Last week the Oregon Court of Appeals examined the remedies that a trial court may impose to remedy shareholder oppression. In Hickey v. Hickey, ownership of a family ranching business was divided among several siblings. One sibling acquired a majority interest by purchasing shares from others. As controlling shareholder, he engaged in self-dealing and commingling of assets, to the detriment of the remaining minority shareholder. The minority shareholder then filed suit under ORS 60.952 to impose remedies for oppression. The trial court ordered amendment of the bylaws and articles of incorporation to strip the voting rights of the majority shareholder and remove him from management.
The appellate court reviewed the nonexclusive list of remedies provided under ORS 60.952 to rectify oppressive conduct, including: (1) cancellation or alteration of any provision in the corporations articles of incorporation or bylaws, (2) removal from office of any director or officer, (3) appointment of a custodian to manage the business, (4) appointment of a provisional director, (5) retention of jurisdiction by the trial court for protection of the minority shareholder, or (6) dissolution of the corporation. While the trial court has many remedies to choose from, "[t]he remedy must correspond to the wrong--or legally recognized right--for which the remedy is provided under ORS 60.952."
The Court of Appeals reversed the trial court, holding that the effect of the remedy selected was to convert the minority shareholder into the majority shareholder. That constituted a windfall to the plaintiff and was not within the "reasonable expectations" of either party. The appellate court then remanded the case to the trial court with instructions to devise a more appropriate remedy, such as ordering a share purchase for fair value to remove one of the two shareholders from the business.
Business owners violated the Uniform Fraudulent Transfers Act (ORS 95.200 to 95.310) when they dissolved one business and transferred the assets and operations to a newly-formed entity, according to the Oregon Court of Appeals.
In Norris v. R&T Manufacturing, LLC, the court last week affirmed the trial court's conclusion that the reorganization was an improper effort to avoid a judgment against the original business. The court rejected what the defendant described as good-faith business reasons for forming a new LLC, and found that the new entity didn't pay reasonably equivalent value for the tangible and intangible assets.
When a party refuses to perform its contract to purchase goods, the Uniform Commercial Code entitles the aggrieved seller to sell the goods to another buyer and recover damages from the defaulting party. Often the seller must sell at less than the contract price and then recover as damages the different between the unpaid contract price and the resale price. The UCC offers as an alternative measure of damages the difference between the contract price and the market price for the goods.
What the UCC does not make clear is whether the seller may recover the difference between the unpaid contract price and the market price in circumstances where the market price damages would exceed resale price damages. Last week the Oregon Supreme Court held that the jilted seller may in fact recover market price damages, even if those damages would cause the seller to recover more than the actual loss suffered.
In Peace River Seed Co-operative, Ltd. v. Proseeds Marketing, Inc., the court considered the relevant text, context and legislative history to conclude that "an aggrieved seller can seek [market price] damages even if the seller has resold the goods and market price damages exceed resale price damages." The court noted that a fixed price contract always requires the parties to bear the risk of market price fluctuations. Subjecting the buyer to damages based on market price is consistent with that risk.
The Court of Appeals last week thwarted an effort to unwind a sale of real property, holding that the disappointed purchaser had imputed knowledge of problems with the property at the time of the sale.
In Atkeson v. T&K Lands, LLC, the plaintiff contended that he was not aware of a number of problematic conditions when he purchased land for a vacation home, including improvements that had been built without the necessary permits, and violation of a riparian setback from a creek.
Plaintiff claimed he later learned of the problems which restricted his use of the property, and he sued to rescind on the grounds of mutual mistake and misrepresentation. But the lawyer whom plaintiff had hired to research the property testified during pretrial discovery that he was aware of the problems and had informed plaintiff.
While plaintiff disputed that he received the information from the lawyer, the trial court nonetheless granted summary judgment for the sellers. The result turned on the imputed knowledge doctrine: plaintiff was deemed to know facts learned by his lawyer, regardless of his actual knowledge. The Court of Appeals affirmed, noting that the relationship between a lawyer and a client is one of agent and principal, and the knowledge that the agent obtains within the scope of the agency is imputed to the principal as a matter of law.
In a case involving issues of statutory interpretation, the scope of the initiative power, and the prohibition on impairment of contract, a judge yesterday ordered Clackamas County to cooperate with TriMet in the construction and operation of the Portland-Milwaukie light rail line. TriMet, represented by Ater Wynne litigators Steve Blackhurst and Lori Irish Bauman, filed suit earlier this year to enforce contracts that TriMet and the County signed in 2010 and 2012. The County resisted performing certain contractual duties following voter approval of an ordinance requiring a countywide vote on the use of resources for public rail. In granting summary judgment for TriMet, Judge Henry Breithaupt held that the ordinance does not apply to the Portland-Milwaukie line, which is currently under construction and set to begin operation in 2015.
The Oregonian's report on the ruling is here.
The Oregon Supreme Court this month held that a person offered at-will employment may be able to state a claim for promissory estoppel and fraud when the prospective employer retracts the offer.
In Cocchiara v. Lithia Motors, Inc., according to the facts put forward by plaintiff in response to a summary judgment motion, plaintiff was a long-time employee of defendant who, after suffering a heart attack, asked defendant for a transfer to a less stressful position. Defendant offered plaintiff a transfer to a new position, and plaintiff as a result turned down a job offer from another prospective employer. Soon thereafter, and before plaintiff made the transfer, the employer retracted the offer. Plaintiff sued for promissory estoppel and fraud.
The trial court and Court of Appeals held that plaintiff could not state a claim as a matter of law. Because the employment offered to him was at-will and could have been terminated at any time, those courts concluded he could not prove either reasonable reliance on the promise or damages. The Supreme Court disagreed, finding nothing in the law to support the conclusion that "a promisee's reliance is per se unreasonable if the underlying promise is for a contract at will." Reasonableness is an issue for the jury, considering all relevant circumstances. Likewise, the fact that the offered job was terminable at will does not mean as a matter of law that plaintiff cannot prove associated damages.
This week the U.S. Supreme Court again affirmed the broad scope of the Federal Arbitration Act, holding that when a contract includes a valid arbitration provision, an arbitrator, and not a court, should decide in the first instance whether the contract is valid under state law.
In Nitro-Lift Technologies, LLC v. Howard, an employer sought to enforce an employee non-competition agreement containing an arbitration clause. Two employees subject to the agreement asked the Oklahoma state court to hold that it was void under state law. While the employer argued that the contract's enforceability should be decided by an arbitrator in the first instance, the Oklahoma Supreme Court refused to send the issue to an arbitrator and held that the noncompetition agreement was "void and unenforceable as contrary to Oklahoma's public policy."
On review, the U.S. Supreme Court rebuked the Oklahoma court for displaying the type of "judicial hostility toward arbitration" that is foreclosed by the FAA. The Oklahoma court ignored longstanding precedent establishing that attacks on the validity of the contract as a whole, as distinct from attacks directed to the validity of the arbitration clause, must be resolved by the arbitrator.
The Oregon Supreme Court last month held that an LLC that leased office space to a physician could not be held liable on an apparent agency theory for physical injuries suffered by the physician's patient.
In Eads v. Borman, the injured patient contended that the landlord, Willamette Spine Center, LLC, through signage on the building and other representations, created the appearance that the building housed a group medical entity of which the physician was an agent. Plaintiff claimed that that the LLC thereby created an apparent agency relationship with the physician.
The Supreme Court noted that an agency relationship can arise from the appearance of consent by one person to allow another to act on its behalf. And a principal can be vicariously liable for the negligence of an agent who is not an employee, but only if the principal actually or apparently had a right of control over the agent's injury-causing actions.
The Court then surveyed other states' treatment of apparent agency in the context of medical malpractice. The Court agreed with those authorities that a hospital or other entity can be held vicariously liable for a physician's negligence on an apparent authority theory if the entity held itself out as a direct provider of medical care, and if plaintiff relied on those representations by looking to the entity, rather than the physician, as the provider of care.
In this case, the Court concluded that there was insufficient evidence that the landlord LLC held itself out as a provider of medical services that it delivered through agents such as its tenant, plaintiff's physician. Further, there was insufficient evidence that plaintiff relied on any representation by the LLC to believe that the LLC was itself a medical provider. On that basis, the Court found no apparent agency relationship and affirmed summary judgment for the LLC.
The federal Computer Fraud and Abuse Act, 18 USC sec. 1030, imposes criminal liability for unauthorized access to a computer, or for exceeding authorized access. An en banc panel of the Ninth Circuit last month narrowly interpreted the CFAA, holding that it does not apply to violations of private computer use policies. The opinion sets up a conflict with other federal circuit courts that may end up being resolved by the US Supreme Court.
In US v. Nosal, the defendant was convicted of aiding and abetting a violation of the CFAA after he convinced employees of an executive search firm to give him confidential client information from the firm's database. While the employees were authorized to access the information, their employer's policy prohibited disclosing confidential information to persons outside the company. The validity of the conviction turned on the meaning of the phrases "without authorization" and "exceeds authorized access" in the CFAA.
The Oregon Court of Appeals last week drew a hard line in enforcing the procedures for recovering attorney fees. In Anderson v. Dry Cleaning To-Your-Door, Inc., the Court reversed a trial court award of more than $100,000 in attorney fees to plaintiffs who successfully defeated contempt sanctions, on the ground that plaintiffs failed to allege the right to fees in a pleading or motion as required by ORCP 68C(2).
In Anderson, plaintiffs in a breach of contract case obtained a judgment against defendant which included a non-competition provision. Defendant later claimed that plaintiffs violated the non-competition portion of the judgment, and initiated contempt proceedings against plaintiffs under ORS 33.055. The trial court found plaintiffs were not in contempt, and requested that the parties prepare a proposed judgment.
The trial court entered plaintiffs' proposed form of judgment, in which plaintiffs asserted for the first time an entitlement to recover their fees in the contempt proceeding. Defendant objected that plaintiffs did not allege a right to attorney fees in a pleading or motion as required by ORCP 68C(2), but the trial court nonetheless awarded the requested fees in the amount of $115,980.
On appeal, the Court of Appeals held that plaintiffs could not avoid the obligation to state in a pleading or motion the facts, statute or rule that entitled them to recover fees. That obligation exists even though plaintiffs did not initiate the contempt proceedings. Because plaintiffs did not comply with ORCP 68C(2), the Court reversed the award of fees.