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Roach v. Mead - 301 Or. 383, 722 P.2d 1229 (1986)

Rule:

Partners are jointly and severally liable for the tortious acts of other partners if they have authorized those acts or if the wrongful acts are committed in the ordinary course of the business of the partnership.

Facts:

Defendant Kenneth Mead, the former law partner of defendant David Berentson, first represented plaintiff William Roach in December 1974 and later represented plaintiff on several occasions. Almost five years later, defendant Mead and defendant Berentson formed a law Partnership, Berentson & Mead. Mead continued to advise plaintiff on other traffic charges and on business dealings while Berentson prepared plaintiff's income tax returns. Subsequently, plaintiff sold his business and asked for Mead's advice on investing $20,000 in proceeds from the sale. Advising plaintiff that he [Mead] would  "would take [the money] at 15 percent,"  Mead executed a promissory note for $20,000 payable on or before November 25, 1982, at 15 percent interest. A few months later, Mead borrowed an additional $1,500 loan, which was added to the amount due on the promissory note. Mead did not repay any money to plaintiff and later was declared bankrupt. 

Plaintiff sued defendant Partnership for negligence, alleging that the Partnership failed to disclose the conflicting interests of plaintiff and defendant Mead, to advise plaintiff to seek independent legal advice, to inform plaintiff of the risks involved in an unsecured loan, and to advise plaintiff that the loan would not be legally enforceable because the rate of interest was usurious, Or. Rev. Stat. § 82.010 (1979), former Or. Rev. Stat. § 82.110 (repealed by Or Laws 1981, ch 412, § 24). Plaintiff also alleged under the Uniform Trade Practices Act (UTPA),  Or. Rev. Stat. §§ 646.605-646.852, that the partnership created a likelihood of confusion concerning the service it provided to plaintiff, represented the legal service as having qualities that it did not possess, and misleadingly represented the nature of the loan. The jury found defendant Berentson vicariously liable for Mead's negligence and for violations of the UTPA. The trial court awarded $8,000 in attorney fees under the UTPA. On appeal, the Court of Appeals held that although Berentson was liable for Mead's negligence, Berentson was not liable under the UTPA because "the UTPA does not cover such service for a mere loan of money at interest, whatever the lender's intended use of the profits of the loan." The Court of Appeals' reversal of the UTPA claim did not affect the amount of the jury award but did eliminate the award of attorney fees. Berentson sought further review.

Issue:

(a) Was the partner of an attorney who negligently advised a client vicariously liable to the client for damages?

(b) Was an attorney's client entitled to attorney’s fees under the Oregon Unlawful Trade Practices Act (UTPA)?

Answer:

(a) Yes (b) No

Conclusion:

(a) When a lawyer borrows money from a client, the Supreme Court of Oregon requires that the lawyer advise the client about the legal aspects of the loan. Mead's failure to advise plaintiff to seek independent legal advice, that loans usually should be secured and the debtor's financial status checked, and that the rate of interest was usurious were all failures of Mead as a lawyer advising his client. Because these failures occurred within the scope of the legal partnership, responsibility for Mead's negligence was properly charged to defendant Berentson as Mead's law partner.

(b) The state supreme court could not conclude as a matter of law that loaning money at an interest rate at or above market rates, and obtaining legal advice concerning such loans, is generally and customarily for a personal, family or household purpose. The loan may have been for a personal or business purpose, but no evidence in the record of this case allowed the court to draw any conclusions on this issue. Because plaintiff client failed to prove facts that would bring his claim within the UTPA, the court held that the UTPA did not apply to the loan transaction between an attorney and his client. The legal services plaintiff received concerned the investment of money and were not manifestly for personal use. The Court of Appeals correctly held that the UTPA did not cover the transaction.

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