintiff
than anyone else, and their status as lawyers is irrelevant.(7)

		Viewed in light of the foregoing discussion, the
amended complaint adequately alleges joint liability on the part
of defendant lawyers as persons acting in concert with Harding's
and Alexander-Hergert's alleged breach of their fiduciary duties
to plaintiff, if it contains allegations that give rise to the
inference either that the lawyers did a tortious act pursuant to
an agreement with the others to breach their fiduciary duties or
that the lawyers knowingly provided substantial assistance in the
breach of the others' fiduciary duties.  

		We conclude that the amended complaint contains such
allegations.  The complaint alleges that the lawyers entered into
an agreement with Harding and Alexander-Hergert to take such
actions as may be necessary to squeeze plaintiff out of FFG and
to deprive plaintiff of the value of his FFG stock, objectives
that are alleged to be in breach of Harding's and Alexander-Hergert's fiduciary duties to plaintiff as majority shareholders
and directors.  The complaint further alleges that Harding and
Alexander-Hergert undertook multiple unlawful steps in
furtherance of those objectives and that plaintiff was damaged as
a result.  In addition, the amended complaint alleges that the
lawyers knew that the object to be accomplished was the breach of
Harding's and Alexander-Hergert's fiduciary duties to plaintiff,
that the lawyers provided substantial assistance to them in their
efforts in that regard, and that plaintiff was damaged as a
result.  

		The amended complaint states a claim against the
lawyers for joint liability, based on their alleged participation
with other defendants in breaching fiduciary duties owed to
plaintiff.  The trial court erred in ruling to the contrary, and
the Court of Appeals erred in affirming that ruling.  

		The decision of the Court of Appeals is reversed in
part.  The judgment of the circuit court is reversed in part. 
The case is remanded to the circuit court for further
proceedings.

1. 	Defendant lawyers' position apparently arises out of
the fact that plaintiff employed the label, "conspiracy," in the
headings preceding the two claims for relief.  The label,
however, is irrelevant; what matters, for our purposes, is the
specific allegations following those labels.

2. 	The fact that "aiding and assisting" is not a theory of
recovery separate from the theory of liability for persons acting
in concert that we have discussed perhaps is best illustrated by 
extending one of the examples that the Court of Appeals borrowed
from the Restatement to explain the concept of joint liability
for tortious acts done in concert, in the context of its
discussion of the adequacy of the complaint's allegation under a
conspiracy theory.  The court posited the following:  

	"A, B, C, and D come together to E's house at night to
rob.  A breaks E's front door, B ties E up, C beats E
and D steals and carries away E's jewelry.  A, B, C and
D are all subject to liability to E for all damages
caused by the trespass to land, the false imprisonment,
the battery and the conversion."

Granewich, 150 Or App at 41, n 5 (quoting Restatement (Second) of
Torts (1979) § 876(a), illustration 1).  We would add that, if
another individual, F, also agrees to the plan, then drives A, B,
C, and D to E's house, waits outside while they commit trespass,
false imprisonment, battery and conversion, and drives A, B, C,
and D away from E's house, F also is liable equally for all the
others' torts, even though his role can be described only as
knowingly providing substantial assistance in the commission of
those torts.  In that light, defendant lawyers' complaint that
plaintiff did not cite cases supporting an "aid and assist"
theory either to the trial court or to the Court of Appeals is
irrelevant.

3. 	In concluding that the "aid and assist" theory, as it
was described by the Court of Appeals below, is merely a
subcategory of a broader theory of vicarious tort liability, we
are mindful that "conspiracy" and "aiding and abetting" are two
separate and distinct notions in the criminal context.  See,
e.g., ORS 161.155 (establishing criminal liability for aiding and
abetting in the planning or commission of a crime); ORS 161.450
(describing criminal conspiracy). 

4. 	See, e.g., Restatement (Second) of Torts (1979) § 874,
comment c ("A person who knowingly assists a fiduciary in
committing a breach of trust is himself guilty of tortious
conduct and is subject to liability for the harm thereby
caused"); Restatement (Second) of Trusts (1959) § 326 ("A third
person who, although not a transferee of trust property, has
notice that the trustee is committing a breach of trust and
participates therein is liable to the beneficiary for any loss
caused by the breach of trust"); 5 Scott and Fratcher, The Law of
Trusts § 506 (4th ed 1989) ("When a person in a fiduciary
relationship to another violates his duty as fiduciary, a third
person who participates in the violation of duty is liable to the
beneficiary").  

5. 	4 Scott and Fratcher, The Law of Trusts (4th ed 1989) §
326.4 ("If a trustee in the administration of the trust employs
an attorney or other agent, and the trustee commits a breach of
trust, the agent is not under a liability to the beneficiaries of
the trust for participation in the breach of trust, unless he
knew or should have known that he was assisting the trustee to
commit a breach of trust").  That principle is consistent with
the rule that lawyers generally are not liable to third parties
for acts committed in good faith in performance of their
professional activities as lawyers for clients, but that they may
not knowingly assist in the commission of a tort.  See, e.g.,
Wampler v. Palmerton, 250 Or 65, 74-75, 439 P2d 601 (1968) (agent
generally immune from liability for action taken within the range
of his authority for the benefit of the principal); Mallen and
Smith, Legal Malpractice § 6.4 (4th ed 1996) (wrongs attributed
to lawyer as client's agent in providing advice to further
client's objectives do not support a conspiracy, but lawyer may
be liable for assisting in the commission of a tort).

6. 	Our example of the participants in the break-in, set
out in note 2, ante, serves to illustrate the point.  F, whose
participation is confined to agreeing to the unlawful scheme and
driving the others to and from E's house, is fully liable for all
of his co-conspirators' "tortious overt acts," notwithstanding
the fact that he himself committed no tort.  If, however, a
conspiracy is not proven (for example, if E cannot show that F
knew what A, B, C, and D planned to do), then only those who
themselves committed tortious overt acts (A, B, C, and D in the
foregoing example) are liable to E.

7. 	We do not suggest, by drawing this distinction, that it
necessarily matters that the corporation, rather than Harding and
Alexander-Hergert, was the client.  We note only that, on those
allegations, the dilemma posed by the Court of Appeals is not
presented.