498 P.3d 850
Or. Ct. App.2021Background
- William “Bill” Sherertz, founder and controlling shareholder of BBSI, owned substantial BBSI stock and a $10 million life insurance policy placed in an irrevocable life insurance trust (ILIT) created in 2001; the ILIT named Bill’s four children as equal beneficiaries (≈ $2.5M each).
- In 2003–04 Bill changed his testamentary plan so that all BBSI stock would pass in trust for his minor son Cole; he did not, however, direct any change to the 2001 ILIT.
- The ILIT trustee declined to use the $10M proceeds to lend to or buy stock from the estate because the ILIT beneficiaries (four children) and the testamentary stock beneficiary (Cole alone) had misaligned interests.
- The Estate sold its BBSI shares to BBSI for $50M, paid about $9M in estate taxes, and funded a testamentary trust for Cole with the remainder.
- Kimberly Sherertz (in three capacities: personal representative of the Estate; guardian ad litem for Cole; trustee of the testamentary trust) sued the law firm for malpractice, alleging the firm should have modified or replaced the ILIT after Bill decided to leave stock to Cole so the full $10M would be available to pay estate taxes.
- At the close of plaintiffs’ case the trial court granted directed verdict for the defendant on all claims (finding plaintiffs failed to prove damages); the appellate court affirmed: Estate lacked recoverable damages, and Cole/Trust lacked the requisite attorney promise to establish third‑party beneficiary duty.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Estate proved damages from alleged malpractice | Estate lost $7.5M because ILIT could have provided $10M but only $2.5M was available, forcing sale of stock | Estate received fair market value for stock and owed the taxes regardless, so no monetary loss caused by malpractice | Affirmed for defendant — no damages to Estate as a matter of law |
| Whether Cole (nonclient) has a duty‑based malpractice claim as an intended third‑party beneficiary | Firm promised an estate plan/ILIT that would replace wealth and avoid stock sale; that promise created a duty to Cole when Bill later left stock to him | No evidence firm promised to make Cole the sole ILIT beneficiary or to ensure $10M would serve Cole; mere foreseeability or professional‑care obligations insufficient | Affirmed for defendant — no evidence of an express or implied promise creating third‑party beneficiary duty to Cole |
| Whether the Trust (derivative of Cole’s interest) can recover | Trust’s loss tracks Cole’s; same promise/duty theory applies | Same as Cole: no promise, so no duty | Affirmed for defendant — same defect as Cole’s claim |
| Whether appellate court may affirm on alternative ground not adopted below | Plaintiffs argued the court may not rely on new rationale on appeal | Defendant invoked "right for the wrong reason"; court may resolve alternative legal grounds raised at trial | Court considered and resolved the alternative legal argument because it was raised below and presents a question of law |
Key Cases Cited
- Hale v. Groce, 304 Or 281 (recognizes third‑party beneficiary malpractice claims where attorney promised a client to include a specific bequest to a third party)
- Deberry v. Summers, 255 Or App 152 (requires an actual, specific promise by the attorney to the client that manifests intent to benefit a particular third party)
- Frakes v. Nay, 254 Or App 236 (analyzes when attorney promises are sufficiently specific to create third‑party beneficiary duty)
- Sherertz v. Brownstein Rask, 288 Or App 719 (prior appeal reversing on jury instruction; discusses promise/duty inquiry in estate‑planning malpractice)
- Watson v. Meltzer, 247 Or App 558 (sets out elements of legal malpractice: duty, breach, damages, causation)
- Outdoor Media Dimensions, Inc. v. State of Oregon, 331 Or 634 (articulates prerequisites for considering new appellate bases for affirmance)
- Yoshida’s Inc. v. Dunn Carney Allen Higgins & Tongue, 272 Or App 436 (standard of review for directed verdicts and viewing evidence in light most favorable to nonmoving party)