Oregon Steel Mills, Inc. v. Coopers & Lybrand, LLP
2004 Ore. LEXIS 55, 83 P.3d 322, 336 Or. 329 (2004)
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Rule of Law:
In a professional malpractice claim for purely economic losses, a defendant's negligent conduct that causes a delay is not a basis for liability for damages resulting from market fluctuations unless those market fluctuations were a reasonably foreseeable consequence of the negligent conduct within the scope of the professional's duty.
Facts:
- Plaintiff Oregon Steel Mills, Inc. retained defendant Coopers & Lybrand, LLP, for many years to provide accounting and auditing services.
- In 1994, defendant negligently advised plaintiff on how to report a stock transaction, leading plaintiff to incorrectly report a $12.3 million gain on its financial statements.
- During late 1995 and early 1996, plaintiff planned a public offering of its stock and debt, anticipating an initial SEC filing on February 27, 1996, and pricing/selling on or about May 2, 1996.
- Shortly before the initial SEC filing, defendant advised plaintiff that the 1994 transaction might have been reported incorrectly and that it would not approve the audit of 1995 statements or allow use of the 1994 audit without SEC approval.
- The SEC subsequently concluded the 1994 accounting treatment was incorrect and required plaintiff to restate its 1994 financial statements.
- Due to the time required for restatement and other document changes, plaintiff's public offering was delayed from May 2, 1996, until June 13, 1996.
- On May 2, 1996 (the originally planned offering date), plaintiff's stock sold for $16 per share, but on June 13, 1996 (the actual offering date), it sold for $13.50 per share.
- The increase in plaintiff's stock price in late April 1996 and its decrease in early June 1996 were due to market forces affecting all steel stocks and were unrelated to defendant's conduct.
Procedural Posture:
- Plaintiff Oregon Steel Mills, Inc. brought an action in 1997 against defendant Coopers & Lybrand, LLP, in the state trial court (Circuit Court), claiming defendant's negligent conduct caused a delay in its stock offering, resulting in damages from a lower stock price.
- Defendant moved for summary judgment, arguing its conduct was not the legal cause of plaintiff's "loss" from market fluctuations.
- The trial court granted defendant's motion for summary judgment, concluding plaintiff could not recover for losses based on the decline in market price as it was unrelated to defendant's negligent acts.
- Plaintiff appealed the trial court's summary judgment ruling to the Oregon Court of Appeals.
- The Oregon Court of Appeals reversed the trial court's summary judgment, concluding that whether defendant’s negligence "foreseeably caused" plaintiff’s damages presented a triable question for the factfinder.
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Issue:
Does an accounting firm's negligent delay in a client's stock offering create liability for economic losses suffered by the client due to unrelated market price declines, when such declines were not a reasonably foreseeable consequence of the accounting errors?
Opinions:
Majority - Balmer, J.
No, an accounting firm's negligent delay in a client's stock offering does not create liability for economic losses suffered by the client due to unrelated market price declines, because such declines were not a reasonably foreseeable consequence of the accounting errors within the scope of the firm's duty. The court reiterated that Oregon tort law has rejected the traditional concept of "proximate cause" and instead subsumes limits on liability within the definition of "negligence" itself, focusing on reasonable foreseeability. While factual "but-for" causation existed (the delay would not have occurred without the defendant's error), legal responsibility for harm depends on whether the defendant's conduct unreasonably created a foreseeable risk of the specific kind of harm that befell the plaintiff. For purely economic losses, a "special relationship" (like accountant-client) is necessary to establish a duty beyond general common law negligence. However, even with such a relationship, if it does not explicitly define a broader scope of duty, common law principles of reasonable care and foreseeability still apply. The court found that the risk of a decline in plaintiff's stock price in June 1996, caused by general market forces affecting all steel stocks, was not a "reasonably foreseeable" consequence of defendant's negligent accounting errors made in 1994 and early 1995. The court analogized this to Buckler v. Oregon Corrections Div., where an intervening criminal act (akin to market forces here) was the "harm-producing force," and the defendant's actions merely facilitated an unintended adverse result without causing the harm-producing force itself. The record did not support plaintiff's contention that the offering was timed for a specific, advantageous market window known to defendant, nor that defendant had a duty to protect plaintiff from general market fluctuations.
Analysis:
This case significantly clarifies the boundaries of professional liability for negligence in Oregon, particularly for purely economic damages linked to market fluctuations. It reinforces that while a special relationship establishes a duty, the scope of that duty, and thus the limits of liability, is still defined by the foreseeability of the harm. Professionals are not held liable as insurers against general market risks for delays they cause unless their negligence directly impacts or creates the market force itself, or if protecting against such fluctuations falls explicitly within their defined duty. The ruling distinguishes between foreseeable damages directly arising from impaired capital-raising ability (which might be recoverable) and those from unrelated, external market movements, thus limiting the reach of professional malpractice claims.
