Bechler et al v. Macaluso et al

Filing 179

ORDER: Granting in Part Denying in Part Defendants' Motion for Partial Summary Judgment 90 ); Granting in Part Denying as moot in part Plaintiffs' Motion for Partial Summary Judgment 120 ). (Please access document by number hyperlink for complete review and details of order.) Signed on 5/14/2010 by Magistrate Judge Mark D. Clarke. (dkj)

FILED'10t'lA'"t 14 14 :4:]USDC-ORt1

IN T H E U N I T E D S T A T E S D I S T R I C T C O U R T F O R T H E DISTRICT OF O R E G O N M E D F O R D DIVISION ERNEST BECHLER; PATRICIA BECHLER; and M I K E B E C H L E R , Plaintiffs, v. T O D D E. M A C A L U S O ; a n d M A C A L U S O & ASSOCIATES, APC, Defendants.

Case N u m b e r C V 08-3059-CL

ORDER

C L A R K E , Magistrate Judge.

In their a m e n d e d complaint, Plaintiffs Ernest Bechler, P a t r i c i a Bechler, a n d Mike Bechler
i n c l u d e c l a i m s for d e c l a r a t o r y r e l i e f , fraud, n e g l i g e n t m i s r e p r e s e n t a t i o n , v i o l a t i o n o f O r e g o n U n l a w f u l Trade P r a c t i c e s A c t , legal m a l p r a c t i c e , a n d a c c ount i ng. T h i s c o u r t h a s j u r i s d i c t i o n pursuant to 28 U.S.C. § 1332. The parties have e x e c u t e d w r i t t e n c o n s e n t s for entry o f j u d g m e n t by a magistrate j u d g e (#22). 28 U.S.C. § 636(c). O n April 9, 2010, t h e c o u r t h e a r d oral argument o n Defendants' m o t i o n for partial s u m m a r y j u d g m e n t [#90] a n d Plaintiffs' m o t i o n for partial s u m m a r y j u d g m e n t [#120]. F o r the reasons explained, D e f e n d a n t s ' m o t i o n is granted in part and denied in part, a n d Plaintiffs' m o t i o n is granted in part a n d d e n i e d as m o o t in part.

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DISCUSSION
I . Defendants' Evidentiary Objections and Motions to Strike

Defendants seek to strike Plaintiffs' declarations or portions t h e r e o f offered on summary j u d g m e n t on g r o u n d s i n c l u d i n g P l a i n t i f f s ' s t a t e m e n t s are n o t w i t h i n t h e i r p e r s o n a l k n o w l e d g e a n d do not set out facts admissible in evidence, including the statements are hearsay, the statements are outside their competency, or they are legal conclusions. Defendants also object to Plaintiffs' attempts to "verify" every allegation in their complaints. Federal Rules o f Civil Procedure 56(e)(1) provides in pertinent part that, "A supporting or opposing affidavit must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify o n the matters stated." In addition to the declarations filed by Plaintiffs, Plaintiffs filed a verified complaint. For summary judgment purposes, a verified complaint has the same force and effect as an affidavit. 1 McElyea v. Babbitt, 833 F.2d 196, 197-98 & n.1 (9th Cir. 1987); Lew v. K o n a Hosp., 754 F.2d 1420, 1423 (9th Cir. 1985). However, the verified complaint must be based o n personal

Plaintiffs subsequently filed an amended complaint which is n o t verified. Ordinarily, an amended pleading supersedes earlier pleadings. However, because Plaintiffs amended their complaint in response to the court's order, the court will consider Plaintiffs' verified complaint as an affidavit. See Hoskins v. Haymore, No. C-96-0428 CAL, 1998 WL 470480, at *2 (N.D. Cal. Aug 5 , 1 9 9 8 ) , rev'd on other grounds, 188 F.3d 513 (9th Cir. 1999) (because original complaint verified and amended complaint filed in response to court's order, court would liberally construe amended complaint to be verified as well); Lee v. Ritter, No. 1:02-CV-282, 2005 WL 3369616, at *3 (E.D. Tenn. Dec. 1 2 , 2 0 0 5 ) (although plaintiff filed unverified amended complaint which superseded verified complaint, court considered both complaints to determine whether plaintiff had established existence o f genuine issue o f material fact); Boxdorfer v. Thrivent Fin. for Lutherans, 1:09-cv-0109-DFH-JMS, 2009 WL 2448459, at *2 & n.2 (S.D. Ind. Aug. 1 0 , 2 0 0 9 ) (although amended unverified complaint generally supersedes all previous complaints, court considered original verified complaint for evidentiary purposes since it was a signed statement o f facts equivalent to an affidavit with respect to factual matters within p l a i n t i f f s personal knowledge).
1

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knowledge and set forth specific facts admissible in evidence as any affidavit. Schroeder v. McDonald, 55 F.3d 454, 4 6 0 (9th Cir. 1995). The c o u r t has r e v i e w e d the v e r i f i e d c o m p l a i n t and the d e c l a r a t i o n s o f f e r e d b y Plaintiffs w i t h D e f e n d a n t s ' o b j e c t i o n s in m i n d . T h e c o u r t w i l l c o n s i d e r o n l y t h o s e p o r t i o n s o f t h e v e r i f i e d c o m p l a i n t o r t h e d e c l a r a t i o n s w h i c h are b a s e d o n t h e d e c l a r a n t ' s o r P l a i n t i f f s p e r s o n a l knowledge, set forth facts admissible in evidence, and s h o w the affiant is competent to testify to the matter. To this extent, Defendants' evidentiary objections are sustained and motions to strike are g r a n t e d .

II. Parties' Motions for Partial Summary Jud~ment
A. Legal Standards Pursuant to Rule 56(c), summary j u d g m e n t "should be rendered, i f the pleadings, the discovery and disclosure materials o n file, and any affidavits s h o w t h a t there is no genuine issue as to any material fact a n d t h a t the m o v a n t is entitled to j u d g m e n t as a m a t t e r o f law." Fed. R. Civ. P. 56(c); see Freeman v. Oakland Unified Sch. Dist., 291 F . 3 d 6 3 2 , 6 3 6 (9th Cir. 2002). The court c a n n o t w e i g h t h e e v i d e n c e o r determine the truth b u t m a y o n l y d e t e r m i n e whether there is a genuine issue o f fact. Playboy Enters., Inc. v. Welles, 279 F . 3 d 796, 800 (9th Cir. 2002). A n issue o f fact is genuine " ' i f the evidence is such t h a t a reasonable j u r y could return a verdict for the n o n m o v i n g party.'" Villiarimo v. A l o h a Island Air, Inc., 281 F . 3 d 1 0 5 4 , 1 0 6 1 (9 th Cir. 2002) (quoting A n d e r s o n v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The m o v i n g party m u s t carry the initial burden o f proof. C e l o t e x Corp. v. Catrett, 477 U . S . 3 1 7 , 3 2 2 - 2 4 ( 1 9 8 6 ) . T h e m o v i n g p a r t y m e e t s t h i s b u r d e n b y i d e n t i f y i n g for t h e c o u r t Page 3 - O R D E R

portions o f the record o n file which demonstrate the absence o f any genuine issue o f material fact. Id.; Devereaux v. Abbey, 263 F.3d 1 0 7 0 , 1 0 7 6 (9 th Cir. 2001) (en banc). In assessing whether a party has m e t its burden, the court views the evidence in the light m o s t favorable to the non-moving party. A l l e n v. City o f Los Angeles, 66 F.3d 1052, 1056 (9th Cir. 1995). All reasonable inferences are drawn in favor o f the non-movant. Gibson v. County o f Washoe, 290 F . 3 d 1 1 7 5 , 1 1 8 0 ( 9 t h Cir. 2 0 0 2 ) . I f the moving party meets its burden with a properly supported motion, the burden then shifts to the opposing party to present specific facts which s h o w there is a genuine issue for trial. Fed. R. Civ. P. 56(e)(2); Auvil v. CBS "60 Minutes", 67 F.3d 816, 819 (9th Cir. 1995); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 & n A (1986). Summary j u d g m e n t should be granted for the movant, i f appropriate, in the absence o f any significant probative evidence tending to support the opposing party's theory o f the case. Fed. R. Civ. P. 56(e); THI-Hawaii, Inc. v. First Commerce Fin. Corp., 627 F.2d 991, 993-94 (9th Cir. 1980); First Nat'l Bank v. Cities Servo Co., 391 U.S. 253, 290 (1968). Conclusory allegations, unsupported by factual material, are insufficient to defeat a motion for summary judgment. Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). Instead, the opposing party must, by affidavit or as otherwise provided by Rule 56, designate specific facts which show there is a genuine issue for trial. Devereaux, 263 F.3d at 1076.
II II II II

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B. Factual Background

Construing the facts in the light most favorable to the non-movant, a review o f the record reveals the f o l l o w i n g 2 : P l a i n t i f f s E r n e s t B e c h l e r , P a t r i c i a B e c h l e r , and M i k e B e c h l e r b r i n g t h i s a c t i o n a g a i n s t Defendants, attorney Todd Macaluso and Macaluso & Associates also doing business as M a c a l u s o B a k e r & M a c a l u s o ( h e r e i n a f t e r " D e f e n d a n t s " o r " D e f e n d a n t M a c a l u s o " ) . The amended complaint alleges that in March 2003, Plaintiffs retained Defendants to represent them c o n c e r n i n g t h e u n f o r t u n a t e d e a t h o f t h e i r s o n and b r o t h e r S t e v e B e c h l e r , a m a j o r league b a s e b a l l player, in Florida, that occurred on February 1 7 , 2 0 0 3 , allegedly as a result o f taking the dietary supplement Xenadrine RF A - I containing ephedra (hereinafter "Xenadrine"). Plaintiffs' son and brother, Steve Bechler, died in Florida o n February 1 7 , 2 0 0 3 . (CompI.
~~

5 , 8 ; E. Bechler DecI. i n Opp'n 2; E. Bechler DecI. in Supp. 2.) On February 2 0 , 2 0 0 3 , Defendant Macaluso, whose office is in San Diego, California,

wrote a letter to Plaintiffs Ernest and Patricia Bechler at their Medford, Oregon, home address advising them o f his representation o f individuals allegedly injured by Xenadrine which was made by Cytodyne Technologies Inc. (hereinafter "Cytodyne"). The letter in part discussed a class a c t i o n case a g a i n s t C y t o d y n e and o t h e r s i n w h i c h D e f e n d a n t M a c a l u s o w a s p l a i n t i f f s ' counsel which was coming up for trial in California (hereinafter "Park Class Action"). D e f e n d a n t M a c a l u s o r e q u e s t e d t h a t t h e B e c h l e r s t e l e p h o n e him. ( C o m p I .
~~

10-11; Campbell

DecI. Re: Excerpts Ex. l a t 15.) In the latter part o f February 2003, Plaintiffs Ernest and Patricia

2 Plaintiffs' verified c o m p l a i n t is 110 pages long and c o n t a i n s 56 p a g e s o f "General Allegations." The court will include only those facts pertinent to the motions before the court and necessary for an understanding o f the court's ruling.

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Bechler telephoned Defendant Macaluso from their home in Medford, Oregon. Defendant Macaluso discussed the Bechlers retaining his firm to pursue a wrongful death case against Cytodyne. The Bechlers advised Defendant Macaluso that Steve Bechler had died married to Kylie Bechler, who was being appointed as Personal Representative for the Estate o f Steve Bechler to pursue a wrongful death case on b e h a l f o f the Estate. Defendant Macaluso advised the Bechlers that this posed no problem to the Bechlers' own wrongful death action against Cytodyne since they were the parents o f Steve Bechler. (CompI.
~

11.)

On March 1 2 , 2 0 0 3 , Defendant Macaluso traveled to Medford, Oregon, and met with Plaintiffs, during which a Contingent Fee Agreement (hereinafter "the Agreement") was executed b e t w e e n P l a i n t i f f s E r n e s t a n d P a t r i c i a B e c h l e r and M a c a l u s o B a k e r & M a c a l u s o . P l a i n t i f f M i k e Bechler is not a signatory to the Agreement. (Compi.
~

~

12 & Am. CompI. Ex. A; Macaluso DecI.

2.) In response to the Bechlers' concerns regarding the appointment o f Kylie Bechler as

personal representative for the Estate, Defendant Macaluso again advised the Bechlers that the appointment o f Kylie Bechler, as the personal representative o f the probate estate o f Steve Bechler, would have no legal effect on their ability to pursue their own independent wrongful death action against Cytodyne. (CompI.
~

17.) The Agreement provides in part the following:

"DEFENDANT: Cytodyne Technologies, Inc."; "Client hereby retains Macaluso Baker & Macaluso as their attorneys at law to represent them in enforcing Client's claim or causes o f action against all o f the persons or entities who may be liable to Client, for injuries and damages sustained on or about February 1 7 , 2 0 0 3 " ; and "Attorneys accept said employment and agree to take steps as are necessary and reasonably advisable to enforce Clients rights." The Agreement provides the following additional pertinent provisions: first, a 33-1/3 % attorney fee o f "the total Page 6 - O R D E R

amount recovered from any source o f recovery" i f settlement is effected prior to a complaint being filed and a 40 % fee o f total recovery once a complaint is filed. (Am. CompI. Ex. A at 1.) Second, "If no recovery is obtained, no fee shall be payable to the Attorneys." Third, "Attorneys may, in their discretion, employ investigators or experts whose fees shall be chargeable as advanced costs. Associate counsel may be employed at the discretion o f Attorneys at no additional expense to Client." (Am. CompI. Ex. A at 2.) Fourth, 14. Attorneys agree to advance such costs and fees as may be needed, as determined in Attorney's sole discretion, in furtherance o f this matter. Such costs shall be payable to Attorneys from any source o f recovery, i f any, prior to disbursing any monies to Client or Attorneys. Upon written notice, the Attorneys reserve the right to require the clients to advance future costs. Finally, the Agreement provides: "Client may discharge Attorneys at any time. In the event that Client does discharge Attorneys, client is immediately liable for all fees and costs incurred. Fees will be computed at an hourly basis o f attorneys' work and secretarial work based at a rate between $200.00 and $300.00." (Am. CompI. Ex. A at 3.) Defendant Macaluso declares that he explained the following to the Bechlers prior to execution o f the Agreement: · T h a t my firm a n d I ( t h e " M a c a l u s o D e f e n d a n t s " ) w o u l d b e t a k i n g t h e B e c h l e r s ' case a n d t h a t the C o n t i n g e n c y Fee A g r e e m e n t (the " A g r e e m e n t " ) outlined the terms o f the Macaluso D e f e n d a n t s ' representation. · I f the Macaluso Defendants were unable to recover anything in the case, the Bechlers w o u l d n o t owe them a fee. · B y s i g n i n g t h e A g r e e m e n t , the B e c h l e r s w e r e a g r e e i n g t o p a y the Macaluso Defendants 33 and 1/3 o f whatever was recovered. · I f t h e M a c a l u s o D e f e n d a n t s filed s u i t o r a c l a i m , t h e B e c h l e r s w e r e agreeing to increase the Macaluso Defendants' fee to 4 0 % o f whatever was recovered. · The Macaluso Defendants would be advancing costs such as court fees, copying costs, travel expenses, and expert witness fees. · T h e M a c a l u s o D e f e n d a n t s w o u l d take t h o s e costs from a n y settlement Page 7 - ORDER

or a w a r d t h a t the B e c h l e r s received, b u t the B e c h l e r s w o u l d n o t b e r e q u i r e d t o p a y t h e M a c a l u s o D e f e n d a n t s for t h o s e c o s t s i f t h e y d i d n o t r e c o v e r . . T h e B e c h l e r s c o u l d e n d t h e i r relationship w i t h the M a c a l u s o D e f e n d a n t s at a n y t i m e , b u t w o u l d b e r e q u i r e d t o p a y t h e M a c a l u s o D e f e n d a n t s ' fees a n d c o s t s . (Macaluso Deci.
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2) In the Agreement, the " A D D E N D U M " directly above Plaintiffs Ernest

Bechler's and Patricia Bechler's signatures provides in part: "THE TERMS OF THIS AGREEMENT HAVE BEEN EXPLAINED TO ME AND I UNDERSTAND THEM." (Am. Compi. Ex. A at 3.) In his declaration, Ernest Bechler declares: Defendant Todd Macaluso made only a few statements concerning the contingency fee percentage set forth in this Contingency Fee Agreement and advised my wife and I that we would not owe his law firm any attorney fees, i f he and the law firm were unsuccessful in the prosecution o f the wrongful death action claim against Cytodyne Technologies, Inc. for the death o f our son, Steve Bechler. (E. Bechler Decl. in Supp. at 4; E. Bechler Deci. in Opp'n at 4; see P. Bechler Deci. in Supp. at 4; P. Bechler Deci. in Opp'n at 4.) In their declarations, the Bechlers state: There was no discussion with Defendant Todd Macaluso, at all, about his p u r s u i n g a c l a i m u n d e r the p r o v i s i o n s o f the C o n t i n g e n c y F e e A g r e e m e n t a g a i n s t the Estate o f Steven Bechler and/or Kylie Bechler, the Personal Representative o f the Estate o f Steven Bechler, for any right that my wife or I might have to recover a portion o f any wrongful death action recoveries eventually obtained by Kylie Bechler, as Personal Representative o f the Estate o f Steven Bechler. (E. Bechler Deci. in Supp. at 4-5; E. Bechler Deci. in Opp'n at 4-5; see P. Bechler Deci. in Supp. at 4-5; P. Bechler Deci. in Opp'n 4-5.) D e f e n d a n t M a c a l u s o d i d n o t p r o v i d e P l a i n t i f f s E r n e s t a n d P a t r i c i a B e c h l e r w i t h the O r e g o n State B a r A p p r o v e d M o d e l E x p l a n a t i o n o f C o n t i n g e n t F e e A g r e e m e n t ( h e r e i n a f t e r "Model Explanation"), see infra, and have them sign it. Defendant Macaluso did not orally explain that the Agreement contained a 24-hour right to cancel provision with no obligation or Page 8 - ORDER

that Plaintiffs would remain liable for advanced costs as set forth on the Model Explanation. (E. Bechler DecI. in Supp. at 5 , 6 ; E. Bechler DecI. in Opp'n at 5,6; P. Bechler DecI. in Supp. at 5,6; P. Bechler DecI. in Opp'n at 5,6; see Am. CompI. Ex. B; Macaluso DecI. 2.) On or about July 1 6 , 2 0 0 3 , Kylie Bechler, in her capacity as the duly appointed Personal Representative (hereinafter "PR") and executrix o f the Estate o f Steven Bechler, filed a civil action in the United States District Court for the Southern District o f Florida against Cytodyne and others (hereinafter "Kylie Bechler Estate Wrongful Death Case"). (See Am. CompI. Ex. C at 1.) Kylie Bechler as P R was represented by a law firm from White Plains, N e w York, with a local office in Miami, Florida. The principal attorney was Jeffrey 1. Carton from the White Plains office. (CompI.,-r 23.) In or about October 2003, a large judgment was entered in plaintiffs' favor in the Park Class Action against Cytodyne's successor, Nutraquest Inc. (hereinafter "Nutraquest") which included an award o f attorney fees to Defendant Macaluso. (CompI.,-r 31.) In or about October 2003, Nutraquest filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District o f N e w Jersey. The Kylie Bechler Estate Wrongful Death Case was transferred to the District Court o f N e w Jersey. (Am. CompI. Ex. C at 1; Campbell Decl. Re. Apr. 6 , 2 0 0 7 Letter at 6; CompI. ,-r,-r 3 3 , 3 9 - 4 1 . ) Attorney Carton continued to litigate the case for the Estate. (CompI.,-r 41.) In or about October 2004, a complaint was filed in the United States District Court for the District o f N e w Jersey on b e h a l f o f Plaintiffs Ernest Bechler, Patricia Bechler, and "Michael"

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Bechler against N u t r a q u e s t (hereinafter "the Ernest Bechler Case").3 Pro hac vice applications by D e f e n d a n t M a c a l u s o a n d a n associate were denied and the c o m p l a i n t w a s n o t prosecuted. (Campbell DecI. Re: April 6, 2007 Letter at 7.) On o r about January 11, 2005, in connection with Plaintiffs' depositions in the Kylie B e c h l e r Estate W r o n g f u l D e a t h Case, a " C o n f i d e n t i a l S e t t l e m e n t A g r e e m e n t " w a s negotiated w i t h the Estate and signed w h i c h in part provided that Plaintiffs, as potential beneficiaries o f the Estate, w o u l d c o l l e c t i v e l y g e t 2 0 % o f t h e n e t p r o c e e d s , a f t e r t h e fees a n d c o s t s o f t h e E s t a t e . ( C o m p I .
~~

47, 49; Am. CompI. Ex. C at 1.) The Bechlers agreed to " be responsible for paying the attorney fees, i f any, due to T o d d Macaluso . . . solely o u t o f their twenty p e r c e n t (20%) recovery o f the N e t Proceeds." (Am. CompI. Ex. C at 2.) The Bechlers further agreed to "discontinue their pending suit against Nutraquest." (Am. CompI. Ex. C a t 3.) D e f e n d a n t Macaluso was involved in t h e n e g o t i a t i o n o f t h i s a g r e e m e n t . ( C o m p I .
~~

4 7 , 4 9 ; see A m . C o m p I . E x . C . )

Defendant Macaluso o n January 11, 2005, attended the depositions o f Plaintiffs in the Kylie Bechler Wrongful D e a t h Case in Medford, Oregon. The depositions were continued to March 9, 2005, in M e d f o r d and Defendant Macaluso appeared by telephone. (CompI. ~~ 50-51.) In early 2006, a global and comprehensive settlement o f p e n d i n g litigation against N u t r a q u e s t and C y t o d y n e w a s r e a c h e d , w h i c h i n c l u d e d the Kylie B e c h l e r E s t a t e W r o n g f u l D e a t h C a s e . (CompI.
~

55; Campbell DecI. Re: Apr. 6, 2007 Letter at 6, 7.)

3 I t is not clear procedurally whether the Ernest Bechler Case w a s e v e r pending in bankruptcy court, either as an initial filing o r as a transferred case. (See Am. CompI. Ex. C at 2; Campbell DecI. Re: Apr. 6 , 2 0 0 7 Letter at 7; Kiefer DecI. Ex. 2; CompI. ~~ 44-46). However, the court in which the Case w a s pending is not determinative o f any issue raised in the motions. Page 10 - O R D E R

The Ernest Bechler Case was dismissed in December 2006. (Campbell Deci. Re: Apr. 6, 2007 Letter at 7; Compi.
~

45.)

Attorney Carton in January 2007 sent a check in the amount o f $824,930.80 to Defendant Macaluso. This represented 20 % o f the net proceeds received to date after attorney fees and costs o f the Kylie Bechler Wrongful Death Estate settlement received The check was made out to Plaintiffs and Macaluso & Associates and was deposited in Defendant Macaluso's trust account. (Compi.
~~

73-74.)

O n F e b r u a r y 1 2 , 2 0 0 7 , D e f e n d a n t M a c a l u s o s e n t b y federal e x p r e s s a t r u s t a c c o u n t c h e c k in the amount o f $299,520.78 made out to" Ernie Bechler, Pat Bechler & Mike Bechler" and an "accounting" in care o f their Medford, Oregon, address. (Compi.
~~

76, 79.) The "accounting"

listed deductions taken from the $824, 920.80 check from attorney Carton. This included a 40% attorney fee based on the final net amount expected to be received o f $989,904.96, $78,438.04 in costs and LA Funding Loan Interest o f $ 5 l , 0 0 0 . (Am. Compi. Ex. D.) This check was returned by Defendants' bank as "NSF" and it was not until February 2 2 , 2 0 0 7 , that Defendant Macaluso wired the funds to Plaintiffs' bank account to cover the NSF check. (Compi.
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77-78.) Plaintiffs

were concerned about the settlement accounting and on March 1, 2007, retained new counsel who wrote a demand letter to Defendant Macaluso on April 6, 2007, that, in part, terminated Defendant Macaluso as their attorney. (Compi.
~~

80-82; Campbell Deci. Re: Apr. 6 , 2 0 0 7 Letter at 2; Am.

Compi. Ex. E.) Plaintiffs' n e w attorney continued to investigate potential claims against Defendant Macaluso from early March 2007 to late June 2007. (Campbell Deci. Re: Apr. 6, 2007 Letter at 2-10.) Defendant Macaluso responded to this letter o n May 2, 2007, and offered as an "accommodation" to return certain amounts deducted for outside counsel and travel expenses

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to the east coast and Florida. (Kiefer DecI. Ex. 2; Campbell DecI. Re: Apr. 6 , 2 0 0 7 Letter at 5-6.) Plaintiffs on May 30, 2007, received a check for these expenses in the amount o f $ 119,623.39. (CompI.
~~

84, 86; Campbell DecI. Re: Apr. 6 , 2 0 0 7 Letter at 5-6.) Plaintiffs returned this check
~

to Defendant Macaluso on May 3 1 , 2 0 0 7 . (CompI. at 8; Macaluso DecI. Ex. 1; Kiefer DecI. Ex. 4.)

87; Campbell DecI. Re: Apr. 6 , 2 0 0 7 Letter

Plaintiffs commenced this action by filing a verified complaint on May 2 7 , 2 0 0 8 . (Dkt. #
1.)

C. M e r i t s o f M o t i o n s
1. Contingent Fee Agreement Plaintiffs in their first claim in the amended complaint and their motion for partial summary judgment seek declaratory relief as a matter o f law that the Agreement is void as Defendants did not comply with ORS 20.340. Defendants move for partial summary judgement contending they "substantially complied" with ORS 20.340 and that Plaintiffs have waived any right to void the Agreement. 4 ORS 20.340 provides as follows:
(1) In any civil action arising out o f bodily injury, death or property damage,

including claims for emotional injury or distress, loss o f care, comfort, companionship and society, and loss o f consortium, i f an attorney for a plaintiff in respect to any civil action enters into an agreement with the plaintiff whereby the attorney receives as a fee a percentage o f the amount o f any settlement or judgment awarded to the plaintiff:

D e f e n d a n t s a l s o a r g u e t h a t O R S 2 0 . 3 4 0 does n o t r e q u i r e t h a t a s i g n e d c o p y o f a contingent fee a g r e e m e n t b e provided. Plaintiffs c o n c e d e this a n d c o n t e n d they are not claiming this is a g r o u n d to v o i d the A g r e e m e n t . This g r o u n d for D e f e n d a n t s ' motion for s u m m a r y j u d g m e n t is moot.
4

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(a) The contingent fee agreement shall be written i n plain and simple language reasonably believed to be understandable by the plaintiff. (b) The attorney shall explain the terms and conditions o f the agreement in compliance with a model explanation in plain and simple language prepared by the Oregon State Bar a reasonable time before the agreement is signed. (c) The contingent fee agreements must contain a provision allowing the p l a i n t i f f to rescind the agreement within 24 hours after signing upon written notice to the attorney. (2) Any contingent fee agreement entered into on or after September 26, 1987, that does not comply with the requirements o f subsection (1) o f this section is voidable. T h e 1-20-96 R e v i s i o n o f t h e M o d e l E x p l a n a t i o n p r e p a r e d b y t h e O r e g o n S t a t e B a r provides: O r e g o n State B a r A p p r o v e d E x p l a n a t i o n o f C o n t i n g e n t Fee A g r e e m e n t This is an explanation o f your Contingent Fee Agreement with us. Please read it and sign it before y o u s i g n t h e A g r e e m e n t . The Contingent Fee Agreement says: 1. We agree to handle your case. 2. I f we handle your case to completion and do not recover any money for you, you do not have to pay us for our services. 3. I f we handle your case to completion and recover some money for you, you must pay us for our services. Our fee will be a percentage o f what we recover for you. The percentage is set forth in the Contingent Fee Agreement. 4. I f w e advance money for filing fees, witness fees, doctors reports, court reporter's services or other expenses o n your behalf, you must repay us whether the case is won or lost. 5. You may cancel the Contingent Fee Agreement by notifying us in writing within 24 hours after you sign. 6. I f you cancel the agreement within the 24-hour period, you will have no obligation to us. Date I have read t h e f o r e g o i n g e x p l a n a t i o n b e f o r e I s i g n e d a C o n t i n g e n t F e e A g r e e m e n t w i t h [Name o f F i r m ] . Client's S i g n a t u r e (Am. CompI. Ex. B.) Page 13 - O R D E R

The parties have not cited and the court has not found any Oregon cases discussing the phrase "in compliance with" set forth in DRS 20.340(1)(b). There is no dispute that Defendants did not provide the Model Explanation to Plaintiffs or have them sign it prior to signing the Agreement. Defendant Macaluso, however, contends that he orally explained the Agreement and Plaintiffs Ernest and Patricia Bechler confirmed this by the language above their signatures. Defendants therefore cite Oregon cases using the "substantial compliance" doctrine to avoid what Defendants term a "hyper technical result" when the "spirit" or "purpose" o f the statue has been met. Plaintiffs argue the statute should be strictly construed and does not allow oral compliance. "The doctrine o f substantial compliance is used by Oregon courts 'to avoid the harsh results o f i n s i s t i n g o n l i t e r a l c o m p l i a n c e w i t h s t a t u t o r y n o t i c e p r o v i s i o n s w h e r e t h e p u r p o s e o f these requirements has been met.'" State v. Vandepoll, 118 Or. App. 193, 196 (1993) (quoting Brown v. Portland Sch. Dist. N o . 1 , 291 Or. 77, 81 (1981)); Rogers v. Roberts, 300 Or. 687, 69192 (1986); McComas v. Employment Dept., 133 Or. App. 5 7 7 , 5 8 0 (1995). Application o f the doctrine depends o n the facts o f each case. Rogers, 300 Or. at 691-92. "Whether the doctrine o f substantial compliance applies is a question o f statutory interpretation." Tompte v. Stone, 195 Or. App. 5 9 9 , 6 0 2 (2004). Examination o f the text and context is the first and primary step. Id. The court may then examine pertinent legislative history useful to the court that a party may proffer, even though there is no ambiguity in the statutory text. Id.; State v. Gaines, 346 Or. 160, 171-72 (2009) (changing methodology o f statutory construction set forth in Portland Gen. Elec. Co. v. Bureau o f Labor and Indus., 317 Or. 6 0 6 , 6 1 0 - 1 1 (1993)). Last, i f the legislature's intent remains unclear, the court may look to general maxims o f statutory construction. Tompte, 195 Or. App. at 602; Gaines, 346 Or. at 164-65, 172. Page 14 - O R D E R

Defendants point to Tompte 195 Or. App. at 602-03, as an example o f a situation where t h e s u b s t a n t i a l c o m p l i a n c e d o c t r i n e w a s n o t a p p l i e d b e c a u s e t h e t e x t o f t h e s t a t u t e a t issue expressly required "complete compliance" with the notice requirements. The statute at issue in Tompte provided that the notice "shall state" the tenant must contact the landlord to arrange for removal o f personal property "eight days after mailing o f the notice." Additionally, it provided that "Complete compliance . . . shall constitute a complete defense . . . . " Id. at 602. The Oregon Court o f Appeals found two different reasons for holding that the substantial compliance doctrine did not apply there, stating: "Not only does the statute require that defendant give plaintiffs 'eight days' to contact him 'after the mailing o f notice,' but ORS 90.425(16) also requires 'complete compliance' with the notice requirements." Id. at 603. The court went o n to state: We are "not to insert what has been omitted or to omit what has been inserted" when construing statutes. ORS 174.010. The legislature knows h o w to provide for s u b s t a n t i a l c o m p l i a n c e o f a s t a t u t o r y r e q u i r e m e n t w h e n it d e c i d e s t h a t s u c h a doctrine is appropriate, but it did not so provide in ORS 90.425. 195 Or. App. at 602-603 (citing ORS 250.085(1); ORS 279.029(6)(a)(A) as examples o f statutes in which the legislature provided for substantial compliance with certain statutory requirements); see ORS 18.850; ORS 83.730; ORS 105.153. The Oregon legislature mandated that certain procedures be followed by attorneys when entering into a contingent fee agreement with their client. These provisions are set forth in ORS 20.340 in mandatory language. The statute requires that the contingent fee agreement "shall" be written in plain and simple language. It requires that the attorney "shall explain" the contingent fee agreement "in compliance with" the Model Explanation prepared by the Oregon State Bar, and the agreement "must contain" a provision allowing a plaintiff to rescind the agreement within 24

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hours after signing. O R S 20.340(1)(b)(c). While ORS 20.340 does n o t i n c l u d e a provision that complete compliance is a defense as d i d the statute in Tompte, it includes m a n d a t o r y language r e q u i r i n g c o m p l i a n c e w i t h t h e p r o v i s i o n s a s d i d the s t a t u t e in T o m p t e a n d p r o v i d e s t h a t any contingent fee a g r e e m e n t t h a t " does n o t c o m p l y w i t h the requirements o f s u b s e c t i o n (1) o f this section is voidable," O R S 20.340(2). I t is noteworthy that the V a n d e p o l l court, supra, found that the statute at issue there d i d not provide t h a t t h e notice "'shall contain,'" "'shall separately state,'" or "'shall expressly state'" the material outlined in the statute b u t o n l y r e q u i r e d t h a t the notice "shall i n f o r m " t h e p e r s o n o f t h e m a t e r i a l . T h e r e , t h e c o u r t h e l d t h a t t h e s u b s t a n t i a l c o m p l i a n c e doctrine applied w h e r e t h e p e r s o n w a s n o t explicitly i n f o r m e d t h a t i f t h e p e r s o n d i d n o t request a h e a r i n g w i t h i n 2 0 days, t h e r i g h t w a s w a i v e d , w h e r e i t w a s i m p l i c i t i n t h e n o t i c e given. Vandepoll, 118 Or. App. at 195-97. The relationship b e t w e e n a n attorney and client is a fiduciary one. In re Staples, 259 Or. 4 0 6 , 4 0 9 (1971); see W e l s h v. Case, 180 Or. App. 370, 382 (2002). T h e attorney holds a high p o s i t i o n o f t r u s t a n d s h o u l d b e h e l d t o a h i g h s t a n d a r d i n c o n t r a c t i n g . T h e C a l i f o r n i a B u s i n e s s and Professions C o d e § 6 1 4 7 addresses contingent fee agreements a n d includes provisions similar to the r e q u i r e m e n t s o f O R S 2 0 . 3 4 0 . 5 A d d r e s s i n g s e c t i o n 6 1 4 7 , t h e C a l i f o r n i a C o u r t o f A p p e a l in

5 C a l i f o r n i a B u s i n e s s a n d P r o f e s s i o n s C o d e § 6 1 4 7 p r o v i d e s i n p e r t i n e n t part: (a) A n attorney w h o contracts to represent a client o n a c o n t i n g e n c y fee basis shall, at the t i m e the c o n t r a c t is entered into, p r o v i d e a duplicate c o p y o f the contract, s i g n e d b y b o t h the attorney and the client, o r t h e client's g u a r d i a n o r representative, to the plaintiff, o r to the client's guardian o r representative. The contract shall b e i n w r i t i n g and shall include, b u t is n o t limited to, all o f the following: (1) A statement o f the contingency fee rate t h a t the c l i e n t a n d attorney have agreed upon. (2) A s t a t e m e n t as to h o w disbursements and costs incurred i n c o n n e c t i o n w i t h the p r o s e c u t i o n o r s e t t l e m e n t o f t h e c l a i m w i l l a f f e c t t h e c o n t i n g e n c y fee a n d t h e

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Alderman v. Hamilton, 205 Cal. App.3d 1 0 3 3 , 1 0 3 7 (1988), stated: Attorney fee agreements are evaluated at the time o f their making and must be fair, reasonable and fully explained to the client. (Rules Prof. Conduct, rule 2107.) Such contracts are strictly construed against the attorney. In order to protect clients and to assure fee agreements are fair and understood by clients, the Legislature e n a c t e d n u m e r o u s s t a t u t e s s p e c i f i c a l l y d e l i n e a t i n g the r e q u i r e d c o n t e n t s o f m o s t attorney fee agreements. (Bus. & Prof. Code, 6146-6148.) Alderman, 205 Cal. App.3d at 1037 (some citations omitted). Considering the language o f ORS 20.340, the court agrees with Plaintiffs that the statute should be strictly construed and that the substantial compliance doctrine does not apply. The court grants Plaintiffs' motion for partial summary j u d g m e n t and denies Defendants' motion for partial s u m m a r y j u d g m e n t o n t h i s ground.

The court further finds t h a t even i f the substantial compliance doctrine applies, it was not met in this case. The Oregon legislature has made a policy decision to protect the public entering into contingent fee agreements in the State o f Oregon and, to that end, has mandated that certain provisions need to be included in such agreements. Defendant Macaluso made the choice to enter

c l i e n t ' s recovery. (3) A statement as to what extent, i f any, the client could be required to pay any compensation to the attorney for related matters that arise out o f their relationship not covered by their contingency fee contract. This may include any amounts collected for the plaintiff b y the attorney. (4) Unless the claim is subject to the provisions o f Section 6146, a statement that the fee is not set by law but is negotiable between attorney and client. (5) I f the claim is subject to the provisions o f Section 6146, a statement that the rates set forth in that section are the maximum limits for the contingency fee agreement, and that the attorney and client may negotiate a lower rate. (b) Failure to comply with any provision o f this section renders the agreement v o i d a b l e at t h e o p t i o n o f t h e p l a i n t i f f , a n d t h e a t t o r n e y s h a l l t h e r e u p o n b e e n t i t l e d to collect a reasonable fee.

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into the Agreement in Oregon. The Agreement entered into with Plaintiffs clearly does not contain two such mandated provisions. First, there is no right to cancel in 24 hours as specified in ORS 20.340(2), supra, and in paragraph 5 o f the Model Explanation. The court does not agree with Defendants that the right to cancel "at any time" with payment o f fees and costs, as set forth in the Agreement, is "more expansive" than the 24 hour right to cancel set forth in the Model Explanation which does not provide for the payment o f fees and costs. The provision in the Agreement that a client who discharges the attorneys at any time "is immediately liable for all fees and costs incurred" is contrary to paragraph 6 o f the Model Explanation, which provides that a client who cancels within the 24-hour period has "no obligation to us." (Am. Compl. Ex. A at 3, Ex. B.) Defendants also argue that Plaintiffs cannot show any "prejudice" because they did not attempt to cancel within 24 hours. ORS 20.340 does not require "prejudice" as a condition o f voiding an agreement entered into in violation o f the statute. It seems clear to this court that this 24 hour provision is intended to specifically advise the client that they can, without penalty, think about the agreement for a day and still cancel. Second, the client in Oregon must remain liable for costs as set forth in Paragraph 4 o f the Model Explanation. This is consistent with both Oregon Ethics Rules and case law. Or. Rules o f P r o f l Conduct 1.5(a), 1.8(e); Pringle v. Robertson, 258 Or. 3 8 9 , 3 9 3 (1970) adhered to on reh'g, 258 Or. 389 (1971). This court is not persuaded by Defendants' argument that because ethical rules in California, which apply to Defendant Macaluso, allow payment o f costs, Paragraph 4 o f the Model Explanation does not apply. Oregon has the right to regulate contingent fee agreements entered into in Oregon. The fact that a litigation loan was obtained from LA Funding or that Plaintiffs did recover and pay back costs does not eliminate the omission o f Paragraph 4 in

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the Agreement. The Agreement is, therefore, voidable.

Defendants contend that Plaintiffs should not be able to wait over five years, after Defendants have performed services and obtained a settlement for Plaintiffs to attempt to void the Agreement. The court, however, finds no facts which would support an intentional waiver by Plaintiffs o f a known right to void the Agreement. Waiver requires some unequivocal manifestation and, therefore, inaction or the mere passage o f time alone does not create a waiver. See Hohman v. Bartel, 128 Or. App. 384, 387 (1994) (and cases cited). In particular, there are no facts suggesting that Plaintiffs were aware o f their right to void the Agreement before meeting with new counsel in March 2007. They then took immediate action to terminate Defendant Macaluso by letter dated April 6, 2007; return the partial refund check on May 31, 2007; and seek to void the Agreement by filing the verified complaint. The statute does not provide any time limit on the right to void an agreement entered into in violation o f the statute. The mere fact that the verified complaint was not filed until May 27, 2008, does not in and o f i t s e l f support an intentional waiver. This court does not find any other equitable principles which would preclude voiding the Agreement under the facts presented. Plaintiffs' motions for partial summary j u d g m e n t on the grounds that the Agreement is voidable and they elected to avoid the Agreement by filing the verified complaint are granted.

The c o u r t f u r t h e r f i n d s t h a t , e v e n i f t h e A g r e e m e n t w a s n o t v o i d e d , D e f e n d a n t s did not obtain any recovery from anyone "liable to" Plaintiffs as a result o f the death o f Steve Bechler on February 1 7 , 2 0 0 3 , as specified in the Agreement. The court finds this claim Page 19 - ORDER

sufficiently alleged in Plaintiffs' First C l a i m for R e l i e f for Declaratory Relief. (Am. Compi. ~~ 21, 2 5 , 2 6 , 4 5 , 4 7 , 4 9 , 5 1 C - F , P r a y e r l C - E . ) I n t h e p o r t i o n o f t h e A g r e e m e n t s e t t i n g o u t the date, and Plaintiffs' names and contact information, the "DEFENDANT" is listed as "Cytodyne T e c h n o l o g i e s , Inc." T h e o n l y r e c o v e r y i n t h i s c a s e w a s b y t h e P R f o r t h e E s t a t e o f S t e v e B e c h l e r .
I t is undisputed that no recovery was obtained as a result o f the E r n e s t B e c h l e r Case although

Defendants claim it w a s filed to get "leverage" o n the PRo Plaintiffs E r n e s t and Patricia Bechler w e r e p o t e n t i a l b e n e f i c i a r i e s u n d e r F l o r i d a L a w a n d w o u l d h a v e b e e n e n t i t l e d t o a r e c o v e r y i n an action brought b y the PR. 6 There is nothing in the Agreement t h a t contemplates that Defendant M a c a l u s o w o u l d b e e n t i t l e d t o a t t o r n e y fees a n d c o s t s for p u r s u i n g a c l a i m a g a i n s t t h e E s t a t e . T h e court does n o t agree w i t h D e f e n d a n t s ' a r g u m e n t t h a t language i n t h e A g r e e m e n t t h a t they would "take steps as are necessary and reasonably advisable to enforce Client's rights" for which they w o u l d r e c e i v e a p e r c e n t a g e " o f t h e total a m o u n t r e c o v e r e d from a n y s o u r c e o f recovery" entitles D e f e n d a n t s t o t h e fees c l a i m e d a n d d e d u c t e d b y t h e m . T h i s l a n g u a g e d o e s n o t t r u m p t h e foundational language o f the Agreement as set o u t -- that Defendants would enforce Plaintiffs' claims against the persons o r entities "liable to" Plaintiffs for the death o f t h e i r son o n February 1 7 , 2 0 0 3 , s p e c i f i e d as d e f e n d a n t Cytodyne. P l a i n t i f f s ' m o t i o n f o r p a r t i a l s u m m a r y j u d g m e n t o n this ground is granted.

6 I t a p p e a r s P l a i n t i f f s E r n e s t a n d P a t r i c i a B e c h l e r , as p a r e n t s o f d e c e d e n t S t e v e B e c h l e r , a n d M i k e B e c h l e r i f h e c o u l d s h o w t h a t h e w a s p a r t l y o r w h o l l y d e p e n d e n t o n d e c e d e n t , are " S u r v i v o r s " u n d e r t h e F l o r i d a W r o n g f u l D e a t h A c t w h o , as p o t e n t i a l b e n e f i c i a r i e s , c o u l d r e c o v e r the value o f l o s t support and services. Fla. Stat. §§ 768.18, 768.21; see Fla. Stat. § 768.20 ( p e r s o n a l r e p r e s e n t a t i v e o f d e c e d e n t shall b r i n g a c t i o n a n d r e c o v e r f o r t h e b e n e f i t o f d e c e d e n t ' s s u r v i v o r s and estate).

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Accordingly, Defendants are not entitled to recovery o f any fees o r costs under the A g r e e m e n t . H o w e v e r , P l a i n t i f f s a g r e e t h a t D e f e n d a n t s are e n t i t l e d t o r e a s o n a b l e c o m p e n s a t i o n for services provided and expenses paid to benefit Plaintiffs o n a q u a n t u m meruit basis. D e f e n d a n t s s h a l l be a l l o w e d t o a l l e g e t h i s c l a i m a n d p u t o n p r o o f a t t r i a l . R a t h e r t h a n a m e n d t h e i r answer, Defendants m a y allege quantum meruit and/or set off, as appropriate, in the parties' p r e t r i a l order. 7

In light o f the court's rulings relating to the Agreement, the c o u r t does n o t reach the issues raised in Plaintiffs' m o t i o n as to P l a i n t i f f Mike Bechler. Plaintiffs' m o t i o n for partial summary j u d g m e n t in this regard is moot.

Further, the c o u r t r u l e s t h a t e v e n i f the A g r e e m e n t w a s n o t v o i d e d , t h e following s u m s set forth i n t h e " a c c o u n t i n g " f r o m D e f e n d a n t M a c a l u s o w e r e n o t p r o p e r l y d e d u c t e d : a. Client advancements b. Goldstein Isaacson, PC c. Moore, Winter, S k e b b a & M c L e n n a n , LLP d. Waldt, D e a n (bankruptcy attorney) e. Washington, N a n c y - l o c a l counsel N Y $34,781.33 $ 5,000.00 $20,000.00 $ 983.40

$ 1,775.00

Defendants have acknowledged that the $20,000 client a d v a n c e m e n t and $5,000 fee to N a n c y W a s h i n g t o n w e r e i n c u r r e d i n o t h e r l i t i g a t i o n a n d w e r e i n a d v e r t e n t l y d e d u c t e d from t h e

7

See s e p a r a t e s c h e d u l i n g o r d e r .

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Bechler Estate settlement. Defendants further admit the $983.40 paid to Nancy Isaacson was for "associate counsel" and should not have been deducted from the settlement. The other amounts are clearly covered by the Agreement provision which provides that, "Associate counsel may be employed at the discretion o f Attorneys at no additional expense to the Client." (Am. CompI. Ex. A at 2 ~ 5.) The court does not find that Defendants have raised a genuine issue o f material fact by arguing without support that some o f these expenses were for "experts" pursuant to the following provision o f the Agreement: "Attorneys may, in their discretion, employ . . . experts whose fees shall be chargeable as advanced costs." (Am. CompI. Ex. A at 2 ~ 5.) The court finds on this record no ambiguity in the phrase "associate counsel" which clearly covers the law firm charges at issue. Plaintiffs' motions for summary j u d g m e n t on these grounds are granted.

2. Non-Economic Damages for Emotional Distress in Claims for Fraud, Negligent M i s r e p r e s e n t a t i o n , a n d Legal M a l p r a c t i c e Defendants contend that emotional distress damages are not allowed in the absence o f physical injury in Oregon and no exception to this general rule has been alleged. They contend also that Plaintiffs cannot recover emotional distress damages "where the legal interests at issue are solely economic" relying in large part on Hilt v. Bernstein, 75 Or. App. 502, 515 (1985). Defs. Mem. at 12. The Oregon Court o f Appeals has summarized the l a w relating to recovery o f emotional distress damages in Bennett v. Baugh, 154 Or. App. 3 9 7 , 4 0 5 (1998), a f f d in part, rev'd in part on another ground, 329 Or. 282 (1999): The general rule in Oregon is that a person cannot recover for emotional distress in

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the absence o f a physical injury. Hammond v. Central Lane Communications Center, 312 Or. 17, 22-23 [] (1991). Physical injury is not required, however, in three exceptional circumstances: (1) there is a specific intent to inflict emotional distress; (2) there is intentional misconduct by a person in a position o f responsibility and with knowledge that it would cause "grave distress;" or (3) there is conduct that, even i f negligent, infringes upon a "legally protected interest apart from causing the claimed distress." Id. See generally Curtis v. MRI Imaging Services II, 148 Or.App. 607, 614 [] (1997), a f f d . on other grounds 327 Or. 9 (1998). As to the third exception, "the critical inquiry becomes whether the kind o f interest invaded is o f sufficient importance as a matter o f policy to merit protection from emotional impact." Hilt v. Bernstein, 75 Or.App. 5 0 2 , 5 1 5 [] (1985), rev. den. 300 Or. 545 (1986). The Hilt case, relied upon by Defendants, is distinguishable from the present case. In Hilt, plaintiff there alleged that, as a direct result o f the legal negligence o f her attorney who represented her in her divorce proceeding, she was damaged in that she was "'made nervous and emotionally upset by the loss o f her home and the legal actions she was required to become involved in.'" 75 Or. App. at 506, 508. The Hilt court found that p l a i n t i f f s invaded interest was solely an economic one and plaintiff could be adequately compensated b y damages for the value o f her lost equity and related legal fees. Therefore, her allegations o f damages for emotional distress were properly stricken. See Bennett, 154 Or. App. at 406 (while court assumed attorneyc l i e n t r e l a t i o n s h i p w a s s e p a r a t e legally p r o t e c t e d interest, t h e u n d e r l y i n g l o s s - - p e r s o n a l l i a b i l i t y for corporation's debt--was chiefly economic and invasion was not o f sufficient importance to w a r r a n t a w a r d o f e m o t i o n a l d i s t r e s s d a m a g e s , c i t i n g Hilt). Defendants' view o f this case as a fee dispute which alleges economic loss only is too narrow. P l a i n t i f f s c l a i m m o r e t h a n a n e c o n o m i c loss r e s u l t i n g f r o m t h e d i s t r i b u t i o n o f s e t t l e m e n t p r o c e e d s . T h e r e c o r d s h o w s t h a t P l a i n t i f f s a n d D e f e n d a n t s e n t e r e d into a n a t t o r n e y - c l i e n t relationship to represent Plaintiffs' interests in the death o f their son soon after his death when

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Plaintiffs were in a vulnerable position. Defendant Macaluso owes fiduciary duties and loyalty to Plaintiffs and is in a high position o f trust as Plaintiffs' attorney. The court agrees with Plaintiffs that they present sufficient facts in the record which may satisfy an exception to the general rule so that they may proceed to trial. Plaintiffs allege, and support by affidavits, intentional misconduct by Defendant Macaluso who, as their attorney representing their interest in pursuing a wrongful death action for the death o f t h e i r son, was a person in a position o f responsibility and who would know that any misrepresentation or omission would cause Plaintiffs grave distress and, thus, the second exception to the general rule may be satisfied. See id. I t appears that Plaintiffs present sufficient facts which also may satisfy the third exception. The Bennett case assumed that the invaded interest characterized as "'the client's right to rely on [the] attorney's unquestioned loyalty'" was sufficient to plead a separate legally protected interest. 154 Or. App. at 406; see Curtis v. MRI Imaging Servs. II, 148 Or. App. 607, 621 n.12 (1997), a f f d , 327 Or. 9 (1998) (court has not foreclosed possibility that existence o f professional relationship could give rise to legally protected interest). The inquiry whether the invasion o f a protected interest is o f sufficient quality or magnitude is case specific. Id. at 621. In contrast to the facts in Hilt and Bennett, in this case, Plaintiffs allege and offer p r o o f that their emotional distress resulted directly from the alleged misrepresentations made by Defendants arising in the attorney-client relationship. See Curtis, 148 Or. App. at 621-22 (invasion o f protected interest in relationship b e t w e e n p l a i n t i f f p a t i e n t a n d m e d i c a l p r o f e s s i o n a l s u f f i c i e n t ; d a m a g e s s u f f e r e d were d i r e c t consequence and not secondary consequence o f some economic loss resulting from attorney's negligence, as in Hilt); Shin v. Sunriver Prepatory Sch., Inc., 199 Or. App. 3 5 2 , 3 7 1 - 7 2 (2005) (special r e l a t i o n s h i p b e t w e e n s c h o o l a n d s t u d e n t r e c o g n i z e d ; e m o t i o n a l d i s t r e s s d a m a g e s a l l o w e d Page 24 - O R D E R

for school's invasion o f such interest). The court has ruled assuming that no physical injuries are alleged o r shown by Plaintiffs. Plaintiff Ernest Bechler in his declaration states that he suffered physical injuries in addition to mental distress as a result o f Defendants' conduct alleged in Plaintiffs' negligent misrepresentation and fraudulent misrepresentation claims in their verified complaint and amended complaint, including anxiety, headaches, insomnia, depression, and hypertension or high blood pressure. (E. Bechler Decl. in Opp'n 21-22.) Plaintiffs Patricia Bechler and Mike Bechler make similar statements o f injuries suffered by them as a result o f Defendants' conduct in their declarations. (P. Bechler Decl. in Opp'n 20-21; M. Bechler Decl. in Opp'n 20-21.) Plaintiffs may well need to present expert testimony at trial to prove causation between some or all o f their alleged physical injuries and Defendants' conduct. The court makes no ruling on that issue at this time since it has found that Plaintiffs may satisfy an exception to the rule that emotional distress damages are not recoverable in the absence o f physical injury. Defendants' motion for partial summary judgment on this issue is denied.

3. Unfair Trade Practices Act ("UTP A") - Statute o f Limitations A plaintiff who seeks to recover under the UTP A must file its claim "w ithin one year from the discovery o f the unlawful method, act or practice. ORS 646.638(6). Defendants contend that
II

P l a i n t i f f s k n e w o r s h o u l d h a v e k n o w n t h a t t h e r e w a s a s u b s t a n t i a l p o s s i b i l i t y t h a t t h e y had suffered legally cognizable harm by at least April 2007 but did not file their claim until May 27, 2008. Plaintiffs argue they did not discover their UTPA claim until June 2007 or, at a minimum, there is a factual dispute as to the date o f discovery to be resolved at trial.

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Under the discovery rule, the applicable statute o f limitations begins to run when a plaintiff '''knows or in the exercise o f reasonable care should have known facts which would make a r e a s o n a b l e p e r s o n a w a r e o f a s u b s t a n t i a l p o s s i b i l i t y t h a t e a c h o f t h e t h r e e e l e m e n t s [ o f legally cognizable harm] (harm, causation, and tortious conduct) exists.'" Widing v. Schwabe, Williamson & Wyatt, 154 Or. App. 2 7 6 , 2 8 2 - 8 3 (1998) (quoting Gaston v. Parsons, 318 Or. 247, 256 (1994)); Greene v. Legacy Emanuel Hosp. & Health Care Ctr., 335 Or. 115, 123 (2002). A "mere suspicion" o f a claim is insufficient to start the limitations period. Gaston, 318 Or. at 256. Significantly, "the rule delays the running o f the limitations period only until the plaintiff knows or should know that some harm has been incurred and that a claim exists." Widing, 154 Or. App. at 283-84. This is an objective inquiry. Id. at 283. A plaintiff does not need to identify a particular theory o f recovery or know to a certainty that each element o f the claim exists. Gaston, 318 Or. at 255 & n.8. Although this court is aware that the date o f discovery can often be a j u r y question, Widing, 154 Or. App. at 283, the court finds on this record that no reasonable j u r y could find that the UTP A claim was not discovered by at least the date o f Plaintiffs' demand letter o f April 6, 2007. (See Am. CompI. Ex. E.) This multiple-page letter is extremely detailed and sets forth factual allegations o f the core elements o f the UTP A claim alleged by Plaintiffs, including allegations that Defendant Macaluso had: made representations that Plaintiffs had standing to file suit for the wrongful death o f Steve Bechler and failed to disclose that Defendants' services were consequently "worthless and a nullity" (Ex. E at 1-2; Am. CompI.
~~

78A & F), made

misrepresentations concerning Defendants' status in the Kylie Bechler litigation (Ex. E at 1-2; ~~ 78B-D), and made misrepresentations about the cost o f the goods and services that Defendants Page 26 - ORDER

provided to Plaintiffs (Ex. E a t 2, 4-5;

~

78E). The April 6, 2007, letter is properly before the

court. Initially, it is attached to Plaintiffs' amended complaint. Fed. R. Civ. P. 10(c). Second, Federal Rules o f Evidence 408 does not preclude the use o f a settlement letter for other purposes. 23 Charles Alan Wright & Kenneth W. Graham, Jr., Federal Practice & Procedure § 5312 (1980). Plaintiffs rely on Uruo v. Clackamas County, 166 Or. App. 133 (2000), in arguing that, although counsel had drafted and sent the April 6, 2007, letter, he and his assistant "had not conducted any thing but a very preliminary investigation o f the facts and the law as to the existence o f any tort claims held against the Defendants, and that any statements contained in the initial settlement letter o f April 6, 2007, as to the facts o f the existence o f claims, were 'mere suspicions' at the time o f this letter," (PIs. Resp. & Opp'n 26; Campbell Dec!. Re: Apr. 6 , 2 0 0 7 Letter), and they discovered their UTPA violation claims on June 29, 2007. The Uruo case is distinguishable. In Uruo, the court found that, although plaintiffs counsel had given tort claim notice to the City, a fact finder could reasonably conclude this fact did not mean plaintiff had sufficient information to say the claim had accrued, based on counsel's affidavit that he had sent the tort claim notice as a precautionary measure; he had done little or nothing in the way o f investigation and had made no j u d g m e n t whether p l a i n t i f f had a claim; and, after reviewing the police reports and consulting with experts, he had concluded that the City had not been negligent and did not k n o w otherwise until he deposed City police officers. 8 Here, Plaintiffs' counsel in his declaration characterizes his investigation up to April 6,

8 The c o u r t w e n t o n to find that p l a i n t i f f should have b e e n aware o f a substantial possibility he had a tort claim against the City based on information in police reports which should have put him on notice to further inquire and, therefore, the statute o f limitations had run by the time the complaint against the City was filed.

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2007, as "an initial and very preliminary investigation" into the fee dispute over the $525.400.02 retained by Defendants out o f the settlement proceeds. (Campbell Decl. Re: Apr. 6 , 2 0 0 7 Letter at 2 , 4 . ) Significantly, however, he states that in March 2007 he spoke with Mr. Carton, the attorney representing the PR, Kylie Bechler, who told him that Defendants had never recovered any moneys from Cytodyne or its successor, Nutraquest, from any wrongful death action filed on b e h a l f o f Plaintiffs, that the settlement amount she had obtained was under a global settlement in the Nutraquest bankruptcy case in N e w Jersey, and that neither Defendant Macaluso nor his law firm had provided much i f any assistance in the prosecution o f Kylie Bechler's wrongful death action. (Campbell Decl. Re: Apr. 6 , 2 0 0 7 Letter at 2-3.) This information was reported to Plaintiffs. Counsel further states that at the time o f the April 6, 2007, letter, Plaintiffs had already been "stunned" by Defendants' retention o f $525,400.02 out o f the $825,920.80 settlement proceeds. (Campbell Decl. Re: Apr. 6 , 2 0 0 7 Letter at 5.) Although counsel declares that his

statement o f claims in the April 6, 2007, demand letter were, at best, "mere suspicions" based on his preliminary investigation (Campbell Decl. Re: Apr. 6, 2007 Letter at 4), the information counsel had obtained in his investigation, which information was reported to Plaintiffs, was sufficient to put counsel and Plaintiffs on notice o f a substantial possibility Plaintiffs had suffered legally cognizable harm. See Benson v. Oregon, 196 Or. App. 211, 217 (2004) ("An agent's knowledge acquired within the scope o f the agency is imputed to the principal, regardless o f whether the agent actually communicates that knowledge to the principal."); Bramel v. Brandt, 190 Or. App. 432, 441-42 (2003). While it may have been professionally appropriate for counsel to conduct further investigation before filing the UTP A claim, the statute o f limitations began to run at least by April 6, 2007, and the UTPA claim was not filed until May 2 7 , 2 0 0 8 . Defendants' Page 28 - O R D E R

motion for partial summary j u d g m e n t on the UTP A claim is granted; P l a i n t i f f s UTP A claim is dismissed.

4. Causal Link Between Allegations In Support o f Fraud, Negligent Misrepresentation and UTPA Claims Plaintiffs as a part o f their Fraud Claim allege various material representations and material omissions by Defendant Macaluso in inducing them to sign the Agreement and in continuing to allow him to represent their interests. 9 Defendant Macaluso denies any such acts and omissions. Defendants move for summary j u d g m e n t on this claim arguing that, even i f the acts and omissions alleged by Plaintiffs are true, there is no causal link between the alleged misrepresentations and the damages sought by Plaintiffs in what Defendants characterize as a "fee dispute" over the accounting provided to Plaintiffs. Defendants set out the elements o f Fraud as follows: (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge o f its falsity or ignorance o f its truth; (5) his intent that it should be acted on by the person and in the manner reasonably contemplated; (6) the hearer's ignorance o f its falsity; 7) his reliance on its truth; (8) his right to rely thereon; (9) and his consequent and proximate injury. Conzelmann v. Northwest Poultry & Dairy Prods. Co., 190 Or. 332, 350 (1950). A failure to prove any element is fatal to the claim. Id. Defendants address only the causation element. The court has reviewed all o f the allegations o f specific fraud in the amended complaint. Plaintiffs allege in paragraph 56 o f the amended complaint as follows:

P l a i n t i f f s a l l e g e t w e n t y - e i g h t s p e c i f i c a l l e g a t i o n s o f m a t e r i a l r e p r e s e n t a t i o n s and material o m i s s i o n s i n t h i r t e e n p a g e s i n t h e i r a m e n d e d c o m p l a i n t .
9

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The representations made by the Defendants to the Plaintiffs were material to the Plaintiffs' decision to entering into the contractual relationship with the Defendants with regard to the representation o f the Plaintiffs as to certain alleged c l a i m s a r i s i n g o u t o f the w r o n g f u l d e a t h o f Steve B e c h l e r a n d t h e r i g h t o f the Plaintiffs to receive a portion o f certain wrongful death action proceeds from the Estate o f Steven Scott Bechler because o f the Plaintiffs' status, as the parents and brother o f Steve Bechler, and with regard to the Plaintiffs' decision to allow the Defendants to continue this representation o f their interest in these matters until March 1, 2007. Plaintiffs further allege in paragraph 60 as follows: "Plaintiffs relied upon the truth o f the representations made by the Defendants in entering into the contractual relationship with the Defendants and in allowing the continuation o f their representation o f their interest as to the subject matters o f this representation until March 1 , 2 0 0 7 . " Finally, Plaintiffs allege in paragraphs 6 2 , 6 3 , and 64 suffering economic damages in the amount o f $ 5 2 5 , 4 0 0 . 0 2 and $80,223.36; and emotional distress damages for "mental distress, anxiety, humiliation, headaches, nightmares, and o t h e r p h y s i c a l a n d m e n t a l i n j u r i e s . " T h e y also s e e k p u n i t i v e d a m a g e s . This court finds that these allegations, as supported by the verified complaint and Plaintiffs' declarations, are sufficient and Defendants have not presented any facts or arguments that convince the court that, as a matter o f law, Plaintiffs cannot prove that some or all o f these allegations, i f proved, was a substantial factor in directly causing the damages claimed by Plaintiffs. Again, Defendants' view o f this case as only a fee dispute is too narrow. Defendants' motion for summary j u d g m e n t as to Plaintiffs' Fraud claim is denied.

5. Punitive damages Although the court has dismissed Plaintiffs' UTP A claim, their Fraud claim remains for trial. Defendants' motion for partial summary j u d g m e n t dismissing Plaintiffs' punitive damages

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claim is granted as to Plaintiffs' UTPA claim and denied as to their Fraud claim.
ORDER

Based on the foregoing, it is ordered that Defendants' motion for partial summary judgment [#90] is granted in part and denied in part, and Plaintiffs' motion for partial summary judgment [#120] is granted in part and denied as moot in part. D A T E D this _ - - ' - - , . . : ' -

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