Oregon Supreme Court Rejects Legal Malpractice Theory Based on Attorney’s Failure to Assert “Colorable” Claims During Underlying Litigation

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This spring, in Rowlett v. Fagan,[i] the Oregon Supreme Court reversed the Court of Appeals’ conclusion that an attorney could be liable for the negligent failure to assert a merely “colorable” claim during litigation.  The collective sigh of relief from members of the Bar was audible as the Supreme Court closed the door on a potentially unbounded source of future malpractice liability.

Rowlett was a legal malpractice lawsuit arising out of prior litigation between the plaintiffs and their business partners in a limited liability company.  The defendant-attorneys represented the plaintiffs in that prior litigation.  In the malpractice suit, one of the plaintiffs’ theories was that the defendants failed to recognize and timely assert a minority “oppression” claim related to the plaintiffs’ interest in the LLC, and that the defendants’ failure to do so caused the plaintiffs to settle the case for significantly less than they would have received had the oppression claim been asserted at the appropriate time.  The defendants moved to dismiss the claim, arguing that the plaintiffs never had a viable claim for oppression in the first place, because Oregon does not recognize such a claim when the corporate entity that is the subject of a dispute is an LLC.  The trial court granted the motion to dismiss, in part, and the plaintiffs appealed.

The Court of Appeals reversed the trial court’s ruling, concluding that even if the defendants were correct that the plaintiffs ultimately had no viable claim for oppression against the LLC, the defendants could have committed malpractice by failing to assert a “colorable” claim for oppression earlier in the litigation.  According to the Court of Appeals, the “assertion of a colorable claim could have altered the outcome for Rowlett considerably by giving him increased leverage to secure a settlement on much more favorable terms than what he obtained.”[ii]

The Supreme Court disagreed, rejecting the notion that malpractice liability can flow from the failure to assert a “colorable,” but not necessarily viable, claim for relief.  The Court noted that it has never suggested an attorney is required to take colorable legal positions that are ultimately incorrect, and that to do so would place lawyers in an untenable position because “any time an area of law is unsettled, both sides arguably are ‘colorable,’ and, in every case that goes to trial, one side loses.”[iii]  Given the nature of the legal system, attorneys are more vulnerable than other professionals to errors revealed in hindsight, and they should not be liable for errors in judgment on unsettled propositions of law.

Following Rowlett, attorneys need not feel pressure (as a matter of their malpractice liability) to plead merely colorable claims on unsettled legal issues to gain tactical or settlement advantages.  In assessing liability for the failure to assert a claim or take a particular legal position, the ultimate question is whether that claim or position was legally viable.  Given the untold number of unsettled legal propositions, combined with the vague nature of any claim based on diminished settlement leverage, Rowlett was a welcome decision to Oregon attorneys and their insurers.

 

 

[i] 358 Or 639 (2016).

[ii] Rowlett v. Fagan, 262 Or App 667, 686 (2014).

[iii] 358 Or 652, 652.