331
Argued and submitted December 18, 2020, affirmed September 9, 2021
Kimberly J. Jacobsen SHERERTZ,
as guardian ad litem for William Cole Sherertz;
Kimberly J. Jacobsen Sherertz as the Personal
Representative of the Estate of William W. Sherertz; and
Kimberly J. Jacobsen Sherertz, as Trustee of
the William W. Sherertz Testamentary Trusts,
Plaintiffs-Appellants,
v.
BROWNSTEIN, RASK, SWEENEY,
KERR, GRIM, DESYLVIA & HAY, LLP,
dba Brownstein Rask,
Defendant-Respondent.
Multnomah County Circuit Court
130100793; A170762
498 P3d 850
Plaintiffs appeal a judgment dismissing their legal malpractice claims
against defendant law firm, which arose from alleged negligence in estate planning work for the deceased. Plaintiffs are the personal representative of the
deceased’s estate, the guardian ad litem for the deceased’s minor son Cole, and
the trustee of a trust of which Cole is the primary beneficiary. As to the claims
of all three plaintiffs, the trial court directed verdict for defendant at the close of
plaintiffs’ evidence on the ground that plaintiffs had failed to prove any damages
as a matter of law. Plaintiffs challenge the directed verdict ruling on appeal,
arguing that there was sufficient evidence for their claims to go to the jury.
Defendant maintains that the trial court correctly directed verdict in its favor,
either on the stated grounds or because the court was right for the wrong reason. Held: As to the estate’s claim, the trial court did not err in directing verdict
for defendant on the basis that no reasonable juror could award damages to the
estate based on plaintiffs’ evidence. As to Cole’s and the trust’s claims, the court
was right for the wrong reason when it directed verdict for defendant, because
the evidence was legally insufficient to establish that defendant made a promise
to the deceased of a nature that would give rise to the necessary third-party beneficiary status for purposes of a legal malpractice claim.
Affirmed.
John A. Wittmayer, Judge.
Zachariah H. Allen argued the cause for appellants.
Also on the briefs were Bonnie Richardson and Richardson
Wright LLP.
332 Sherertz v. Brownstein Rask
Peter R. Mersereau argued the cause for respondent. Also
on the brief were Blake H. Fry and Mersereau Shannon LLP.
Before Armstrong, Presiding Judge, and Tookey, Judge,
and Aoyagi, Judge.
AOYAGI, J.
Affirmed.
Cite as 314 Or App 331 (2021) 333
AOYAGI, J.
In this legal malpractice action related to estate
planning, plaintiffs appeal a judgment dismissing their
negligence claims against defendant law firm. Plaintiffs are
Kimberly Sherertz in three capacities: as personal representative of the estate of William W. Sherertz (Estate), as guardian ad litem for William Cole Sherertz (Cole), and as trustee
of the William W. Sherertz Testamentary Trusts (Trust).1
At the close of plaintiffs’ case, the trial court granted a
directed verdict for defendant. Plaintiffs challenge that ruling on appeal. We affirm.2
I. FACTS
In reviewing a directed verdict, we view the evidence
and all reasonable inferences therefrom in the light most
favorable to the nonmoving party—in this case, plaintiffs—
and determine whether any reasonable factfinder could find
in their favor. Yoshida’s Inc. v. Dunn Carney Allen Higgins &
Tongue, 272 Or App 436, 443,
356 P3d 121 (2015), rev den,
358 Or 794 (2016). “A directed verdict is appropriate only if
the moving party is entitled to judgment as a matter of law.”
Id. We state the facts accordingly.
William (Bill) Sherertz was the founder, CEO,
president, and chairman of the board of Barrett Business
Services (BBSI), a publicly traded staffing company. He married Kimberly Sherertz in 1997. Bill had four children—two
daughters from a prior marriage, a daughter of Kimberly’s
whom Bill adopted, and a son Cole born in 2000.
Bill’s largest asset was BBSI stock, which gave him
a controlling interest in BBSI. The wealth advisers at Bill’s
bank advised him that, upon his death, his estate would generate a large estate tax bill, which would necessitate selling
stock to pay taxes unless Bill took action to provide liquidity
to the estate. Bill did not like the idea of selling stock and
hoped that his family would want to keep the stock.
1
All references to the “Trust” are to the Barrett Share Trust, which is the
only testamentary trust that was funded. A different type of trust—an irrevocable life insurance trust—is discussed later and referred to as the “ILIT.”
2
Given our affirmance of the directed verdict ruling, we do not reach plaintiffs’ second assignment of error.
334 Sherertz v. Brownstein Rask
Bill retained defendant law firm to prepare his
estate plan, working primarily with Kirk Hay. At first, Bill
planned to leave his BBSI stock to his children in equal
shares. In 1999, defendant drafted a will under which Bill’s
three daughters would each receive a third of the stock. Cole
was then born, and, in 2001, defendant prepared a new will
under which Bill’s four children would each receive a quarter of the stock. As for the estate’s anticipated liquidity problem, in 2001, defendant set up an irrevocable life insurance
trust (ILIT) that was the named beneficiary of a $10 million life insurance policy on Bill’s life. BBSI agreed to pay
the insurance premium under a “split dollar life insurance
arrangement.”3 Bill’s four children were named equal beneficiaries of the ILIT.
Plaintiffs’ expert witness testified as to how an
ILIT works to provide liquidity to an estate with substantial stock assets. Life insurance proceeds are exempt from
estate taxes as long as they are not held or controlled by the
decedent’s estate. The settlor therefore establishes an ILIT,
funded with sums sufficient to pay the life insurance premiums, and names the ILIT the beneficiary of the insurance
policy. At the settlor’s death, the life insurance proceeds—in
this case, $10 million—flow into the ILIT to be administered
for the benefit of the ILIT beneficiaries. At that point, the
ILIT may provide liquidity to the estate by lending money
to the estate (secured by the stock as collateral) or by buying
stock from the estate. The ILIT trustee is a fiduciary, however, and must act in the ILIT’s beneficiaries’ best interests.
If the beneficial interests under the will and the ILIT are
sufficiently aligned, the trustee’s obvious choice is to use the
ILIT funds to provide liquidity to the estate. The ILIT provides money to the estate, the estate provides stock to the
ILIT, and the two sides are eventually merged, pursuant to
language in both instruments. See ORS 130.230. However,
if the beneficial interests are not aligned, the duties to differing beneficiaries will prevent such an arrangement.
3
In addition to paying Bill’s life insurance premium, BBSI also took out its
own $10 million life insurance policy on Bill, which could be used to buy stock
from the estate if desired. It was in BBSI’s interests to avoid a large sale of BBSI
stock on the open market upon Bill’s death, as such event could lower the value of
BBSI stock.
Cite as 314 Or App 331 (2021) 335
Consistent with the foregoing explanation of how an
ILIT provides liquidity to an estate, the settling documents
that Hay prepared for Bill in 2001 gave the ILIT trustee discretion to use principal to buy BBSI stock from Bill’s estate
or to loan money to Bill’s estate. They also permitted the
ILIT trustee to engage in nominally imprudent transactions
that would otherwise have to be avoided, such as investing
heavily in a single volatile and thinly traded stock like BBSI
stock.
Bill executed the 2001 ILIT documents, but he did
not sign the 2001 will. And, in 2003, Bill changed his mind
about leaving his BBSI stock to all four children and instead
decided to leave it to Cole. Accordingly, defendant prepared a
new will for Bill in 2003-04, which provided for all the BBSI
stock to go into a testamentary trust upon Bill’s death. Each
of Bill’s three daughters would receive annual $100,000 distributions from the trust (with cost-of-living increases and a
cash-out option), but, upon the earlier of reaching age 25 or
receiving an MBA degree, Cole would become the trustee, at
which point he could liquidate the trust, cash out his sisters,
and keep what remained.
On November 25, 2003, Hay sent a letter to Bill outlining changes and options for Bill’s estate plan related to
the new will that Hay was drafting. Among other things,
Hay advised Bill that it was “unlikely” that his three daughters’ shares of the ILIT funds could be used for estate taxes
if Cole was the sole beneficiary of the stock:
“The planning becomes critical because the [BBSI] shares
passing to your children will be subject to tax and a significant amount of the shares will have to be redeemed or sold
in order to raise capital to pay the tax.
“The insurance proceeds in the Irrevocable Life
Insurance Trust [(ILIT)] can be utilized to pay taxes, but if
a child is not a beneficiary of the [BBSI] shares, then it is
unlikely that use of the funds for taxes would be appropriate for that insurance trust beneficiary.”
Hay concluded by asking Bill to call him to discuss “some of
these variances to the will,” so that they could finalize the
will. There is no evidence of any further communications
between Bill and Hay.
336 Sherertz v. Brownstein Rask
On May 12, 2004, the BBSI board of directors held
a meeting. Due to a change in federal law, the split-dollar
arrangement by which BBSI had previously agreed to pay
Bill’s life insurance premiums was no longer permitted.
BBSI’s CFO reminded the directors that the purpose of that
arrangement had been to provide Bill’s estate with sufficient
liquidity to pay estate taxes, “thereby avoiding the necessity of his estate being forced to sell a significant number
of shares of BBSI to generate sufficient cash to pay estate
taxes.” The board approved a new arrangement, whereby
BBSI would pay an annual cash bonus to Bill that he would
use to pay the life insurance premiums.4
On September 22, 2004, Bill signed the new will,
which remained in effect for the remainder of his life.
In 2005, Hay wrote an internal memorandum to a
colleague at defendant law firm, asking him to look at Bill’s
ILIT. Hay asked the colleague to explore options to channel the life insurance proceeds to the payment of estate
taxes, rather than an equal distribution to the four ILIT
beneficiaries:
“Frank, please take a look at the terms of the Irrevocable
Life Insurance Trust (“ILIT”) and the terms and provisions
of Bill Sherertz’s Will and give me your recommendation
on how we can channel the policy proceeds to the payment
of taxes rather than an equal distribution of the proceeds
to each of the four (4) children. Please note that under the
Will, Cole receives by far, the largest share of the Barrett
stock. The goal of the ILIT was wealth replacement to eliminate the necessity of selling Barrett’s stock.
“You and I have discussed this issue before and I believe
we have two (2) alternatives: (i) terminate the ILIT and
reapply for new insurance or (ii) transfer the insurance to a
new trust.
“I believe concerns relating to those two (2) alternatives
are (i) that Bill may be uninsurable and (ii) the transfer for
4
Similarly, the minutes of the BBSI board of directors’ meeting of November 11,
2004, contain a reference to Bill’s bonus being intended “to enable Mr. Sherertz
to maintain in force insurance policies to provide the necessary liquidity to his
estate to pay estate taxes instead of selling the corporation’s shares, which sale
could depress the stock price to the detriment of the corporation’s shareholders.”
Cite as 314 Or App 331 (2021) 337
value issues that could arise in the event of a sale of the
policies to the second trust.
“Please explore the alternatives and give me your
thoughts.”
There is no evidence of any further discussions between Hay
and the colleague.
In 2011, Bill died, leaving behind a substantial
estate. His wife Kimberly, as personal representative of the
Estate, looked to the ILIT for funds to pay the estate taxes.
However, the ILIT trustee would not buy stock from the
Estate or loan money to the Estate using the stock as collateral, because he owed fiduciary duties to all four ILIT beneficiaries (the four children) and only one of the ILIT beneficiaries, Cole, would come to own the BBSI stock. The ILIT
trustee testified that, with the four beneficiaries, it was not
prudent to invest the entirety of the ILIT’s funds in a single
company’s stock. The ILIT trustee agreed that, hypothetically, if Cole was the sole beneficiary of the ILIT, then he
(the trustee) would have agreed to buy $10 million of BBSI
stock from the Estate or loan the Estate $10 million secured
by BBSI stock.
Ultimately, Kimberly decided to sell all of the
estate’s BBSI stock to BBSI, which she did for $50 million.
The Estate paid about $9 million in estate taxes and “substantial” administrative fees, leaving about $35 million,
which was put into the testamentary trust.
In January 2013, Kimberly filed this action against
defendant, alleging negligent acts and omissions in its estate
planning work for Bill. She asserted negligence claims in
three capacities: (1) as personal representative of the Estate;
(2) as guardian ad litem for Cole; and (3) as trustee of the
Trust.5 The case went to trial in 2014. A jury found that
defendant was not negligent, resulting in a judgment for
defendant. Sherertz v. Brownstein Rask, 288 Or App 719,
721,
407 P3d 914 (2017) (Sherertz I). We reversed that judgment on appeal, based on a jury-instruction error.
Id.
5
In the original complaint, Kimberly also asserted a claim in her individual
capacity, but she later dismissed that claim.
338 Sherertz v. Brownstein Rask
On remand, plaintiffs amended their complaint. They
alleged that defendant was negligent in various ways, including by failing to prepare an estate plan that fulfilled Bill’s
intent; failing to prepare an estate plan that preserved all of
the Estate’s BBSI stock for Cole’s benefit; and failing to modify the ILIT or create a new ILIT when Bill decided to leave
all the BBSI stock in trust for Cole, so that the entire insurance proceeds could be used to pay estate taxes and costs.6
They further alleged that such negligence caused $7.5 million in damages to plaintiffs, based on the difference between
the $10 million that should have been available to the Estate
from the ILIT to pay estate taxes (in their view) and the
$2.5 million that was actually available for that purpose.
The case was tried again in 2019. At the conclusion
of plaintiffs’ case, defendant moved for a directed verdict on
multiple grounds, two of which are relevant on appeal. First,
defendant argued that there was no evidence of damages
(an element of negligence), because the Estate received fair
market value for the shares that it sold to pay taxes, and the
Estate was going to have to pay those taxes regardless of
the alleged negligence. Second, defendant argued that there
was no evidence of a “duty” to Cole (another element of negligence). The trial court rejected the latter basis for directed
verdict but agreed with the former basis, and it granted
directed verdict for defendant on all three plaintiffs’ claims.
It then entered a general judgment for defendant.
Plaintiffs appeal, assigning error to the directed
verdict for defendant. They argue that the evidence was
legally sufficient to permit a jury to find in each plaintiff’s
favor. In response, defendant maintains that the trial court
correctly directed verdict for it, because of the lack of evidence of damages or, alternatively, because the lack of evidence on the duty element made the trial court “right for the
wrong reason.”
6
Plaintiffs also alleged that defendant was negligent in failing to advise Bill
that the revised estate plan could not ensure preservation of all BBSI stock in
trust for Cole; failing to remedy problems or advise Bill of the problems with the
revised estate plan; failing to retain competent experts and consultants to advise
defendant on Bill’s estate plan; failing to identify or recognize problems with
Bill’s estate plan in a timely fashion; and failing to disclose avoidable problems
with Bill’s estate plan once they were known.
Cite as 314 Or App 331 (2021) 339
II. ANALYSIS
An action for legal malpractice is not significantly
different from an ordinary negligence action. Sherertz I,
288 Or App at 722. “It is simply a variety of negligence in
which a special relationship gives rise to a particular duty
that goes beyond the ordinary duty to avoid a foreseeable
risk of harm[.]” Watson v. Meltzer, 247 Or App 558, 565,
270
P3d 289 (2011), rev den,
352 Or 266 (2012). To prove legal
malpractice, a plaintiff must prove the elements of (1) duty,
(2) breach, (3) harm measurable in damages, and (4) a causal
connection between the breach of duty and the harm. Id.; see
also Roberts v. Fearey,
162 Or App 546, 549,
986 P2d 690
(1999) (duty becomes an element of negligence “when the
plaintiff pleads damages based on purely economic losses”).
A trial court may direct verdict for the defendant
when there is insufficient evidence to sustain a claim as a
matter of law. McDonald v. U.S. National Bank, 113 Or App
113, 115,
830 P2d 618, rev den,
314 Or 573 (1992). We review
a directed verdict ruling for errors of law. Mauri v. Smith,
324 Or 476, 479,
929 P2d 307 (1996). As previously noted, in
doing so, we view the evidence and all reasonable inferences
therefrom in the light most favorable to the nonmoving
party, so as to determine whether any reasonable factfinder
could have found in the nonmoving party’s favor. Yoshida’s
Inc.,
272 Or App at 443.
A. The Estate’s Claim
We begin with the Estate’s claim. We agree with
the trial court that plaintiffs’ evidence was legally insufficient to prove damages to the Estate.
The Estate’s theory of damages was that, if defendant had properly advised Bill, Bill would have changed
the ILIT before his death,7 such that the Estate would have
had access to $10 million cash to pay estate taxes and costs,
either by selling BBSI stock to the ILIT or by taking a loan
from the ILIT secured by BBSI stock. Instead, because all
four children were beneficiaries of the ILIT, whereas only
7
Plaintiffs alleged that defendant was negligent in failing to modify the
existing ILIT or create a new ILIT after Bill decided to leave all of the BBSI stock
to Cole. We refer to both options as “changing” the ILIT.
340 Sherertz v. Brownstein Rask
Cole would ultimately inherit the BBSI stock, only $2.5 million was available from the ILIT to cover estate taxes, and
the Estate had to sell $7.5 million worth of stock to generate
the remaining funds needed.
The difficulty with that theory is that the Estate
had to pay the estate taxes and costs regardless of where
the money came from to do so, and the Estate received fair
market value when it sold the BBSI stock. That is, to get
the cash to pay estate taxes and administrative costs, the
Estate could have done a variety of things, including sell
stock to the ILIT or use stock as collateral to get a loan from
the ILIT (if the ILIT trustee was willing), sell stock to BBSI
(if BBSI was willing), sell BBSI stock publicly, pay down the
tax debt over time, or a combination of things. In this case,
with only $2.5 million cash available through the ILIT, the
Estate chose to sell all of its BBSI stock to BBSI for $50 million, using a portion of the proceeds to pay approximately
$9 million in estate taxes and to pay costs. Even if it was
defendant’s alleged negligence that put the Estate in the
position of having to sell $7.5 million worth of BBSI stock
to generate enough cash to pay taxes and costs, the Estate
was always going to have to pay those taxes and costs. The
Estate may have preferred not to sell any stock, but, because
the Estate received fair market value for the stock, it did not
suffer any monetary damages by selling the stock.
The trial court therefore did not err in directing
verdict for defendant on the Estate’s negligence claim.
B. Cole’s Claim
We next consider Cole’s claim. We conclude that
the trial court was correct to direct verdict for defendant on
Cole’s negligence claim against defendant, albeit right for
the wrong reason.
Cole’s theory of damages was that he personally
received $7.5 million less as a beneficiary of the Trust than
he would have if defendant had properly advised Bill. As
plaintiffs put it, “if Bill had been properly advised to update
his ILIT at the time he updated his will in 2004, Bill would
have designated Cole as the sole residual beneficiary of the
$10 million ILIT, an act that would have served the purpose
Bill conceived it for.”
Cite as 314 Or App 331 (2021) 341
In ruling on defendant’s directed verdict motion,
the trial court viewed the evidence as sufficient to prove
the duty element of negligence but insufficient to prove the
damages element. Given the nature of the duty element in
this context, the line between the two elements is somewhat
fine, but, under existing case law, we view the evidentiary
deficiency regarding Cole’s claim as going more to the duty
element than the damages element, and we therefore proceed directly to the duty element.
In doing so, we note as a preliminary matter that
defendant relies on the “right for the wrong reason” principle to defend the trial court’s directed verdict ruling. In
response, Cole suggests that we must evaluate whether the
prerequisites for consideration articulated in Outdoor Media
Dimensions, Inc. v. State of Oregon, 331 Or 634, 659-60,
20
P3d 180 (2001), have been met and, if so, whether to exercise
discretion to consider the alternative basis to affirm. That is
incorrect. When an issue is raised for the first time on appeal,
certain criteria must be met to even consider it—including
whether the record would have developed differently had it
been raised in the trial court—and then it is still discretionary whether to affirm on that basis. Id.; Biggerstaff v. Board
of County Commissioners,
240 Or App 46, 56,
245 P3d 688
(2010). When an alternative argument was made in the trial
court, however, the situation is different. If the argument is
properly presented again on appeal and raises a question of
law, we may simply resolve it, typically remanding only if
it is necessary for the trial court to make factual findings
from conflicting evidence, exercise discretion, or the like.
See State v. Lovaina-Burmudez,
257 Or App 1, 14,
303 P3d
988, rev den,
354 Or 148 (2013).8 Here, defendant moved for
directed verdict on two rationales, either of which would, if
8
We recognize that we have occasionally been inconsistent in our citations to
Outdoor Media and take this opportunity to clarify that, on its face, the Outdoor
Media approach applies when an issue is raised for the first time on appeal. Not
only was that the situation in Outdoor Media, but that premise is built into the
Outdoor Media standard itself, which requires that “the record materially be
the same one that would have been developed had the prevailing party raised
the alternative basis for affirmance below.” 331 Or at 660 (emphasis added). If an
alternative argument was made to the trial court, it is up to the party whether to
continue pursuing it on appeal, whereas, if a party wishes to make a new argument for the first time on appeal, it must convince us that the Outdoor Media
prerequisites are met and persuade us to exercise our discretion.
342 Sherertz v. Brownstein Rask
legally correct, support a directed verdict for defendant on
Cole’s negligence claim, and both of which present questions
of law.
Turning to the merits, as previously described, the
elements of a legal malpractice claim are (1) duty, (2) breach,
(3) harm measurable in damages, and (4) a causal connection between the breach of duty and the harm. Watson, 247
Or App at 565. Regarding the duty element, a defendant
is not ordinarily liable in negligence for causing purely
economic losses to a stranger. Hale v. Groce,
304 Or 281,
284,
744 P2d 1289 (1987). A special relationship—such as
“attorney-client, architect-client, agent-principal, and similar relationships where the professional owes a duty of care
to further the economic interests of the ‘client’ ”—is necessary to permit liability for purely economic losses. Roberts,
162 Or App at 549-50. The client in such a relationship
is typically the one to whom a duty is owed. For example,
“an attorney ordinarily is not liable to those outside of the
attorney-client relationship because there is no obligation
to protect anyone outside of the attorney-client relationship
from economic losses.”
Id. at 550.
In Hale, however, the court rejected the view that
a lawyer can never be sued for legal malpractice by someone other than the lawyer’s client. 304 Or at 283 (describing the issue as one of first impression). The court held that
the plaintiff could pursue claims for purely economic losses
against the attorney who prepared a decedent’s will, specifically a breach-of-contract claim “as the intended beneficiary of defendant’s professional contract with the decedent”
and “a derivative tort claim [for negligence] based on breach
of the duty created by that contract to the plaintiff as its
intended beneficiary.”
Id. Because the plaintiff in Hale was
“ ‘a classic intended third-party beneficiary’ of the attorney’s
promise to his client to include the plaintiff in [the client’s]
will,” the plaintiff could prove the duty element. Lord v.
Parisi,
172 Or App 271, 276-77,
19 P3d 358, rev den,
332 Or
250 (2001) (quoting Hale,
304 Or at 286).
Thus, in a legal malpractice action, the plaintiff
must prove the existence of a duty to the plaintiff—even if
the plaintiff was not the lawyer’s client, as will frequently
Cite as 314 Or App 331 (2021) 343
be the case in the estate planning context, where alleged
errors often come to light after the client is deceased. Id.;
Sherertz I, 288 Or App at 723. And, critically, as Hale and
its progeny emphasize, the relevant inquiry is not whether
it was foreseeable that a third party could be harmed by the
attorney’s negligence, but instead whether the nature of the
attorney’s promise to the client gave rise to a duty to a third
party. Lord,
172 Or App at 276-79; see also Hale,
304 Or at
284 (“Some source of a duty outside the common law of negligence is required,” and “[i]t does not suffice that the harm
is a foreseeable consequence of negligent conduct that may
make one liable to” the client.); Roberts,
162 Or App at 550
(“[A] particular source for the duty to protect from economic
losses is required even if economic losses are a foreseeable
consequence of a defendant’s conduct.”).
Here, Cole relied on a third-party beneficiary theory
to try to prove that defendant had a duty not only to Bill but
to him, arising from a promise made to Bill. In Cole’s view,
there is evidence that defendant promised Bill that it would
set up an estate plan under which all of the estate taxes
could be paid with $10 million of life insurance proceeds
funneled through the ILIT, thus avoiding any need to sell
BBSI stock to pay taxes. Cole particularly points to Hay’s
2005 internal memorandum, which mentions that the “goal”
of the ILIT “was wealth replacement to eliminate the necessity of selling [BBSI] stock,” and to other evidence about the
purpose of the ILIT being to provide liquidity to cover taxes.
In Cole’s view, that was sufficient to prove a duty to Cole.
Defendant disagrees. It argues that, even if it
breached the standard of care by not advising Bill to make
changes to the ILIT after 2003 (as it acknowledges a jury
could find), there is no evidence of a promise to Bill of a type
that would create the requisite duty to Cole as a third-party
beneficiary under Hale and its progeny.
Under Hale, it is not enough to support a negligence
claim by Cole that defendant’s alleged negligence could have
a “foreseeable” consequence for Cole. Lord, 172 Or App at
277. Nor can Cole rely on defendant having implicitly promised to meet the standard of care for estate planning, which,
in Cole’s view, would have included advising Bill to change
344 Sherertz v. Brownstein Rask
the ILIT after Bill decided to leave all of his BBSI stock to
Cole.
To support a negligence claim by a third-party beneficiary, a “lawyer’s promise must be more specific than a
general obligation to use his or her best professional efforts
with the skill and care customary among lawyers in the relevant community; the lawyer must have agreed to accomplish specific results or objectives for the client.” Deberry v.
Summers, 255 Or App 152, 159,
296 P3d 610 (2013) (emphases added); see also Sherertz I, 288 Or App at 724 (“[U]nder
Hale and our subsequent cases, the facts surrounding a lawyer’s alleged promised result to a client become the central
point of inquiry.”); Frakes v. Nay,
254 Or App 236, 267,
295
P3d 94 (2012), rev den,
353 Or 747 (2013) (“Standing alone,
an attorney’s promise to the testator to use the skill and
care customary among lawyers in the relevant community
is not a promise to obtain a particular result for the plaintiff’s benefit that will support a third-party negligence claim
for financial loss.” (Emphasis added.)).
In Hale, 304 Or at 283, 288, there was evidence
of a specific enough promise to give rise to a duty to the
plaintiff, where the client specifically directed her attorney
to include a $300,000 bequest to the plaintiff in her testamentary instruments, and the attorney failed to do so. And,
in Frakes,
254 Or App at 268, it was “a close question,” but
there was sufficient evidence that the defendant attorney
had “promised to obtain a particular result” for his client,
which was to create an estate plan that would carry out the
client’s intent to leave nearly all of her estate to her nephew,
the plaintiff, whom she had raised since age 12.
By contrast, in Deberry, 255 Or App at 154-56, the
evidence was legally insufficient to prove the duty element
of legal malpractice, where the client directed her attorney to amend a trust document so that the plaintiff (her
granddaughter) would receive the “Canyon Court” property
upon her death, the attorney did so, the client later sold the
Canyon Court property, and no changes were made to the
trust to provide for the plaintiff to receive a different property. Although there was evidence that the client had wanted
and even intended for the plaintiff to receive a replacement
Cite as
314 Or App 331 (2021) 345
property, there was no evidence that she had ever directed
her attorney to take steps to achieve that result. See id. at
155-56, 166-67. The attorney’s only actual promise (express
or implied) had been to effectuate the client’s desire to leave
the Canyon Court property to the plaintiff—and the attorney fulfilled that promise. Id. Because there was no evidence of a promise for the plaintiff’s benefit regarding a different property, the duty element could not be proved, and
the defendant was entitled to judgment as a matter of law.
Id. at 167.
Thus, to summarize, to give rise to a duty to a
third-party beneficiary, an attorney must make an actual
promise to the client, either express or implied, to achieve a
particular objective that will benefit a specified third party.
An objective that was not communicated to the attorney or
that was not specific enough will not give rise to a duty to a
third party. As we said in Deberry:
“Whether defendant should have undertaken a particular obligation (such as including a ‘simple phrase’ in a trust
or will) is different, however, from whether he in fact undertook that obligation. Because plaintiff is not a party to
the contract between defendant and his client, plaintiff
cannot rely on implicit promises or duties that arise from
the standard of care exercised in the legal community.
Instead, plaintiff must establish a basis in fact or in law—
independent of the professional standard of care—for the
implication that defendant promised to include a provision
in her grandmother’s trust or will that would ensure that
plaintiff obtained the Canyon Court house or any replacement home. Plaintiff did not carry that burden on summary judgment, and the court correctly granted summary
judgment on her claims.”
Id. at 169 (emphases in original).9
9
See also Lord, 172 Or App at 278 (“[T]he question is whether ‘the principal
purpose of the attorney’s retention is to provide legal services for the benefit of
the plaintiff. Often, the attorney’s retention will benefit another. The inquiry,
however, is did the attorney and the client intend the plaintiff to be the beneficiary of the legal services.’ ” (Quoting Ronald E. Mallen and Jeffrey M. Smith,
Legal Malpractice § 7.13, 532-33 (4th ed 1996).) (Internal ellipses and brackets
omitted.)); Restatement (Third) of the Law Governing Lawyers § 51 comment f
(2000) (“A duty to a third person hence exists only when the client intends to
benefit the third person as one of the primary objectives of the representation
…. Without adequate evidence of such an intent, upholding a third person’s
346 Sherertz v. Brownstein Rask
With those principles in mind, the question in this
case is whether there is any evidence that defendant undertook an obligation to Bill to make $10 million available to
the Estate through the ILIT for Cole’s benefit, such that Cole
became a third-party beneficiary of that promise for his benefit. Upon review of the record, the answer is no.
In 2001, viewing the record and all reasonable
inferences in the light most favorable to Cole, defendant
performed the exact obligation that it undertook. It drafted
a will that provided for each of Bill’s four children to share
equally in his estate, including his BBSI stock, and it set up
an ILIT that would effectively provide $2.5 million toward
the estate taxes on each child’s inheritance. Given the volatility of BBSI stock, that amount might or might not cover
all of the taxes, but each child would rightfully expect a
$2.5 million benefit from the ILIT, based on Bill’s estate
plan in 2001 and defendant’s promise to effectuate that
plan. And, presumably, at that point in time, defendant had
a duty to each of the four children to set up the ILIT in that
way, given the specific obligation that it undertook and the
specific benefit to each of the four children.
In other words, defendant decidedly did not promise Bill in 2001 that it would undertake to set up the ILIT
in such a way that Cole would receive a $10 million benefit
from the ILIT. See Deberry, 255 Or App at 161 (explaining
that, under Hale and its progeny, “an essential element of
a … negligence claim by a nonclient plaintiff against an
attorney who prepared a testamentary instrument is the
existence of a promise by the attorney—either express or
implied—to include specific provisions to satisfy certain
objectives of the client for the benefit of the plaintiff” (emphasis added)).10 Indeed, had defendant taken steps to achieve
claim could expose lawyers to liability for following a client’s instructions in circumstances where it would be difficult to prove what those instructions had been.
Threat of such liability would tend to discourage lawyers from following client
instructions adversely affecting third persons.”).
10
See also Frakes, 254 Or App at 267 (“To sustain a negligence claim for
financial loss, a plaintiff who is not a party to the contract between the defendant attorney and the testator must prove (1) that the attorney actually made an
express or implied promise to the testator (2) under circumstances that indicate
that the testator intends to give the plaintiff the benefit of the promised performance.” (Emphasis added.)).
Cite as
314 Or App 331 (2021) 347
such a result in 2001, it would have been contrary to what it
promised Bill in 2001 and contrary to what it undertook to
do in 2001. It follows that, to the extent that Cole is relying
on defendant’s promises to Bill in 2001 to support his claim,
he cannot prove the duty element, because there is no evidence that defendant promised in 2001 to set up the ILIT so
as to provide a $10 million benefit to Cole.
That brings us to the period after 2003, when Bill
changed his mind and decided to leave all of his BBSI stock
to Cole. At that point, Bill could have directed defendant to
change the ILIT so that all $10 million of life insurance proceeds would be available for Cole’s benefit, instead of each
of Bill’s children receiving a $2.5 million benefit. However,
there is no evidence that Bill ever gave that direction to
defendant—in 2003, 2004, or at any time before his death in
2011.
As previously explained, to give rise to a duty to a
third-party beneficiary, an attorney must make an actual
promise to the client, either express or implied, to achieve a
particular objective that will benefit a specified third party.
Viewing the record in the light most favorable to Cole, a
jury could find that, to meet the standard of care, once Bill
changed his mind about his will and decided in 2003 to leave
all of his BBSI stock to Cole, defendant should have advised
Bill to make changes to the ILIT if he wanted Cole to receive
the entire $10 million benefit from the ILIT. A jury also could
find on this record that defendant never gave such advice to
Bill, thus breaching the standard of care.11 But a jury could
not find on this record that defendant ever actually promised Bill—expressly or implicitly—that it would change the
ILIT for Cole’s benefit in light of the 2004 will. See Frakes,
254 Or App at 267 (requiring the plaintiff to prove “that
the attorney actually made an express or implied promise
to the testator”). There is simply no evidence of any such
promise. At most, there is evidence that defendant should
have given Bill advice that might have resulted in defendant
11
The jury heard some evidence that defendant did advise Bill about changing the ILIT in 2004 or 2005—Hay claimed as much in a portion of his deposition
video that was played during plaintiffs’ case—but the jury could have discredited
that evidence. For present purposes, we view the evidence in the light most favorable to Cole.
348 Sherertz v. Brownstein Rask
making such a promise, depending on Bill’s response to the
advice, but that conversation never occurred. See Deberry,
255 Or App at 169 (“Whether defendant should have undertaken a particular obligation (such as including a ‘simple phrase’ in a trust or will) is different, however, from
whether he in fact undertook that obligation.” (Emphases in
original.)).
The existence of an actual promise is the “central
point of inquiry” under Hale and its progeny, Sherertz I, 288
Or App at 724, because it is the source from which any duty
to a third party arises. Without defendant actually promising Bill that it would change the ILIT to give Cole a $10 million benefit, there necessarily can be no finding of a duty to
Cole as a third-party beneficiary of that promise. See Hale,
304 Or at 283-84; Sherertz I, 288 Or App at 724; Deberry,
255 Or App at 159; Frakes,
254 Or App at 267. The duty
arises from the specific promise that was made.
In Deberry, 255 Or App at 155-57, 169, for example, where the defendant attorney promised his client that
he would arrange for the plaintiff to receive the client’s
“Canyon Creek” property upon the client’s death, the defendant’s only duty to the plaintiff was to fulfill that specific
promise. The nonmoving party is entitled to all reasonable inferences from the evidence, but that does not mean
inferring a promise different from the one that was actually
made. Thus, in Deberry, we would not infer a promise different from the one that was made, such as a promise to
arrange for the plaintiff to receive the Canyon Creek home
or any home purchased to replace it, or a promise to arrange
for the plaintiff to receive the house where the client was living when she died, or a promise to confer a benefit on the
plaintiff.
Id. at 161-62, 164-67 (demonstrating the limits of
“reasonable inferences” when implying promises giving rise
to third-party beneficiary status).
On this record, with respect to the ILIT, the only
evidence of defendant making an express or implied promise to Bill to do something for Cole’s benefit was defendant’s
promise in 2001 to set up an ILIT of which Cole would be
a one-quarter beneficiary, thus giving Cole the benefit of
$2.5 million of Bill’s insurance policy.
Cite as 314 Or App 331 (2021) 349
Accordingly, the trial court was correct to grant
directed verdict for defendant on Cole’s negligence claim,
albeit right for the wrong reason. Cole’s claim depended
on defendant having a duty to Cole to set up an ILIT that
would provide $10 million for his benefit, and the evidence
was legally insufficient to prove such a duty.
C. The Trust’s Claim
That leaves the Trust’s negligence claim against
defendant.
We must first address a procedural issue that exists
only as to the Trust’s claim. In arguing for a directed verdict at trial, defendant described its duty argument as being
“directed at Cole’s claim,” without expressly mentioning the
Trust’s claim. Plaintiff contends that we should not consider defendant’s duty argument with respect to the Trust’s
claim, because it is being made for the first time on appeal.
In context, and given the relationship between Cole and the
Trust, the trial court likely would have understood defendant’s argument regarding the duty element of negligence to
apply to both Cole’s and the Trust’s claims. In any event, as
to the Trust’s claim, even if we were to conclude that defendant is making a new argument for the first time on appeal
(as to this one plaintiff), the Outdoor Media criteria are met
in these particular circumstances,12 and we would exercise
our discretion to affirm the trial court’s directed verdict ruling on the Trust’s claim on the alternative basis.
On the merits, the Trust’s claim was identical to
Cole’s claim. Both claims pertain to Cole’s inheritance from
his father, which passes through the Trust. We affirm the
trial court’s directed verdict for defendant on the Trust’s
claim for the same reasons as the directed verdict on Cole’s
claim.
Affirmed.
12
A directed verdict ruling presents a pure question of law and does not
depend on any factual findings. As to the evidentiary record, because of the
relationship between Cole and the Trust, the evidence was the same as to both
claims, and there is no reason to believe that, had defendant clearly stated that
its duty argument was directed at Cole’s and the Trust’s claims, plaintiffs would
have sought to reopen the record to put on additional evidence relevant to the
Trust’s claim.
