Opinion ID: 773254
Heading Depth: 3
Heading Rank: 1

Heading: Existence of a Special Relationship

Text: 47 The New York Court of Appeals recently discussed the special relationship component of a negligent misrepresentation claim in Kimmell v. Schaefer, 89 N.Y.2d 257 (1996). Defendants rely predominately upon our decision in Banque Arabe et Internationale D'Investissement v. Maryland Nat'l Bank, 57 F.3d 146, 158 (2d Cir. 1995) (holding that no special relationship exists in a banking relationship generally). But Banque Arabe was decided before Kimmell, and is therefore of limited precedential value on this issue of state law. In Kimmell the Court of Appeals held that whether a special relationship exists between two parties is an issue of fact, to be governed by the weighing of three factors: 48 In determining whether justifiable reliance exists in a particular case, a fact finder should consider whether the person making the representation held or appeared to hold unique or special expertise; whether a special relationship of trust or confidence existed between the parties; and whether the speaker was aware of the use to which the information would be put and supplied it for that purpose. 49 89 N.Y.2d at 264. The facts in Kimmell are relatively analogous to those in the present case. The defendant, chair of the board and later chief financial officer of an energy company, had sought investors for a cogeneration project that his firm was implementing. Defendant provided plaintiffs with multiple sets of financial projections for the project, but each time failed to account for a highly publicized new state utility rate structure that would render cogeneration economically impractical. See id. at 261-62. Plaintiffs, relying upon the information provided, invested in the project, soon after lost their money, and brought suit in New York. The Court of Appeals affirmed defendant's liability for negligent misrepresentation. See id. at 266. 50 In so holding, Kimmell distinguished between 'casual' statements and contacts that a seller would make informally in the course of a day's business, and deliberate representation[s] that give rise to a duty to speak with care. Id. at 263. Similarly, the present complaint alleges that defendants repeatedly assured plaintiffs that they had performed extensive due diligence on SAM Group, and they explicitly represented that only positive information on the Group's principal had been uncovered. See 2d Am. Compl. ¶¶ 61-63. These assurances constitute considered responses to inquiries that were plainly of some importance to plaintiffs. 51 The district court, in dismissing the negligent misrepresentation claim, relied upon the purported failure of the complaint to allege a special relationship of trust or confidence between the two parties. Yet, plaintiff's complaint implies a relationship between the parties that extended beyond the typical arm's length business transaction: defendants initiated contact with plaintiffs, induced them to forebear from performing their own due diligence, and repeatedly vouched for the veracity of the allegedly deceptive information. See id. ¶ 108. Moreover, to the extent that a special relationship of trust is sparsely pled, the complaint emphatically alleges the other two factors enunciated in Kimmell. First, as investors in SAM Group (or intermediaries therewith) and holders of the Bishops Report, Rindahl, DeRoziere, the Bank, Capital, Investments, and Texas appeared to possess -- and held themselves out as possessing -- special knowledge about the Group generally, and Mallick in particular. Second, these defendants knew that plaintiffs sought information about Mallick to aid their investment decision and defendants supplied it for that purpose, while dissuading plaintiffs from conducting their own investigation. Given that a determination of whether a special relationship exists is essentially a factual inquiry, these allegations are sufficient to overcome a motion to dismiss. Plaintiffs' conclusory allegations with respect to Securities and Holdings, however, fail. 52 Nor are we persuaded by defendants' reliance on the October 31, 1996 Confidentiality Agreement between Indosuez and Capital. The Confidentiality Agreement states: you acknowledge that neither Toronto Dominion Bank nor any of its agents . . . make any representation or warranty, either express or implied, as to the accuracy or completeness of the Evaluation Material, and appears to exclude information in the public record from the term Evaluation Material. Even assuming that consideration of the Confidentiality Agreement is appropriate at this stage in the proceedings, at best, it conflicts with defendants' alleged oral statements in the January 2, 1997 conference call. The disclaimer would not cover the subsequent telephone conversation, in which defendants allegedly represented that the Bank and DeRoziere had extensively investigated SAM Group prior to their investment and had received favorable feedback on him. The tension between the telephone conversation and the Confidentiality Agreement cannot be resolved on the pleadings.