Opinion ID: 170014
Heading Depth: 2
Heading Rank: 2

Heading: Negligent Misrepresentation in Tort

Text: Despite achieving 88% occupancy in the new medical office building, Memorial Hospital owed Healthcare Realty almost one million dollars under the agreement in 2005. The Hospital maintains that Healthcare Realty led it to believe that it would owe substantially less by that time, and might even be turning a profit. The Hospital's claim that Healthcare Realty committed negligent misrepresentation should survive summary judgment. Negligent misrepresentation is a tort. Under Wyoming law: [o]ne who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. Richey v. Patrick, 904 P.2d 798, 802 (Wyo. 1995) (quoting Restatement (Second) of Torts § 552(1)) (emphasis omitted). As described in greater detail below, Memorial Hospital has presented evidence from which a reasonable jury might conclude that Healthcare Realty negligently supplied it with false information about the financial prospects of the office building, on which it justifiably relied in entering the real estate deal. We therefore conclude that the district court erred in granting summary judgment on this claim. The district court granted summary judgment for the defendant on the ground that the statements by Healthcare Realty on which Memorial Hospital relies were mere predictions or projections, and thus outside the scope of the tort of negligent misrepresentation under Wyoming law. The Wyoming Supreme Court has held that statements of opinion or intent are generally exempt from the tort of negligent misrepresentation. See Birt v. Wells Fargo Home Mortg., Inc., 75 P.3d 640, 658 (Wyo.2003). In Birt, Wells Fargo made comments to Mr. and Mrs. Birt implying that their application for a home loan would be approved. Relying on those statements, the Birts signed an expensive construction contract. When their loan was denied, they sued for negligent misrepresentation. The Wyoming Supreme Court refused to hold Wells Fargo liable because it found that the misrepresentation tort did not apply to promises, but only to facts. The court explained that the extension of negligent misrepresentation to situations involving future intentions would endow every breach of contract with a potential tort claim for negligent promise. Id. (internal quotation marks omitted). On the other hand, in Gould v. James, 43 Wyo. 161, 299 P. 275 (1931), the Wyoming Supreme Court held that a salesman who misrepresented the value of land in Texas and its suitability for citrus trees could be held liable, because his expertise and knowledge made his statements facts rather than opinions. Where the parties have unequal knowledge and a special relationship, the court explained, statements of value can be actionable facts. Id. at 276. Gould concerned fraudulent rather than negligent misrepresentation, but we see no reason that Wyoming would adopt a different distinction between facts and opinions in the two torts. We believe that some of the statements made by Healthcare Realty in connection with its analysis of the financial viability of the new facility constitute actionable facts and so fall under the tort of misrepresentation as interpreted by the Wyoming courts. As in Gould, the parties to this case had a special relationship  here, as client and paid consultant  and Healthcare Realty, as an expert in the field, was hired precisely because of its superior knowledge of the field. When a paid consultant, relied on for its expertise, fails to exercise reasonable care or competence in obtaining or communicating information supplied for the guidance of others in their business transactions, the consultant is subject to liability for pecuniary loss caused to the clients by their justifiable reliance upon any false information supplied. In light of the Wyoming Supreme Court's holding in Birt, we emphasize that the tort of negligent misrepresentation extends only to the misrepresentation of underlying facts; it does not extend to promises or predictions. Wyoming tort law does not make a consultant its clients' insurer against unanticipated developments, even if a more skilled prognosticator would have done a better job at anticipating the future. Therefore, Healthcare Realty is not liable merely because the predictions it made did not come true. Its statements must be judged strictly according to information available at the time they were made, and not with the benefit of 20-20 hindsight. Nonetheless, the data from which predictions are derived may be factual in nature, and an expert has a duty of care in selecting the facts on which its analysis is based. Memorial Hospital has identified at least four false statements of fact that, it says, underlay Healthcare Realty's financial projections. Based on our review of the record, the Hospital has demonstrated a genuine material dispute as to three of those misstatements. We discuss each in turn.
As part of its analysis of the financial viability of the project, Healthcare Realty prepared a detailed budget it called the Consolidating Development Budget, including the project's estimated expenses for Accounting, Leasing, Marketing, and many other professional costs. App. 122. For accounting, the budget estimated $12,953; for marketing, $10,000; for leasing, the chart simply says -, a hyphen. Id. The chart treats the - as if it were arithmetically equivalent to zero. In fact, Healthcare Realty later revealed, the figure for leasing costs should have been $180,000. Thus, the subtotal and total costs contained false information, because they relied on treating the applicable leasing costs as if they were zero, rather than a substantially higher number. If the Hospital justifiably relied on this information and Healthcare Realty failed to exercise reasonable care or competence in providing it, Healthcare Realty is liable. Richey, 904 P.2d at 802. The district court dismissed this claim because it thought substituting - for $180,000 was only nondisclosure, not misrepresentation. The court explained that it lack[ed] the wizardly power [to] . . . turn nothing into something for purposes of summary judgment. App. 736. However, in the charts presented, Healthcare Realty treated the hyphen as if it meant not nothing, but zero. Zero is a number, not the absence of one. See generally Robert Kaplan, The Nothing That Is: A Natural History of Zero 90-115 (1999). The usage in the budget is slightly confusing because, in the other budget attached to the POA, Healthcare Realty did use the numeral 0.00 instead of a hyphen. App. 116. But in the budget charts where hyphens appear, they are added as if they were zeroes. Thus, a reasonable jury could find that the projected leasing cost of zero given on line 3420 was false information supplied to the Hospital. A jury could also infer that listing the cost for leasing as zero, rather than using whatever underlying data were available, was negligent. When revising the budget in March, 2000, Healthcare Realty substituted a projected expenditure of $180,000, explaining that it had originally expected that the project management and contingency dollars would cover the cost of leasing and that subsequent events had made this impossible. Id. at 696. This suggests that Healthcare Realty was aware that leasing costs would be above zero, but instead of revealing this fact in the budget, buried the number in other line items. We cannot say, on this record, whether that treatment was reasonable. If subsequent events were responsible for making the zero estimate unrealistic, Healthcare Realty could not be held liable for misrepresentation. Without more information regarding these calculations, however, a jury might conclude that Healthcare Realty's representation that leasing would cost no money was a misstatement that the consultant knew at the time to be false. But that is a material issue of fact. The misrepresentation claim therefore survives summary judgment.
The budget also contained an entry of several million dollars for a Tenant Allowance. App. 123. This allowance was money given to the tenants to outfit their suites for medical use. The budget entry was based on an estimate of $44 per usable square foot. Memorial Hospital has presented several emails that suggest that Healthcare Realty knewbefore the contract was signedthat a typical suite would in fact require between $50 and $60 per square foot. App. 705. It has also presented evidence that some potential tenants found the $44 allowance not adequate to do a medical suite. App. 140. Memorial Hospital claims that keeping the $44 figure in the budget rather than a higher figure, and failing to make clear that the allowance would not actually cover all of the improvements that tenants would demand, was negligent misrepresentation. The district court dismissed this claim as a matter of law, holding that because the Tenant Allowance was an estimate[ ], it should be characterized as an opinion under Wyoming law. App. 737. Other items on the budget have the notation Est., signifying that they were estimated. App. 122-23. The tenant allowance, however, noted just that it was [b]ased on $44.00 USF. App. 122. If Healthcare Realty meant that $44 per square foot was enough to outfit the medical suites, that is a fact that it was required to derive non-negligently. In a March 2000 letter to the Hospital, Healthcare Realty explained that it was forced to give the tenants significantly more than $44as much as $60 per square footbecause the tenants expected the allowance to cover virtually all costs of their suite construction. App. 442. However, the Hospital claims that it and the tenants were originally told that the $44 would be an adequate amount for a reasonable tenant finish. Aplt's Br. 15. One letter in the record by a tenant also suggests that he was led to believe that no additional funds would be necessary. App. 140. A reasonable jury could infer from this evidence that Healthcare Realty knew at the time that the $44 per square foot allowance was insufficient to cover what had been promised to the tenants. We do not agree with the district court that projections of this sort, when made by expert consultants, are mere opinions that cannot be deemed misrepresentations of fact. As in Gould, where an expert's valuation of land was actionable, 299 P. at 276, we believe that the amount of money reasonably necessary for a medical tenant to outfit an office is a matter of fact. [2] Indeed, a consultant's expertise in such matters is precisely what the client is paying for. We do not mean to suggestand Wyoming law would not supportthat a projection of this sort could be held to be a misrepresentation merely because it turned out to be incorrect. But there is evidence here that Healthcare Realty knew at the time that $44 was inadequate to prepare a medical suite. The Hospital should be allowed to prove that this figure was false and that Healthcare Realty failed to exercise reasonable care or competence in including this figure in their estimate and in representing what it would purchase, based on the information available to it when it prepared the budget.
In its Assessment of Building Vacancy, Healthcare Realty provided figures for the Net Rental Income in the first five years of the project as a function of the amount of the building rented. App. 510. In the two lines representing 94.5% and 95.6% occupancy, the ABV assumes that net rental income would increase about 2.5% annually for the first five years. Mysteriously, the Year 6 calculation in the APOA assumed an increase of approximately 7.9% over the net rental income reported for Year 5 in the ABV. Neither document explicitly notes this underlying change; the assumption is buried in the arithmetic. This assumption of a sudden increase in income allowed Healthcare Realty to estimate a surplus, rather than a deficit, for the project in Year 6. If Healthcare Realty had continued to apply the 2.5% increase for the sixth year, it would have predicted a shortfall of more than $70,000. The Hospital claims that Healthcare Realty's unexplained prediction of a bubble was without foundation and therefore negligent, or even fraudulent. The district court dismissed this claim on the ground that the two charts were projections and calculated opinions, rather than statements of existing or cognizable fact. App. 737. However, as discussed above, under Wyoming law, when an expert projects figures based on underlying data, he must use reasonable care and competence in selecting the data. Memorial Hospital claims that in fact, Healthcare Realty's estimates of the rental rates were tied to the [Consumer Price Index] Aplt's Br. at 12, which would make the 7.9% estimated increase false. Indeed, in a later memorandum concerning the 10-year lease of one of the building's tenants, Healthcare Realty explicitly predicted the revenue from that lease to increase at CPI annually. App. 648. A reasonable jury could infer from this record that Healthcare Realty estimated the Year 6 increase in the building's revenue at one amount while reporting it as another, and thus conveyed false information. At oral argument, Healthcare Realty said that it typically expects a jump in rate increases sometime between the fifth and eighth year because the first leases in a new building must be low in order to attract tenants, and those leases are five to eight years long. If this claim makes its way into the record and proves to be true, it might rebut the Hospital's allegation that the 7.9% increase was a negligent misrepresentation. But that is an issue to be established at trial. On this record, a reasonable jury could infer that the 7.9% increase was false and chosen without reasonable care, so material issues of fact on this point preclude summary judgment.
The operating budget estimated operating costs at $5.25 per rentable square foot. They turned out to be, as Healthcare Realty admitted, $7.18 per rentable square foot instead. Memorial Hospital claims that the $5.25 figure was a misrepresentation. However, it points to nothing in the record that demonstrates that this projection was predicated on any factual data that were false, or negligently calculated, at the time. The figure was in the Hospital's original complaint, but no discussion of this point appears in its brief in response to the motion for summary judgment. The district court did not discuss this issue in dismissing the Hospital's claim. The Hospital's only evidence that the $5.25 figure was a misrepresentation is that years later the actual figure turned out to be higher. The tort of negligent misrepresentation does not, however, create a duty to be clairvoyant. Unlike the representations discussed above, there is nothing other than hindsight to show that Healthcare Realty violated a duty of care here. The Hospital fails to point to any evidence supporting its claim that Healthcare Realty was negligent, so there is no genuine issue of material fact on this point.
In two footnotes, the district court held that even if the Hospital could establish that Healthcare Realty had conveyed false factual information, its misrepresentation claim would also fail as a matter of law because the Hospital could not prove it had reasonably relied on the figures or that Healthcare Realty had been negligent. We reverse these alternative holdings. The district court held that the claim that Healthcare Realty had been negligent failed as a matter of law because the Hospital had only shown one or two potentially unfounded estimates . . . amidst thousands of pages of projections. App. 739 n. 15. It is true that, even on generous estimates, the negligent misrepresentations identified by Memorial Hospital account for far less than half of the ultimate shortfall. A jury might find that the plaintiffs would have proceeded with the project even if these misstatements had not been made, in which case Healthcare Realty would not be liable. But we cannot say, on the summary judgment record, that the identified misstatements were so minor that they could not have affected Memorial Hospital's decisions on the margin; they were significant enough that, if corrected, they would have turned the projected sixth year profit into a loss. If the plaintiffs had received nonnegligent projections of the project's costs and revenues, they might have scaled back the building's size, made other economies, or even cancelled the project. Healthcare Realty can point to no undisputed facts in the record that would support a grant of summary judgment on the reliance issue. The district court also held that the Hospital's reliance on the false information in the Assessment of the Property Operating Agreement could not have been reasonable in light of the Assessment of Building Vacancythat is, that no reasonable person could have relied on the Year 6 bubble predicted in the former document. This conclusion is at odds with Healthcare Realty's litigating position, since it now defends its prediction of the Year 6 bubble. This conclusion is also an inappropriate matter for summary judgment because it fails to view the evidence in the light most favorable to the party opposing summary judgment. On the record as it stands, a reasonable jury could decide that the Hospital's decision to trust Healthcare Realty's final prediction was reasonable. The district court also held that the Hospital's reliance on the false figures was unreasonable because Healthcare Realty initially warned the Hospital that a 137,196-square-foot building was too large. However, the disputed projections that Healthcare Realty provided were specifically about a 137,196-square-foot building. The problem is that Healthcare Realty falsely made the project seem financially viable, despite its size. Healthcare Realty's earlier expression of disapproval of the project did not relieve it of a duty of care with respect to its final financial assessment of the project. Finally, Healthcare Realty makes two related arguments that the contractual relationship created by the Operating Agreement precludes the Hospital's misrepresentation claim. First, Healthcare Realty argues that the economic loss doctrine bars the Hospital's tort claim. In negligent misrepresentation claims, that doctrine forbids a party from suing in tort for economic losses that arise only from a breach of contract. Rissler & McMurry Co. v. Sheridan Area Water Supply Joint Powers Bd., 929 P.2d 1228, 1234-35 (Wyo. 1996). The purpose of this rule is to keep all contract claims from collapsing into tort claims. Id. Here, however, the Hospital's negligent misrepresentation claim does not arise from or rely on any provision of the contract at all, but is based on the information that Healthcare Realty conveyed in its written assessments of the financial viability of the project. Wyoming law does not forbid tort claims between contracting parties if tort liability [is] premised on a duty independent of contractual duties. JBC of Wyoming Corp. v. Cheyenne, 843 P.2d 1190, 1197 (1992). Second, Healthcare Realty argues that Memorial Hospital's claim is barred by the Operating Agreement's merger clause, which states that the Agreement embodies and constitutes the entire understanding between the parties with respect to the transactions contemplated herein, and all prior or contemporaneous agreements, understandings, representations and statements (oral or written) are merged into this Agreement. App. 107. The Wyoming Supreme Court has held that when a contract clearly and unambiguously waives all claims for negligent misrepresentation, the tort claim cannot be brought. Snyder v. Lovercheck, 992 P.2d 1079, 1089 (Wyo.1999). In Snyder, the court held that a negligent misrepresentation claim was barred by a contract that contained not only a merger clause but also an express disclaimer of reliance on any warranties or representations. The court did not suggest that a merger clause alone would be enough to bar an independent tort claim for misrepresentation. Id. at 1088-89. Here, the district court concluded that the vague and general integration/modification clause did not waive the Hospital's misrepresentation claims, App. 733 n. 9, and we agree.