369 P.3d 85
Or. Ct. App.2016Background
- Alexis Scharff (and her trust) participated in repeated private loans to Dorn-Platz; loans were routinely rolled over and increased, with her brother Peter Scharff acting as agent with power of attorney.
- Edward Vaisbort (California attorney) prepared loan documents for prior transactions and for the 2005 rollover/recast; his communications and the Inter Creditor Agreement expressly stated he represented Peter Scharff and encouraged each lender to obtain independent counsel.
- The 2005 rollover/recast replaced prior collateral (a Chuo note and California real property) with Dorn-Platz’s minority interest and a promise that lenders could record trust deeds on three commercial lots “after closing”; those trust deeds were never recorded.
- By January 2008 Dorn-Platz missed payments; in December 2009 lenders were informed their loans were unsecured and effectively uncollectible.
- Scharff sued Vaisbort for breach of contract, professional negligence (legal malpractice), and securities law violations (ORS ch. 59); trial court granted summary judgment for Vaisbort on all claims.
- On appeal the court affirmed dismissal of the malpractice claim (no objective attorney-client relationship in 2005), held Scharff’s securities claim was not necessarily time-barred, and reversed/remanded as to the securities claim because the 2005 note could be a "security."
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Existence of attorney-client relationship (malpractice) | Scharff says emails, prior representation, document preparations, and offers to prepare trust-assignment paperwork show a reasonable belief Vaisbort represented her in 2005. | Vaisbort points to written disclaimers and Inter Creditor Agreement stating he represented only Peter Scharff and advised independent counsel. | No attorney-client relationship as a matter of law; summary judgment for Vaisbort on malpractice affirmed. |
| Statute of limitations for securities claim | Scharff: limitations tolled until December 2009 when she learned loan was unsecured and harm realized. | Vaisbort: claim accrued by 2008 when Dorn-Platz missed payments. | Fact issue exists; viewing evidence for plaintiff, complaint filed May 2010 was not necessarily time-barred. |
| Whether the 2005 promissory note is a "security" under ORS ch. 59 | Scharff: the note could be a security (note or investment contract) because lenders were acting as investors seeking profit and collateral was illusory. | Vaisbort: loan was an ordinary private commercial loan, not a security. | Applying Reves factors, the note can be a security on these facts; summary judgment on securities claim reversed and remanded. |
| Liability for "materially aiding" sale of a security | Scharff: Vaisbort materially aided sale by drafting documents and participating in transaction that omitted collateral status. | Vaisbort: argued below he did not materially aid any securities fraud; not pressed on appeal. | Court did not resolve materially-aiding element on summary judgment; remanded for trial on securities claim. |
Key Cases Cited
- Reves v. Ernst & Young, 494 U.S. 56 (four-factor test to determine whether a note is a security)
- McNabb v. SEC, 298 F.3d 1126 (application of Reves factors to promissory notes issued to a small group of lenders)
- SEC v. J.T. Wallenbrock & Assoc., 313 F.3d 532 (use of Reves factors; rollovers and investor expectations support security characterization)
- In re Wittemyer, 328 Or. 448 (attorney conduct that induced reasonable reliance can create attorney-client relationship)
- In re Wyllie, 331 Or. 606 (attorney-client relationship may be inferred from conduct; objective indicia required)
- Badger v. Paulson Investment Co., Inc., 311 Or. 14 (Oregon considers federal securities-law guidance and liberally construes "security")