S43258 FDIC v. Smith

SUPREME COURT CASES

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State: Oregon

Court: Court of Appeals

Docket No: USDCCV-93-01112-HJF

Case Date: 04/22/1999

Filed: April 22, 1999

IN THE SUPREME COURT OF THE STATE OF OREGON

FEDERAL DEPOSIT INSURANCE CORPORATION, a federal corporation,

as manager of the FSLIC Resolution Fund,

Plaintiff,

KENNETH H. SMITH, RICHARD HOFFMAN, ROBERT DENE BATEMAN,

WILLIAM M. DALTON, JACK C. DARLEY, STANLEY N. HAMMER, and

ROBERT B. LORENCE,

Defendants.

(USDC CV-93-01112-HJF; USCA 95-35312; SC S43258)

On certified questions from the United States Court of Appeals for the Ninth Circuit dated April 30, 1996.

Honorable Stephen Reinhardt, United States Circuit Judge.

Argued and submitted November 8, 1996; reassigned February 3, 1998; reassigned September 16, 1998.

E. Joseph Dean, of Stoel Rives LLP, Portland, argued the cause for defendants Kenneth H. Smith, Robert Dene Bateman, William M. Dalton, Jack C. Darley, Stanley N. Hammer, and Robert B. Lorence. With him on the briefs was Steven T. Lovett, Portland.

No appearance for defendant Richard Hoffman.

Kathryn Norcross, Washington, D.C. argued the cause for plaintiff Federal Deposit Insurance Corporation. With her on the brief were William R. Turnbow, of Hershner, Hunter, Moulton, Andrews & Neill, Eugene, and Ann S. Duross and Thomas L. Hindes, Washington D.C.

Lori Irish Bauman, of Ater Wynne Hewitt Dodson & Skerritt, Portland, filed a brief on behalf of amicus curiae Oregon Association of Defense Counsel.

John W. Stephens, of Esler, Stephens, and Buckley, Portland, filed a brief on behalf of amicus curiae Oregon Trial Lawyers Association.

Before Carson, Chief Justice, and Gillette, Van Hoomissen, and Durham, Justices.*

GILLETTE, J.

Certified questions answered.

*Fadeley, J., retired January 31, 1998, and did not participate in this decision; Graber, J., resigned March 31, 1998, and did not participate in this decision; Kulongoski, J., did not participate in the consideration or decision of this case.

GILLETTE, J.

The questions presented in this case have been certified to us by the United States Court of Appeals for the Ninth Circuit under the Uniform Certification of Questions of Law Act, ORS 28.200 et seq., and ORAP 12.20. See generally Western Helicopter Services v. Rogerson Aircraft, 311 Or 361, 811 P2d 667 (1991) (discussing factors court considers in exercising discretion to accept certified questions). The certified questions involve whether Oregon applies the doctrine of "adverse domination" in the context of a corporation suing its directors and officers and, if it does, what version of that doctrine applies. For the reasons that follow, we conclude that Oregon does apply the doctrine and that the "disinterested majority" version of the doctrine applies in this case.

We take the facts from the Ninth Circuit certification order:

"Family Federal Savings & Loan Association (Family Federal) was a federally insured thrift headquartered at Dallas, Oregon. On January 10, 1990, the Office of Thrift Supervision determined that Family Federal was insolvent. The Office, therefore, appointed the Resolution Trust Corporation [(RTC)] as receiver for Family Federal, and on that date, RTC purchased all of Family Federal's claims against its directors and officers. Over three years later, on September 8, 1993, RTC, as successor in interest to Family Federal, filed this action against Kenneth Smith, Richard Hoffman, Robert Bateman, William Dalton, Jack Darley, Stanley Hammer, and Robert Lorence. It alleged causes of action for negligence, breach of fiduciary duty, and breach of contract.[(1)]

"In January of 1984, Smith, Dalton, Darley, Hammer and Lorence were members of the board of directors of Family Federal. Bateman became a member in 1984, after the death of another member. At all relevant times, they constituted the majority of the board of directors of Family Federal. Hoffman was * * * Family Federal's Loan Manager at all relevant times.

"In January of 1984, the Board of Directors approved the purchase of a $2,000,000 participation in a $31,000,000 loan to finance construction of a hotel, and by May of that year the directors and officers were aware of difficulties which had come to light; it then appeared that the loan had been ill advised.

"In May of 1985, the directors agreed to fund $2,900,000 of time share loan paper, which involved time share units located at Indian Wells Resort. That also turned out to be a poor investment, which was criticized by federal examiners as early as April of 1986.

"Stephen Way, who did not participate in those transactions, became a director in August of 1987. Before that, he had been an officer and had attended board meetings from at least November 1983 forward. Other officers also attended board meetings throughout that time."

F.D.I.C. v. Smith, 83 F3d 1051, 1052 (9th Cir 1996).

RTC's claims are based on defendants' approval of the multi-million dollar investments described above. RTC's complaint alleges negligence, breach of fiduciary duty, and breach of contract, but does not accuse defendants of acting in their own interests or allege fraud or intentional misconduct.

RTC is a federal entity that is asserting a claim against the officers and directors of Family Federal. It received the claim by assignment upon being appointed as receiver for Family Federal. When a federal entity attempts to assert a claim under such circumstances, the court must conduct a two-step analysis to determine what statute of limitations applies. See, e.g., F.D.I.C. v. Dawson, 4 F3d 1303, 1306-97 (5th Cir 1993) (explaining that 12 USC § 1821(d)(14) does not revive stale state law claims and describing two-step process). First, the court must determine whether the applicable state limitations period expired before the assignment. If it expired, there is no claim to be assigned, and the action is barred as a matter of law. If a viable claim existed at the time of assignment, however, then the court must determine whether the applicable federal statute of limitations has expired.(2) The question of adverse domination is relevant to the first prong of the foregoing analysis, viz., determining whether the state statute of limitations already had expired before the federal entity stepped in.

After RTC filed its action, defendants moved for summary judgment on the ground that RTC's claims were barred by Oregon's two-year statute of limitations contained in ORS 12.110(1).(3)

The district court denied defendants' motion, concluding that, in this case, Oregon would recognize the doctrine of "adverse domination" and would hold that, under that doctrine, accrual of the claims was delayed until RTC took control of Family Federal in 1990, making RTC's complaint timely under an applicable three-year federal statute of limitations. Resolution Trust Corp. v. Smith, 872 F Supp 805, 813-15, amended 879 F Supp 1059 (D Or 1995). The district court granted defendants' motion for an interlocutory appeal of that ruling.

Because Oregon appellate courts have not previously decided the issue whether Oregon recognizes the doctrine of adverse domination, the Ninth Circuit certified the following two questions to this court:

"(1) Under Oregon law[,] does the doctrine of adverse domination delay the running of the statute of limitations for causes of action based upon negligence? Does it do so for causes of action based upon breach of fiduciary duty? Does it do so for causes of action based upon breach of contract?

"(2) If the doctrine of adverse domination does apply to any or all of the mentioned causes of action, what version is applied, the disinterested majority version or the single disinterested director version?"

Smith, 83 F3d at 1053.

Before turning to an analysis of Oregon law, some background information is helpful. The doctrine of adverse domination has gained currency in recent years in the context of litigation against directors and officers of insolvent financial institutions. The doctrine serves either to delay the accrual of a claim by a corporation against its directors and officers, or, in the alternative, to toll the running of the applicable statute of limitations. The doctrine is premised on the theory that it is impossible for the corporation to bring the action while it is controlled, or "dominated," by culpable officers and directors. Courts applying the doctrine of adverse domination have reasoned that corporations act only through their officers and directors, and those officers and directors cannot be expected to sue themselves or to initiate any action contrary to their own interests.(4)

See, e.g., Hecht v. Resolution Trust, 333 Md 324, 340, 635 A2d 394, 402 (Md 1994) (explaining the rationale behind the doctrine); Federal Sav. and Loan Ins. Corp. v. Williams, 599 F Supp 1184, 1194 (D MD 1984) (same); Federal Deposit Ins. Corp. v. Bird, 516 F Supp 647, 651 (D PR 1981) (same). Similarly, culpable corporate officers and directors cannot be expected to disclose their wrongful conduct to the corporation. Hecht, 333 Md at 340, 635 A 2d at 402; Williams, 599 F Supp at 1194; Bird, 516 F Supp at 651.

Courts that apply the doctrine of adverse domination have developed two versions of the doctrine, the "disinterested majority" version and the "single disinterested director" version. The versions differ with respect to the degree of control or domination considered necessary to delay accrual of a claim or to toll the otherwise applicable statute of limitations. Under the disinterested majority version, a plaintiff benefits from a presumption that the cause of action does not accrue or the statute of limitations does not run so long as the culpable directors remain in the majority, i.e., until the corporation has a disinterested majority of nonculpable directors. See, e.g., Resolution Trust Corp. v. Scaletty, 257 Kan 348, 351-52, 891 P2d 1110, 1113 (Kan 1995) (explaining the two versions of the doctrine); Williams, 599 F Supp at 1193-94 (describing the "disinterested majority" version). Defendants can rebut that presumption with evidence that someone other than the wrongdoing directors had knowledge of the basis for the cause of action, combined with the ability and the motivation to bring an action. Resolution Trust Corp. v. Grant, 901 P2d 807, 816 (Okl 1995).

In contrast, under the single disinterested director version of the doctrine, statutes of limitations are tolled only so long as there is no director with knowledge of facts giving rise to possible liability who could have induced the corporation to bring an action. Under that version, a plaintiff has the burden of showing that the culpable directors had full, complete, and exclusive control of the corporation, and must negate the possibility that an informed director could have induced the corporation to sue. Scaletty, 257 Kan at 352, 891 P2d at 1113; see also Farmers & Merchants Nat. Bank v. Bryan, 257 Kan at 352, 902 F2d 1520, 1523 (10th Cir 1990) ("'[O]nce the facts giving rise to possible liability are known, the plaintiff must effectively negate the possibility that an informed director could have induced the corporation to sue.'" (quoting International Rys. of Cent. Am. v. United Fruit Co., 373 F2d 408, 414 (2d Cir 1967)).

With that background in mind, we turn now to the first certified question, which we repeat here for convenience:

"Under Oregon law does the doctrine of adverse domination delay the running of the statute of limitations for causes of action based upon negligence? Does it do so for causes of action based upon breach of fiduciary duty? Does it do so for causes of action based upon breach of contract?" We begin our analysis with the primary issue, viz., whether Oregon recognizes the doctrine of adverse domination. In considering that question, the federal district court treated adverse domination as a corollary to Oregon's "discovery" rule, a rule of interpretation of statutes of limitation that has the effect of tolling the commencement of such statutes under certain circumstances.(5) See Huff v. Great Western Seed Co., 322 Or 457, 461 n 3, 909 P2d 858 (1996) (so defining discovery rule). The district court concluded that Oregon would adopt the adverse domination doctrine and applied the doctrine in the context of RTC's claims for simple negligence, breach of fiduciary duty, and breach of contract. Smith, 872 F Supp at 815 ("The court concludes that the defendants have failed to establish as a matter of law that the claims for negligence, breach of fiduciary duty, and breach of contract accrued before January 10, 1988.").

Like the district court, we also use the discovery rule as a starting point in our analysis. In general terms, a cause of action does not accrue under the discovery rule until the claim has been discovered or, in the exercise of reasonable care, should have been discovered. Gaston v. Parsons, 318 Or 247, 256, 864 P2d 1319 (1994). This court explained in Gaston, in the context of a medical negligence claim, that, under the discovery rule, a plaintiff must have a reasonable opportunity to become aware of the following three elements before the statute of limitations will begin to run: (1) harm; (2) causation; and (3) tortious conduct. 318 Or at 255-56. See also Doe v. American Red Cross, 322 Or 502, 513, 910 P2d 364 (1996) (identifying tortious conduct as the third element of the discovery rule in the context of ORS 12.110(1)). The Gaston court explained that

"the statute of limitations begins to run when the plaintiff knows or in the exercise of reasonable care should have known facts which would make a reasonable person aware of a substantial possibility that each of the three elements * * * exists."

318 Or at 256.

Gaston and Doe concern an individual's knowledge or discovery that he or she may have a claim. If the principles discussed in those cases also pertain to the corporate context, they do so by analogy. To complete the analogy, then, we must determine when, under Oregon law, a corporation can be deemed to "know" that it has a claim.

A potential corporate plaintiff is not a sentient being and, therefore, cannot "know," be aware of, or discover anything, except through the agency of its officers, directors, and employees. A corporation generally is charged with knowledge of facts that its agents learn within the scope of their employment.

State Farm Fire v. Sevier, 272 Or 278, 288, 537 P2d 88 (1975); Woodtek, Inc. v. Musulin, 263 Or 644, 650, 503 P2d 677 (1972); Phillips v. Colfax Company, Inc., 195 Or 285, 300, 243 P2d 276 (1952); Fleishhacker v. Portland News Pub. Co., 158 Or 476, 486-87, 77 P2d 141 (1938). However, while it is appropriate to impute knowledge of an agent to its principal in order to protect innocent third parties, that rule should not be used to shield agents whose wrongful conduct harms their own principal, where the action is one brought by the principal against the agent. See Sutherland v. Wickey, 133 Or 266, 286, 289 P 375 (1930) (noting the principle that notice to an agent whose interests are conflicting with his principal is not notice to the principal, applies to public agents).

Oregon courts long have recognized such an "adverse interest" exception. As the court stated in Saratoga Inv. Co. v. Kern, 76 Or 243, 254, 148 P 1125 (1915), a corporation is charged with knowledge of what its agent knows, unless "the agent's relations to the subject matter are so adverse as to practically destroy the relationship, as when the agent is acting in his own interest and adversely to that of his principal, or is secretly engaged in attempting to accomplish a fraud which would be defeated by a disclosure to his principal." (Emphasis added.) See also Restatement, Agency, § 279 (1958) ("The principal is not affected by the knowledge of an agent as to matters involved in a transaction in which the agent deals with the principal * * * as * * * an adverse party.").

Defendants argue that a director's good faith actions in approving a loan, with the belief that he or she is acting in the best interests of the bank, cannot reasonably be characterized as being "so adverse as to practically destroy the relationship." Rather, according to defendants, a director's acts must constitute intentional misconduct, self-dealing, or fraud in order to rise to that level. We do not believe that the principle variously described in Saratoga and the Restatement is (or should be) so limited.

The "subject matter" to be considered when evaluating the degree of the director's adverse interest is the decision whether to make a claim, not the underlying acts that gave rise to that claim. The culpable directors' interest in bringing a claim against themselves certainly is adverse to that of the corporation. In Saratoga terms, at least as to that issue, the agent/principal relationship is nonexistent. Of course, in a corporate mismanagement case, the wrongdoers, who are running the corporation, necessarily possess personal knowledge of the facts that would support a claim against them. Realistically, however, the corporation has neither meaningful knowledge nor the ability to act on such knowledge, until the wrongdoing directors and officers no longer control it. We conclude that knowledge of the wrongdoing directors or officers of facts that would give rise to legal liability to the corporation on the part of those directors or officers will not be imputed to the corporation so long as those directors or officers control the corporation.(6)

Based on the foregoing, we hold that Oregon recognizes the adverse domination doctrine, which is analogous to Oregon's discovery rule in the context of a claim by a corporation against its former directors and officers for their alleged mismanagement of corporate affairs. The question remains whether this court would apply that doctrine to claims of the kind asserted here, viz., negligence, breach of fiduciary duty, and breach of contract.

This court has applied the discovery rule to negligence actions subject to the statutes of limitations expressed at ORS 12.110(1) and ORS 12.010.(7)

See, e.g., U.S. Nat'l Bank v. Davies, 274 Or 663, 669 n 1, 548 P2d 966 (1976) (legal malpractice action governed by ORS 12.110(1) does not accrue under ORS 12.010 until the client becomes aware or should have become aware of the malpractice); Frohs v. Greene, 253 Or 1, 452 P2d 564 (1969) (medical malpractice, negligent diagnosis and treatment). By extension, the doctrine of adverse domination also would apply to claims governed by those statutes, i.e., negligence actions. Actions for breach of fiduciary duty are governed, for limitations purposes, by the same limitations provision that applies to negligence actions, viz., ORS 12.110(1). Although this court has not applied the discovery rule specifically in that context, we see no reason to treat the matter differently, especially given the close relationships ordinarily involved and the degree of trust extended to the fiduciary. Accordingly, we also accept the doctrine of adverse domination in that context.

With respect to whether the doctrine of adverse domination applies in the context of a breach of contract action, it does not appear from the facts reported in the Ninth Circuit's certification order, quoted at ___ Or at ___ (slip op at 1-2), that the issue is presented by this case. RTC succeeded to First Family's assets within six years of the date of the earliest loan that RTC now claims was inappropriate. Oregon's statute of limitations for contract actions is six years. ORS 12.080(1). Thus, the statute had not run on any of RTC's contract claims and RTC had six more years under 12 USC § 1821(d)(14) to bring its contract claims. It has done so. Because the issue proffered by the Ninth Circuit is not presented as to RTC's breach of contract claims, we do not answer it.

We turn to the second certified question:

"If the doctrine of adverse domination does apply to any or all of the mentioned causes of action, what version is applied, the disinterested majority version or the single disinterested director version?"

As noted, the "disinterested majority" version of the adverse domination doctrine creates a rebuttable presumption that a corporation does not have a full and fair opportunity to bring claims against its directors during the time that culpable directors constitute a majority of the board. Defendants may overcome that presumption by showing that some person or group had both sufficient knowledge and power to bring an action against the majority of the board. The single disinterested director version, by contrast, places the burden on the corporate plaintiff to show that no one was in a position to bring an action on behalf of the corporation.

We conclude that the "disinterested majority" version of the doctrine more closely mirrors human nature. Because a board composed of a majority of culpable directors will rarely, if ever, facilitate the assertion of claims against its members, it is appropriate that those directors bear the burden of proving otherwise. Other courts reaching this conclusion have reasoned similarly:

"As long as the majority of the board of directors are culpable they may continue to operate the association and control it in an effort to prevent action from being taken against them. While they retain control they can dominate the non-culpable directors and control the most likely sources of information and funding necessary to pursue the rights of the association. As a result, it may be extremely difficult, if not impossible, for the corporation to discover and pursue its rights while the wrongdoers retain control."

Federal Sav. and Loan Ins. Corp. v. Williams, 599 F Supp 1184, 1193-94 n 12 (D Md 1984). See also, e.g., Resolution Trust Corp. v. Grant, 901 P2d 807, 818 (Okl 1995); Hecht v. Resolution Trust, 333 Md 324, 349-51, 635 A2d 394, 407-08 (Md 1994) (both to the same effect).

Defendants argue that the foregoing approach does not comport with the currently accepted approach to the discovery rule. According to defendants, because

"Oregon places the burden on the plaintiff to submit facts showing why initiation of the action was delayed based on the discovery rule[,] * * * it follows that a plaintiff trying to delay the statute of limitations on adverse domination grounds should likewise bear the burden to plead and prove the reason for delay."

Defendants conclude that only the single disinterested director version of the adverse domination doctrine follows that principle. That conclusion, however, is not compelled by defendants' premise: A plaintiff still would be required to plead and prove facts showing that it was adversely dominated, i.e., that the board was composed of a majority of culpable directors, under the disinterested majority version of the adverse domination doctrine.

We conclude that Oregon applies the doctrine of adverse domination to causes of action based on negligence and breach of fiduciary duty. We decline to address whether the doctrine of adverse domination applies to causes of action based on breach of contract. We further conclude that Oregon applies the disinterested majority version of the doctrine in contexts in which it is applicable.

Certified questions answered.

1. This action originally was brought by the Resolution Trust Corporation (RTC), the predecessor in interest to the Federal Deposit Insurance Corporation (FDIC). FDIC statutorily succeeded RTC when RTC ceased to exist in 1995. See 12 USC

§ 1441 a(m)(1) (accomplishing the changeover). For purposes of simplicity and consistency, we refer to RTC throughout this opinion.

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2. When a federal entity becomes conservator of a financial institution, acquiring the assets of that institution, 12 USC § 1821(d)(14) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 provides that the entity will have three additional years from the date of conservatorship or accrual, whichever is later, in which to file suit on a tort claim and six additional years in which to file suit on a contract claim.

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3. ORS 12.110(1) provides, in part:

"An action * * * for any injury to the * * * rights of another, not arising on contract, and not especially enumerated in this chapter, shall be commenced within two years; provided that in an action at law based upon fraud or deceit, the limitation shall be deemed to commence only from the discovery of the fraud or deceit."

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4. A minority of courts that have considered this issue have declined to recognize the doctrine of adverse domination, concluding that the doctrine is inconsistent with applicable state law tolling doctrines and policies of strictly construing statutes of limitations. See, e.g., Resolution Trust Corp. v. Armbruster, 52 F3d 748, 752 (8th Cir 1995) (concluding that Arkansas courts do not recognize the doctrine of adverse domination); Resolution Trust Corp. v. Artley, 28 F3d 1099, 1102 (11th Cir 1994) (finding the doctrine inapplicable under Georgia law); F.D.I.C. v. Cocke, 7 F3d 396, 402-03 (4th Cir 1993) (declining, under Virginia law, to apply the doctrine to the case at issue but noting that Virginia recognizes the tolling doctrine of equitable estoppel in cases involving intentional concealment).

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5. Other courts that have considered this issue have treated the matter similarly. See, e.g., Resolution Trust Corp. v. Chapman, 895 F Supp 1072, 1078 (CD Ill 1995) ("In sum, the adverse domination doctrine is simply a common sense application of the discovery rule to a corporate plaintiff.").

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6. We address the issue of when a corporation is deemed to be "controlled" by those individuals in connection with our response to the Ninth Circuit's second question. See ___ Or at ___ (slip op at 14-16).

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7. ORS 12.110(1) is quoted at ___ Or at ___ (slip op at 4 n 3).

ORS 12.010 provides:

"Actions shall only be commenced within the periods prescribed in this chapter, after the cause of action shall have accrued, except where a different limitation is prescribed by statute."

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Filed: June 30, 2011 IN THE SUPREME COURT OF THE STATE OF OREGON In Re: Complaint as to the Conduct of J. MARK LAWRENCE, Accused. (OSB 08-115; SC S058778) En Banc On review of the decision of a trial panel of the Disciplinary Board. Argued and submitted May 2, 2011. Paula Lawrence, McMinnville, argued and cause and filed the briefs for accused. Stacy Hankin, Assistant Disciplinary Counsel, Tigard, argued the cause and filed the brief for the Oregon State Bar. PER CURIAM The complaint is dismissed. PER CURIAM The issue in this lawyer disciplinary proceeding is whether the accused, by releasing a partial transcript of a juvenile hearing to the press, violated Rule of Professional Conduct (RPC) 8.4(a)(4), which prohibits a lawyer from engaging in conduct that is prejudicial to the administration of justice. A trial panel found the accused guilty of violating RPC 8.4(a)(4) and suspended him for 60 days. We review the decision of the trial panel de novo. ORS 9.536(2); BR 10.6. Because we conclude that

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the Bar failed to prove by clear and convincing evidence that the accused's conduct caused prejudice to the administration of justice, we dismiss the complaint. The facts are straightforward and largely undisputed. In 2007, the accused represented a juvenile male who, along with another male friend, allegedly had touched or swatted several female classmates on the buttocks and had danced in front of the females in a lascivious manner. The incident occurred at the students' middle school. After being informed of the youths' behavior, the vice principal and a police officer interviewed the victims. Based on those interviews, the accused's client and his friend were arrested by a McMinnville Police Officer on February 22, 2007. On February 23, the Yamhill County Juvenile Department filed a delinquency petition alleging that the accused's client had committed acts that, if done by an adult, would have constituted five counts of first-degree sexual abuse and five counts of third-degree sexual abuse. At an initial detention hearing that same day, the court ordered the youths to remain in custody. The events giving rise to this disciplinary action arose out of a second detention hearing held on February 27, 2007, before Judge John Collins. The accused called two of the victims to testify on behalf of his client. The female victims testified that the youths were their friends and that they did not find the youths to be threatening in any way. Regarding the alleged sexual abuse, the female victims testified that the touching or swatting was not sexual in nature but rather was mere horseplay. The victims also testified that they felt pressured by the vice principal and the police officer to make the touching sound hurtful and uncomfortable when it was not. By the second detention hearing, the case was receiving substantial media 2

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attention. Judge Collins allowed the press to attend the detention hearing, but prohibited the press from recording the proceedings. The parties dispute whether the judge prohibited only video recordings or also prohibited audio recordings.1 A number of newspaper and television stories reported the events and testimony at the hearing. After the hearing, the accused obtained a copy of the official audio recording of the hearing and had a partial transcript prepared that contained the victims' testimony. In March 2007, a reporter contacted the accused about the February 27 hearing. The reporter, who was not present at the hearing, expressed disbelief that the female victims had felt pressured by the vice principal and the police officer to make the youths' actions seem sexual. The accused offered to give the reporter a copy of the partial transcript when it was available. The accused believed that it would have been improper to give the reporter the official audio recording of the hearing but thought that the transcript could be released. The accused contacted Deborah Markham, the deputy district attorney handling the case, to see if she objected to releasing the transcript. Markham told the accused that she believed that the court would have to consent. The accused then released the transcript to the reporter without obtaining permission from Judge Collins. Deputy District Attorney Deborah Markham testified that Judge Collins prohibited video recording. Judge Collins testified that he might have prohibited the press from recording the detention hearing, but that he did not remember whether he did so or not. He did remember allowing video recording at a later hearing in the proceeding. The accused testified that Judge Collins prohibited video recording but that he could not remember if the judge prohibited audio recording.
1

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When Judge Collins learned that the transcript had been released -following news reports that cited the transcript -- he called a meeting with Markham and the accused and told them to release no other transcripts. The testimony from the accused, Markham, and Judge Collins differs regarding that meeting. The accused described the meeting as relaxed and said that Judge Collins had stated that the release of the transcript was permissible. Markham testified that Judge Collins was "very concerned" about the release of the transcript and that Judge Collins said that the accused's disclosure violated the law. Judge Collins testified that the accused did not get his consent to release the transcript, but that he was not sure if the accused needed to do so under the circumstances of the case, particularly given the presence of the press at the hearing. In Judge Collins's description, the meeting was not contentious; although he requested that the parties refrain from releasing any additional transcripts, he did not "feel like [he] needed to be firm" and so did not issue an order barring further releases. In April 2008, several months after the juvenile case was resolved, Tim Loewen, director of the Yamhill County Juvenile Department, reported the accused's action of releasing the transcript to the Bar. After investigating the matter, the Bar charged the accused with violating RPC 8.4(a)(4)2 by releasing to the press "information
2

RPC 8.4(a) provides, in relevant part: "It is professional misconduct for a lawyer to: "* * * * * "(4) engage in conduct that is prejudicial to the administration of

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appearing in the record" of a juvenile case without court consent, in violation of ORS 419A.255(1) and (3).3 The Bar alleged that the accused had "usurped" Judge Collins's authority to control the proceeding by not seeking the court's consent before releasing the transcript, and thereby had caused prejudice to the administration of justice. In the proceeding before the trial panel, the accused argued that his release of the transcript did not violate ORS 419A.255 for each of three independent reasons: (1) the transcript that he had prepared was not a part of the record of the case and so was not subject to ORS 419A.255; (2) Judge Collins had consented to the release of the information contained in the transcript when he allowed the press to attend and report on

justice[.]"
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ORS 419A.255 provides, in relevant part:

"(1) The clerk of the court shall keep a record of each case, including therein the summons and other process, the petition and all other papers in the nature of pleadings, motions, orders of the court and other papers filed with the court, but excluding reports and other material relating to the child, ward, youth or youth offender's history and prognosis. The record of the case shall be withheld from public inspection but is open to inspection by the child, ward, youth, youth offender, parent, guardian, court appointed special advocate, surrogate or a person allowed to intervene in a proceeding involving the child, ward, youth or youth offender, and their attorneys. The attorneys are entitled to copies of the record of the case. "* * * * * "(3) Except as otherwise provided in subsection (7) of this section, no information appearing in the record of the case or in reports or other material relating to the child, ward, youth or youth offender's history or prognosis may be disclosed to any person not described in subsection (2) of this section without the consent of the court * * * ."

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the hearing; and (3) the information in the transcript could be released under ORS 419A.255(5)(b) and (d), which list certain exceptions to the confidentiality of juvenile records. Even assuming that he did violate ORS 419A.255, the accused asserted, he did not violate RPC 8.4(a)(4), because his conduct was not prejudicial to the administration of justice. That was so, according to the accused, because the defendant and the victims supported releasing the transcript and because the information contained in the transcript had already been made public as a result of the press attending and reporting on the hearing. Thus, in the accused's view, no harm -- actual or potential -- resulted from his conduct. The trial panel found by clear and convincing evidence that the accused had violated RPC 8.4(a)(4) and suspended the accused from the practice of law for 60 days. The trial panel first determined that ORS 419A.255(3) prohibited the accused from releasing the partial transcript to the press without the consent of the trial court and that the accused had violated the statute in doing so. With little discussion, the trial panel then found that the evidence that the accused had violated the statute also was sufficient to show prejudice to the administration of justice and thus that the accused had violated RPC 8.4(a)(4). The accused sought review in this court. To prove a violation of RPC 8.4(a)(4), the Bar must prove (1) that the accused lawyer's action or inaction was improper; (2) that the accused lawyer's conduct occurred during the course of a judicial proceeding; and (3) that the accused lawyer's conduct had or could have had a prejudicial effect upon the administration of justice. See In re Kluge, 335 Or 326, 345, 66 P3d 492 (2003) (citing In re Haws, 310 Or 741, 746-48, 6

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801 P2d 818 (1990)) (so stating for identically worded former DR 1-102(A)(4)). Because we find the issue to be dispositive, we begin by examining the third element -- whether the accused's conduct had or could have had a prejudicial effect on the administration of justice -- and assume, without deciding, that the accused's conduct violated ORS 419A.255(3) and otherwise satisfied the test set out in Kluge and Haws. Prejudice to the administration of justice "may arise from several acts that cause some harm or a single act that causes substantial harm to the administration of justice." Kluge, 335 Or at 345. This court has identified two components to the "administration" of justice: "1) The procedural functioning of the proceeding; and 2) the substantive interest of a party in the proceeding." Haws, 310 Or at 747. "A lawyer's conduct could have a prejudicial effect on either component or both." Id. The Bar argues that the accused's conduct, a single act, resulted in prejudice to the administration of justice because it had the potential to cause substantial harm to the procedural functioning of the court. The Bar asserts, "Substantial potential harm to the administration of justice occurs whenever a lawyer interferes in or usurps the court's ability to do its job in a proceeding pending before it." The Bar states that the accused "usurped" the court's authority by not seeking Judge Collins's consent prior to releasing the transcript. The Bar cites three disciplinary cases to support its position that the accused's conduct resulted in substantial potential harm to the administration of justice. First, in In re Eadie, 333 Or 42, 36 P3d 468 (2001), this court found a violation of former DR 1-102(A)(4) where the accused lawyer submitted a proposed order containing a 7

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misrepresentation that was intended to influence the judge in changing the trial date. Id. at 58. That conduct substantially harmed the procedural functioning of the court because it resulted in the judge acquiescing to a trial date preferred by the accused and made it necessary for the judge to resolve a dispute resulting from the accused's misrepresentation and to redraft an order. Id. Second, in In re Morris, 326 Or 493, 953 P2d 387 (1998), this court concluded that the accused lawyer had engaged in a single act of conduct that had the potential to cause substantial harm, either to the procedural functioning of the court or to the substantive interests of the parties, when she knowingly filed a notarized document that she had altered. Id. at 502-03. Third, in In re Thompson, 325 Or 467, 940 P2d 512 (1997), this court found a violation of former DR 1-102(A)(4) where the accused lawyer physically confronted a judge after receiving an adverse decision. That conduct caused substantial harm to the administration of justice because the accused's ex parte communication with the judge "unfairly attack[ed] the independence, integrity, and respect due a member of the judiciary." Id. at 475. The conduct also had the potential to cause substantial harm, because it could have influenced the judge to change her decision or to recuse herself from the case. Id. In each of the preceding cases, the accused lawyer engaged in conduct that had the potential to disrupt or to improperly influence the court's decision-making process, Thompson, 325 Or at 475; that created unnecessary work for the court, Eadie, 333 Or at 58; or that had the potential to mislead the court, Morris, 326 Or at 503. Moreover, in Eadie and Morris, the accused lawyers made knowing misrepresentations to the court. Similarly, in Kluge, the accused lawyer's conduct in knowingly filing an 8

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untimely motion to disqualify the trial judge and then failing to serve the motion on opposing counsel caused prejudice to "the procedural functioning of the judicial system by imposing a substantial burden upon both opposing counsel and [the trial judge] to undo the accused's actions." 335 Or at 346. In this case, the Bar has made no showing, as required by Kluge and Haws, that the accused's conduct harmed the procedural functioning of the judicial system, either by disrupting or improperly influencing the court's decision-making process or by creating unnecessary work or imposing a substantial burden on the court or the opposing party. Nor has the Bar shown that his conduct had the potential to result in any of the above. Certainly, Judge Collins did not testify that the accused's actions interfered with Judge Collins's conduct of the juvenile proceeding. Although the Bar correctly asserts that ORS 419A.255 gives the trial court control over the release of protected information in a juvenile record -- and, as noted, we assume without deciding that the accused acted improperly in not seeking the trial court's consent -- the Bar's theory fails to take into account the fact that the information contained in the partial transcript that the accused released was presented in open court and had already been reported by the press.4 It is difficult to see how the accused's release of the same information, in the context of this case, had the potential to cause any harm to the proceeding, much less substantial harm.

Article I, section 10, of the Oregon Constitution grants members of the public, including the press, the right to attend juvenile hearings. State ex rel Oregonian Pub. Co. v. Deiz, 289 Or 277, 284-85, 613 P2d 23 (1980).

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See Kluge, 335 Or at 345 (prejudice to the administration of justice may arise from "several acts that cause some harm or a single act that causes substantial harm"). Indeed, the Bar makes no effort to show that the accused's conduct could have resulted in new information being made public or that the release of the partial transcript itself had any potential impact on the proceeding. In fact, after the press attended the hearing and the accused released the transcript, Judge Collins allowed members of the press to listen to the official audio recording of the hearing. Nevertheless, the Bar asserts that Judge Collins was sufficiently "concerned" about the release of the information to call the accused and Markham to his chambers to discuss the incident. The fact that Judge Collins was "concerned" and met with the accused and Markham does not, by itself, demonstrate the potential for substantial harm to the procedural functioning of the court. Judge Collins himself stated that, although "in a perfect world," he probably would not have wanted the transcript released, in the context of this case and the open court provision of Article I, section 10, of the Oregon Constitution, the release of the partial transcript was likely permissible without his consent because "if [the press is] * * * going to know the information and report the information, at least get it right." Judge Collins's testimony, then, does not demonstrate that the accused's conduct impacted the procedural functioning of the court, even if the accused's conduct was cause for "concern." Nor does the Bar offer any evidence to prove that the release of the partial transcript harmed the substantive interests of the accused's client, the victims, or the state. The accused released the transcript, with the support of his client, in response to an 10

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inquiry from the media and in order to respond to inaccuracies appearing in some media reports. The accused maintained the confidentiality of the victims' names in the transcript, referring to them by their initials, consistent with an earlier order by Judge Collins. In this proceeding, the accused also submitted letters from the two victims who testified (and their parents) that stated their support for the release of the partial transcript. Finally, there was no testimony from the Yamhill County Juvenile Department that the release of the partial transcript had any effect on its substantive interests or its ability to prosecute the case. The Bar appears, instead, to take the position that virtually any violation of a statute, rule, or court order that occurs during the course of a court proceeding and relates to the conduct or any procedural aspect of that proceeding necessarily is prejudicial to the administration of justice. The Bar asserts, in effect, that "substantial potential" harm is implicit in the accused's conduct. Our cases, however, require proof by clear and convincing evidence that an accused's conduct in a specific judicial proceeding caused actual or potential harm to the administration of justice and, when only one wrongful act is charged, that actual or potential harm must be "substantial." Kluge, 335 Or at 345; Haws, 310 Or at 748. Here, the Bar's evidence did not prove that substantial harm resulted or could have resulted from the accused's conduct. We conclude that the Bar has not proved by clear and convincing evidence that the accused violated RPC 8.4(a)(4). The accused's conduct did not result in such prejudice, because there is no evidence that the release of the partial transcript, which contained solely information already presented in open court and reported by the press, 11

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harmed the procedural functioning of the judicial system. Nor is there any evidence that the substantive rights of the accused's client, the other juvenile defendant, the victims, or the state were harmed. "Prejudice to the administration of justice" requires such a showing. Haws, 310 Or at 747-48. The complaint is dismissed.

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