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Yoshida's Inc. v. Dunn Carney Allen Higgins & Tongue LLP

Court of Appeals of Oregon

July 22, 2015

YOSHIDA'S INC., an Oregon corporation, Plaintiff-Appellant,
DUNN CARNEY ALLEN HIGGINS & TONGUE LLP, an Oregon limited liability partnership; and Brian Cable, an individual, Defendants-Respondents

Argued and Submitted July 2, 2014

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[Copyrighted Material Omitted]

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110505726. Multnomah County Circuit Court. Kathleen M. Dailey, Judge.

Corey Tolliver argued the cause for appellant. With him on the briefs were Shannon Flowers, Bonnie Richardson, and Folawn Alterman & Richardson LLP.

Thomas W. McPherson argued the cause for respondents. With him on the brief were Dunn Carney Allen Higgins & Tongue, LLP and Brian Cable.

Before Duncan, Presiding Judge, and Lagesen, Judge, and Wollheim, Senior Judge.


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[272 Or.App. 438] LAGESEN, J.

This is an action for negligence (legal malpractice) and breach of contract against a law firm, defendant Dunn, Carney, Allen, Higgins & Tongue, LLP, and one of the law firm's partners, Cable (collectively, defendants). The trial court directed a verdict for defendants on plaintiff's breach of contract claim, and the jury returned a defense verdict on the professional negligence claim. The issues on appeal are whether the trial court erroneously admitted evidence of confidential mediation communications, in violation of ORS 36.222,[1] and whether it erred in directing a verdict for defendants on the breach of contract claim. We conclude that the trial court erred in both respects and, accordingly, reverse and remand for further proceedings consistent with this opinion.


After it was purchased by another entity, defendants' former client, OIA Global Logistics-SCM, Inc. (OIA), assigned to plaintiff, Yoshida's, Inc., its legal malpractice claim against defendants. The claim arose from defendants' alleged mishandling of the termination of an equipment and software lease between OIA and Winthrop Resources Corporation (Winthrop), a corporation located in Minnesota.

OIA produces packaging for a footwear company. In 2006, as part of a sale-leaseback arrangement, OIA sold warehouse equipment and software to Winthrop, and then leased back the equipment and software. The original lease term was three years, ending no later than November 30, 2009; there was some uncertainty as to when the lease term began and when the lease term ended. The lease provided that it would automatically renew for an additional fourth [272 Or.App. 439] year unless OIA notified Winthrop no later than 120 days before the lease's termination date that OIA intended to terminate the lease. The lease also provided that it would automatically renew for an additional year if, having terminated the lease, OIA did not return the leased equipment and software to Winthrop within 10 days of the termination date.

In July 2009, OIA determined that it wanted to terminate the lease at the expiration of the three-year term, although OIA recognized that it was not certain of the lease's end date. On July 29, 2009, OIA, through its chief financial officer (CFO), Sether, contacted Miller--an associate at defendant law firm who assisted defendant Cable in the firm's work for OIA--by phone and then by follow-up e-mail. Sether requested defendant law firm's assistance in terminating the lease before its end date, which Sether described as being " anytime between Today and

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11/1/2009." In the e-mail following up on the phone conversation, Sether informed Miller that " the big things are getting out of the lease ASAP," and that " [a]t the very least it appears the termination notice is in order ASAP." Sether identified " [r]each[ing] a near $1 dollar or less buyout" of the software and equipment as another priority, noting that OIA would not be able to return some portion of the equipment and wanted to continue using the software. The next day, Miller responded:

" Thank you for the information. I will review and follow up with you shortly. I did discuss the matter briefly with Brian Cable as he was involved in the issue during the NGL due diligence period. He has sent me his correspondence with Winthrop and provided me with some additional background."

In response to Miller's e-mail, Sether reiterated that, " as stated[,] probably the intent to terminate notice is the first step and then we work on the other facets * * * and the residual."

Approximately one month later, on August 26, 2009, Miller provided OIA with a notice-of-termination letter for OIA to send to Winthrop. OIA immediately forwarded the letter to Winthrop. Upon receiving the letter, Winthrop notified OIA that the notice of termination was not timely [272 Or.App. 440] under the terms of the lease and that, in its view, the lease extended for an additional year as a result. After discussing Winthrop's response to OIA's attempt to terminate the lease, defendant law firm concluded that it could no longer represent OIA in connection with the lease dispute because OIA might have " potential claims" against it.

OIA thereafter retained counsel in Minnesota to assist it with the resolution of the lease dispute. Ultimately, on February 10, 2010, OIA and Winthrop mediated their dispute and resolved it through mediation. They executed a " Mediated Settlement Agreement" on February 10, 2010. Two days later, OIA's CFO, Sether, notified OIA's Minnesota lawyers that there were " two minor changes that [OIA] would like to see modified in the Winthrop final documents." Sether requested, among other changes, that the bill of sale indicate that the " residual value" of the equipment was $25,000. The parties then executed a final " Settlement Agreement and Release." Under its terms, Winthrop agreed to transfer title of the equipment and software to OIA, and OIA agreed to pay $325,000 to Winthrop. The agreement required Winthrop to execute a bill of sale to OIA in connection with the transfer of the equipment, upon delivery of the settlement payment. It further specified that the " [p]rice for transferring Winthrop's title to the equipment" to OIA was $25,000 and that the remaining $300,000 was in " [s]ettlement of remaining monthly lease charges due under the Lease." Thereafter, OIA assigned its claims against defendants to plaintiff, and plaintiff filed this action.[2]

The case was tried to a jury. Before trial, plaintiff moved in limine under ORS 36.222 to exclude " all mediation communications" made in the course of or in connection with the mediation between OIA and Winthrop. In support of the motion, plaintiff provided the court with a packet of the e-mail communications that, in its view, had to be excluded under ORS 36.222. Plaintiff argued that the statute barred [272 Or.App. 441] the introduction into evidence of those communications, because the parties to the mediation had not consented in writing to their disclosure, and because no other statutory exception authorizing the evidentiary use of such communications applied. Defendants opposed the motion, asserting that Minnesota, not Oregon, law governed the admissibility of mediation communications related to the mediation between OIA and Winthrop, and that ORS 36.222 thus did not preclude the admission of communications related to the OIA and Winthrop mediation. Defendants argued further that the communications were admissible to undercut plaintiff's claim that OIA was damaged by

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defendants' alleged negligence, and to show that OIA's settlement with Winthrop was not a reasonable one and that OIA could have mitigated its damages. Defendants also argued that plaintiff effectively waived the protections of ORS 36.222 by filing the malpractice action, thereby putting at issue how much plaintiff was damaged by defendants' alleged malpractice. In response, plaintiff contended that Minnesota and Oregon law both required the exclusion of the mediation communications.

The trial court denied the motion. The court did not " debat[e]" that the communications were, in fact, mediation communications under ORS 36.110(7). It nonetheless concluded that " mediation confidentiality" did not apply and " that the issue of what happened at the mediation comes into play, so I think it is admissible, and so the communications that happened around that are going to be admissible." The court reasoned that the mediation communications that defendant sought to introduce were from a mediation in a different case--the dispute between OIA and Winthrop--and that the statute therefore did not preclude the introduction of the communications in the malpractice case, because the communications were relevant to the issue of whether plaintiff had been harmed by defendants' alleged malpractice.

Based on the court's ruling, three e-mails connected to the resolution of the lease dispute between OIA and Winthrop were introduced into evidence at trial, and Sether was examined about them. The first e-mail, dated January 5, 2010, was from Sether to OIA's Minnesota attorneys for the lease dispute. In it, as " a starting point for conversation related to the equipment values," Sether estimates that [272 Or.App. 442] the market value of the equipment was " $250-$275K." The second e-mail, dated February 5, 2010, was from Sether to OIA's president. In it, Sether states that he had requested an OIA employee, Wogan, to evaluate the assets under the lease with Winthrop. Sether notes that Wogan came up with a value " in the $200K range," which provides some " good context" for negotiation in the upcoming mediation. The attached analysis by Wogan identifies three different methods for valuing the equipment; depending on the valuation method employed, Wogan's analysis attributes a value to the property ranging from $0-$239,000. The third e-mail, dated two days after the mediation between OIA and Winthrop, is from Sether to OIA's attorney in the lease dispute. In the e-mail, Sether requests that OIA's attorney arrange for changes in the final settlement paperwork:

" They would like the bill of sale to show--'residual value--equipment $25,000' obviously the settlement agreement is fine as we paid a total of $325,000[,] but for the equipment that's not the sales amount, that ...

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