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Westerlund Log Handlers, LLC v. Esler

United States District Court, D. Oregon

January 29, 2018

WESTERLUND LOG HANDLERS, LLC, et al., Plaintiffs,
v.
MICHAEL J. ESLER, et al., Defendants.

          Judy Danelle Snyder and Holly M. Lloyd, Law Offices of Judy Snyder, Of Attorneys for Plaintiffs.

          Matthew J. Kalmanson, Gordon L. Welborn, and Jason R. Poss, Hart Wagner LLP, Of Attorneys for Defendants.

          OPINION AND ORDER

          Michael H. Simon, United States District Judge.

         Plaintiffs are Westerlund Log Handlers, LLC (“WLH”) and David Westerlund (“Westerlund”), who owns 60 percent of WLH.[1] Defendants are Michael J. Esler (“Esler”) and the law firm of Esler, Stephens & Buckley, LLP (“ESB”).[2] Plaintiffs allege legal malpractice and breach of fiduciary duty. Before the Court is Defendants' motion for summary judgment. For the reasons that follow, Defendants' motion is granted in part and denied in part.

         STANDARDS

         A party is entitled to summary judgment if the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party has the burden of establishing the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The court must view the evidence in the light most favorable to the non-movant and draw all reasonable inferences in the non-movant's favor. Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th Cir. 2001). Although “[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge . . . ruling on a motion for summary judgment, ” the “mere existence of a scintilla of evidence in support of the plaintiff's position [is] insufficient . . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 255 (1986). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation and quotation marks omitted).

         BACKGROUND

         Westerlund and Nance formed WLH in 2009. In 2013, WLH was providing log handling services for China National Building Materials Import and Export Corporation (“CN”). In the spring of 2013, and again in November and December 2013, Nance and Westerlund met with Dennis J. Murphy, Sr. (“Murphy” or “Dennis Murphy”) and other representatives of Murphy Overseas U.S.A. Timber and Land Development, LLC and Murphy Overseas U.S.A. Holdings, LLC (collectively, “the Murphy Group”).[3] During these meetings, Nance and Westerlund discussed with the Murphy Group the possibility of working together.

         In late December 2013, [4] Westerlund and Nance met with the Murphy Group at the office of the Murphy Group's accountant, Craig Vagt. Representatives of the Murphy Group who attended the late December meeting included Dennis Murphy and Ed Morrissey.[5] Esler also attended the late December meeting. At this meeting, the participants discussed and reviewed several documents relating to WLH's business operation and its contracts with CN. According to Plaintiffs, the late December meeting lasted three to four hours, during which time the Westerlund Parties and the Murphy Group agreed to form (or agreed to formalize) a joint venture in the future. The joint venture would involve the creation of a new company, ownership of which would be split between the Westerlund Parties and the Murphy Group. According to Plaintiffs, the Murphy Group would receive 70 percent ownership of the new company because it would be paying all legal costs and investing money in the new venture; the Westerlund Parties would receive a 30 percent ownership interest.

         Before the late December meeting, Nance and Westerlund believed that WLH's log handling agreement with CN called for an exclusive relationship on the part of WLH. (The written contract between CN and WLH was one of the documents reviewed and discussed at the late December meeting.) Nance and Westerlund believed that they owed a duty to CN to “stick it out” during the duration of that agreement. According to Plaintiffs, however, Esler told Nance and Westerlund at the late December meeting that if the Murphy Group decided to do business with WLH, the Murphy Group could “coexist” with CN as a WLH customer. In other words, according to Plaintiffs, Esler told Nance and Westerlund that WLH could work with both CN and the Murphy Group. While Esler was out of the room, Morrissey reiterated to Nance “our lawyer thinks” that WLH's contract with CN is not exclusive.

         Also at the late December meeting, Esler told Westerlund and Nance that the WLH agreement with CN was unfavorable to WLH and that before the Murphy Group and the Westerlund Parties could work together on a future joint venture, WLH needed to disentangle itself from its contract with CN. Westerlund testified that Esler looked over the CN agreement and said that Westerlund was “being cheated.” According to Nance and Westerlund, they relied on statements by both Esler and Morrissey about how to terminate the agreement between WLH and CN. Indeed, according to Nance, he discussed with Esler the details of WLH's termination letter to CN. In addition, the Murphy Group's Ed Morrissey proofread WLH's termination letter before WLH sent it to CN.[6]

         At the late December meeting, Nance understood that Dennis Murphy was paying Esler to be at the meeting. In that meeting, Esler did not agree to represent WLH. While Esler was present, there was no discussion of who Esler or his law firm represented. Plaintiffs, however, testified that they believed that Esler was representing the interests of the future joint venture that was under discussion, while also orchestrating a plan to get WLH disentangled from CN in order to further that future partnership. According to Plaintiffs, Esler did not want a formal or written agreement regarding the joint venture prepared at this time because that might later be used by CN to support a claim that the Murphy Group had tortuously interfered with the business relationship between CN and WLH. Nance stated that he believed that Esler, whom Nance characterized as “Murphy's lawyer, ” was present to help get WLH “unhooked” from CN. Nance also believed that WLH could rely on Esler, who was representing the Murphy Group during these meetings, because as of the late December meeting, WLH and the Murphy Group were either partners or, at least, future partners. Westerlund stated that he had a similar belief, including that Esler was the Murphy Group's lawyer. At the late December meeting, Esler, however, did not expressly tell either Nance or Westerlund that Esler could not represent them.[7]

         Approximately one week after the late December meeting, Esler told Morrissey to relay a message to Nance recommending attorney Mike Haglund (“Haglund”) for the Westerlund Parties. Shortly thereafter, Haglund and Esler spoke by phone. Haglund told Esler that he had decided not to represent WLH, Westerlund, or Nance.

         Between the late December meeting and January 13, 2014, Esler worked on drafting an agreement that ultimately became the written Log Handling Agreement (“LHA”) between the Westerlund Parties and the Murphy Group. On January 8, 2014, Nance and Esler spoke by telephone. Esler sought further information that he needed for drafting the LHA. Esler asked Nance whether there was an operating agreement with CN, who was the lessor on the Port of Astoria lease, and who was the lessor on the lease with the Lewis & Clark Log Yard.

         On January 13, 2014, the Westerlund Parties and the Murphy Group met at Esler's law office (ESB) to discuss the LHA. Esler attended the meeting for approximately 30 minutes. Before that, Esler had given the Murphy Group a draft of the LHA. At this meeting, Esler did not tell the Plaintiffs that he could not represent them.[8]

         In addition, before the January 13 meeting, Esler had not provided any written notice to Nance or Westerlund that Esler did not represent them, or that Nance and Westerlund should obtain their own counsel for the Westerlund Parties. According to Esler, at the January 13 meeting, Esler did not know whether the Westerlund Parties were represented by counsel.

         The LHA was signed on January 13, 2014. A representative of AFP signed the LHA for the Murphy Group.[9] Nance and Westerlund signed the agreement in their office in Astoria for the Westerlund Parties.[10] At the time of the January 13 meeting at Esler's office, Westerlund understood that Esler represented the Murphy Group, but Westerlund also thought that they, including Esler, “were all working as a group.” Westerlund did not ask Esler any questions about the LHA. Nance testified that Esler did not “directly” advise him to sign the LHA, but Nance believed that Esler was the “architect” who put together the whole deal, with the interests of the joint venture (or future joint venture) in mind.

         At some point in January-though not at the January 13 meeting-Nance asked Esler whether Esler would be representing WLH in its dispute with CN. Esler told Nance that he would not, but that he would “hire someone” to represent WLH in that matter. Westerlund testified that representatives of the Murphy Group reassured Westerlund that “Esler was creating a strategy to protect the company, Westerlund Log Handlers, while [it] was going through and proving that [CN] had breached the contract.” Westerlund never asked Esler or any other ESB attorney about this strategy in December 2013 or January 2014. Westerlund testified, however, that both Morrissey and Daggett from the Murphy Group consistently reassured him and urged Westerlund to “trust Murphy.” On January 15, 2014, WLH terminated its contract with CN.

         On approximately January 12, Esler spoke with Gordon Carey about representing WLH.[11] On January 12, Esler sent to Carey by email WLH documents that Nance had provided to the Murphy Group. Esler and Carey spoke on both January 17 and January 19. During these discussions, Esler told Carey about the joint venture plans between the Westerlund Parties and the Murphy Group, WLH's contract with CN, and the termination letter that WLH had sent to CN. Carey understood that the Westerlund Parties and the Murphy Group were proceeding in or toward a joint venture, but that they did not want to have a formal, written agreement that CN might be able to use against them. On January 19, Esler sent Carey by email copies of documents from Morrissey relating to WLH's agreement with CN. That email included communications between the Murphy Group's Morrissey and Esler about WLH's position with respect to CN. On January 19, Carey and Esler met in person. On January 20, both Esler and Craig Vagt, the accountant for the Murphy Group, forwarded to Carey more WLH-related documents. Carey and Esler also spoke by telephone that day.

         On January 21, 2014, Carey met with Esler and representatives of both the Murphy Group and the Westerlund Parties. The meeting occurred at Esler's law office. During this meeting, the discussion addressed the details of a joint venture that was beyond anything covered in the LHA. It appeared to Carey that the parties already were working as partners. Carey believed that after the dispute between WLH and CN had been resolved, the Westerlund Parties and the Murphy Group would formalize their joint venture agreement. Before this meeting, Esler told Carey about Esler's views of potential damages that might be recovered by WLH in the CN litigation. Also on January 21, Karli Neilson, Westerlund's daughter (formerly Karli Westerlund), sent an email to Esler containing a document titled, “GordonMeeting.docx.” This document included notes discussing several aspects of the WLH-CN relationship. At this time, Neilson was not yet working for the Murphy Group; that began in late March, 2014. By January 27, both Nance and Westerlund had signed a retainer agreement with Carey.

         On January 28, Nance, Westerlund, and WLH entered into a “common interest” agreement with AFP, allowing the parties to share otherwise privileged communications. Esler signed the agreement on behalf of AFP. The agreement took the form of a letter addressed to Carey as the attorney for the Westerlund Parties. The agreement stated that the two sets of parties had a common interest in preventing any possible litigation between WLH and CN from interfering with WLH's ability to perform under the LHA. The common interest agreement also provided that, in order to enable WLH to remain in business, AFP would advance payments to WLH under the LHA. The agreement further provided that each attorney would agree, to the extent one party had potentially privileged information, that such information would not be disclosed to any third parties without the written consent of the other party. On January 31, Carey filed a complaint against CN in Oregon state court in Clatsop County on behalf of WLH. Throughout the CN litigation, Carey worked closely with Esler and Buckley, under the common interest agreement.

         In late January or early February 2014, Esler contacted Richard Miller about also representing WLH. As Plaintiffs understood it, Esler hired Miller to represent WLH as their business or transactional lawyer, while Carey would focus on the litigation with CN. As Miller understood it, the Murphy Group retained him to represent WLH. Esler told Miller that Esler represented the Murphy Group, that WLH would be Miller's client, and that the Murphy Group would be paying Miller's legal bills for work done for WLH. Miller understood that, despite the fee structure, his professional duties ran to the Westerlund Parties. Miller believed that, at some point, WLH would repay the Murphy Group for its payment of WLH's legal fees. Nance, however, testified that he did not believe WLH would ever be required to repay the Murphy Group for legal fees that it paid on behalf of WLH. Nance explained that he believed that the payments made by the Murphy Group for WLH's legal expenses was part of the reason why the Murphy Group would receive 70 percent of the future joint venture, while the Westerlund Parties would receive only 30 percent. On February 17, Miller spoke with Carey about WLH. Although Miller does not recall the conversation, Carey testified that he told Miller that the lawsuit over the CN contract was filed so that both the Murphy Group and the Westerlund Parties would become “free” from the limitation of WLH's contract with CN.

         Miller first contacted the Westerlund Parties on February 18, 2014, after his discussions with Esler and Carey. During Miller's conversation that day with Westerlund and Karli Neilson, Westerlund explained to Miller that Murphy had promised Westerlund 30 percent of a future joint venture and a “raise” for both Westerlund and Nance. After this discussion, Miller believed that the Westerlund Parties and the Murphy Group would, at some point in the future, negotiate, formalize, and sign a joint venture agreement. Between mid-February and at least the end of April, 2014, Miller often worked on WLH matters and was in frequent contact with representatives of WLH.

         On February 20, 2014, Miller sent by email to both Neilson and Carey a draft “workout proposal” that would allow WLH to continue working with both CN and AFP. The draft agreement was between CN, WLH, and the Murphy Group. Miller told Carey and Neilson that there was a plan separately to tell AFP that the Murphy Group would form a joint venture with the Westerlund Parties for log purchases in the future. Neilson wrote to Miller and Carey, asking Miller to call Morrissey to discuss one of the terms of the draft agreement. Miller responded that the draft was not supposed to be shown to Morrissey or Esler “yet.” On February 24, Esler, Miller, and Carey jointly discussed the formation of a new corporation to be called “Westerlund Workout.” After this discussion, Miller recounted parts of the conversation and told Neilson that Miller could not contact Morrissey without Esler's permission because Esler represented Morrissey. The parties did not ultimately enter into a workout agreement.

         On February 28, Miller wrote to Esler, Morrissey, Neilson, and Carey: “Mike, I assume everything from here on out is based on oral promises? We're fine with that. Just kidding Mike. Do you want to leave loose until we see what the Chinese do?” Defendants characterize this as a tongue-in-cheek comment, referring to the fact that the future relationship between the parties was not yet in writing, and still needed to be negotiated.

         On March 6, 2014, WLH and AFP entered into a Security Agreement and a Co-Tenancy Agreement. The Security Agreement gave AFP a security interest in several WLH assets. The Security Agreement identifies Esler and his law firm as attorneys for AFP, and Miller as the attorney for WLH. The Security Agreement was drafted by an attorney in Miller's law firm. The Co-Tenancy Agreement made AFP a co-tenant on WLH's port leases. The Co-Tenancy Agreement states that Esler represents the Murphy Group. Miller advised the Westerlund Parties on both of these agreements. After Miller discussed with Westerlund the Co-Tenancy Agreement, Westerlund told Miller that he trusted the Murphy Group.

         At the end of March 2014, WLH defaulted on its lease at the Port of Astoria. In April, AFP took over the lease, in accordance with the terms of the Co-Tenancy Agreement. On March 31, 2014, Neilson sent by email to Esler and Morrissey a copy of a letter from the Port of Astoria, notifying WLH that WLH had defaulted on the Port lease. In her email, Neilson implied that the Murphy Group's Daggett had instructed her to do so. On April 2, Neilson forwarded to Miller a copy of the Port's letter. Miller asked Neilson when the Port's letter was received and whether the invoice to the Port had been paid. Neilson responded: “As far as I was told it was strategy by AFP. If there is a default by WLH, they can take over the leases. The invoice was not paid.” Miller asked Neilson who had told her that. She responded that Daggett had given her that direction and that she believed he had done so at the direction of Esler and Morrissey. Miller asked Esler why the Murphy Group had allowed the leases to default.

         Miller and Carey soon arranged for a meeting with Esler to discuss the Port lease's default. At this point, Carey was concerned because there was nothing in writing guaranteeing that WLH would get the leases back from AFP. Carey expressed his concern to Westerlund, who told Carey that he trusted Dennis Murphy. Esler assured Carey and Miller not to worry, and Esler explained that AFP took over the leases only to protect those leases from CN, which might try to take control over them. Esler stepped out of the room so that Carey and Miller could speak with Westerlund by telephone. Westerlund reaffirmed his trust in Dennis Murphy. When Esler returned, Carey told Esler that Carey expected that the leases would return to WLH if something did not work out between the Westerlund Parties and the Murphy Group.

         On April 27, Dennis Murphy, Tim Murphy, and Daggett came to WLH's offices in the Port of Astoria. According to Westerlund, Dennis Murphy told Westerlund that he wanted to retract the oral agreement that they had made. Murphy wanted to give Westerlund a job in the log yard with a $7, 000 per month salary, rather than the $21, 000 monthly salary to which the parties had previously agreed. At the end of this discussion, however, Murphy agreed that the original deal would govern. That night, Murphy called Westerlund late at night and left several voice mail messages on Westerlund's telephone stating that the deal was off. Westerlund soon called this to Morrissey's attention, but Morrissey reassured Westerlund that the Murphy Group would honor the original oral agreement. Also in late April, Esler asked Miller to “calm” Westerlund and told Miller that Westerlund would not be getting 30 percent of the company because Murphy had invested “so much money.” Miller concluded that Esler was simply “negotiating, ” and that the Murphy Group had not necessarily abandoned the terms of the previously discussed joint venture.

         Throughout May 2014, the Westerlund Parties and the Murphy Group continued to work together, and Carey and Miller continued to work on the CN litigation, which had not yet been resolved. In July, Esler reviewed and provided comments on a draft mediation agreement. Mediation between the Westerlund Parties, the Murphy Group, and CN took place in July. In a declaration that the Westerlund Parties filed in Clatsop County Circuit Court in July, Carey stated: “Contrary to [CN's] statement in its motion, page 9, WLH, David Westerlund and Karli Westerlund are not acting ‘in concert' with AFP.” During an August hearing related to the CN litigation, Westerlund testified that WHL gave CN a better log handling rate than it gave to the Murphy Group because WLH and CN were “partners.” In November 2014, the Murphy Group paid $2.55 million to CN to settle all claims by and against CN, including claims asserted by CN against WLH. After the settlement agreement, WLH no longer owned any equipment or leases.

         In the related Murphy litigation, Westerlund, Nance, and WLH sued the Murphy Group, alleging various claims relating to both the alleged oral partnership (or joint venture) agreement and the Log Handling Agreement. The Court recently granted in part the Murphy Group's motion for ...


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