Opinion ID: 1612107
Heading Depth: 1
Heading Rank: 4

Heading: Negligent MisrepresentationProviding Information.

Text: The tort of negligence has developed into a broad and open-ended cause of action. See Dobbs § 110, at 257-58. Unlike the intentional trespassory torts that are generally geared toward specific conduct, a cause of action for negligence may find support in most any conduct. See id. Although the familiar elements of duty, breach of care, proximate cause, and damages must always be established, most any circumstances not exempted by a special rule or a statute can be used to prove these elements. See id. § 112, at 264-65. Negligence has clearly emerged as the central focus of modern tort law. Peter F. Lake, Common Law Duty in Negligence Law: The Recent Consolidation of a Consensus on the Expansion of the Analysis of Duty and the New Conservative Liability Limiting Use of Policy Considerations, 34 San Diego L.Rev. 1503, 1503 (1997). The expansive nature of the tort has challenged courts in not only applying the principles of negligence to accommodate its growth into new areas of human interaction, but to properly limit the tort within certain boundaries as well. See id. at 1504-05. Although misrepresentation is recognized as a distinct and separate cause of action, misrepresentation based on negligent conduct has typically been addressed within the framework of a claim for negligence when the conduct has caused personal injury or property damage. W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 105, at 725-26, § 107, at 745 (5th ed.1984) [hereinafter Keeton]. Courts have never found a need to treat negligent misrepresentation as a separate basis for liability when the interference consists of personal or property damage. Id. § 105, at 726. On the other hand, when misrepresentation based on negligent acts results solely in an interference with intangible economic interests, more restrictive rules of recovery have been developed. Id. § 107, at 745. This has been mainly due to the fear that liability for misinformation could be virtually unlimited and include unknown claimants under the traditional foreseeability limitation applicable to negligence claims. See Restatement (Second) of Torts § 552 cmt. a (The scope of liability for negligent misrepresentation resulting in pecuniary harm is not governed by the same negligence principles for negligent misrepresentation resulting in physical harm. A restricted rule of liability is followed for negligent misrepresentation resulting in pecuniary harm because of the fear of unlimited liability.); Keeton § 107, at 745. Thus, the tort of negligent misrepresentation has taken the form of limiting the group of persons to whom [a] defendant may be liable, short of the foreseeability of possible harm. Keeton § 107, at 745. We first recognized the tort of negligently giving misinformation with this limitation on the scope of liability in Ryan v. Kanne, 170 N.W.2d 395 (Iowa 1969). In that case, we permitted a third party who reasonably relied upon financial statements prepared by an accountant to maintain a negligence action against the accountant for misinformation in the statements when the accountant knew the information was intended for the benefit and guidance of the third party. Ryan, 170 N.W.2d at 403. We recognized professionals such as accountants, abstractors, and attorneys owe a duty of care in supplying information to foreseeable third parties as members of a limited class of persons who would be contemplated to use and rely upon the information. Id. at 402. Thus, we joined the drafters of the tentative draft of the Restatement (Second) of Torts section 552 to the extent that they recognized the right to recover for negligence to persons for whose benefit and guidance the accountant knows the information is intended. Ryan, 170 N.W.2d at 403. Instead of using foreseeability of harm to limit the scope of the duty of care, we relied upon a stricter standard of knowledge. We have continued to recognize negligence claims for misinformation following Ryan, and continue to utilize the Restatement (Second) of Torts section 552 to help define the tort. See Freeman v. Ernst & Young, 516 N.W.2d 835, 837 (Iowa 1994) (genesis of tort of negligent misrepresentation is the Restatement (Second) of Torts section 552). This section provides: One 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. Restatement (Second) of Torts § 552(1). As with all negligence actions, an essential element of negligent misrepresentation is that the defendant must owe a duty of care to the plaintiff. In the context of negligent misrepresentation, this means the person who supplies the information must owe a duty to the person to whom the information is provided. Although the Restatement supports a broader view, we have determined that this duty arises only when the information is provided by persons in the business or profession of supplying information to others. Hendricks v. Great Plains Supply Co., 609 N.W.2d 486, 492 (Iowa 2000); see Meier v. Alfa-Laval, Inc., 454 N.W.2d 576, 581 (Iowa 1990) (providing false information is not actionable if the person is not in the business or profession of supplying information). [3] Thus, when deciding whether the tort of negligent misrepresentation imposes a duty of care in a particular case, we distinguish between those transactions where a defendant is in the business or profession of supplying information to others from those transactions that are arm's length and adversarial. See Molo Oil Co. v. River City Ford Truck Sales, Inc., 578 N.W.2d 222, 227 (Iowa 1998); Fry v. Mount, 554 N.W.2d 263, 265-66 (Iowa 1996); see also Freeman, 516 N.W.2d at 838; Haupt v. Miller, 514 N.W.2d 905, 910 (Iowa 1994); Meier, 454 N.W.2d at 581-82. We recognize the former circumstances justify the imposition of a duty of care because a transaction between a person in the business or profession of supplying information and a person seeking information is compatible to a special relationship. See Meier, 454 N.W.2d at 581; see also 2 Fowler V. Harper et al., The Law of Torts § 7.6, at 412-13 (2d ed.1986) [hereinafter Harper] (remedy for negligent misrepresentation [is] principally against those who advise in an essentially nonadversarial capacity). A special relationship, of course, is an important factor to support the imposition of a duty of care under a claim for negligence. See J.A.H. ex rel. R.M.H. v. Wadle & Assocs., P.C., 589 N.W.2d 256, 259 (Iowa 1999). Moreover, a person in the profession of supplying information for the guidance of others acts in an advisory capacity and is manifestly aware of the use that the information will be put, and intends to supply it for that purpose. See Restatement (Second) of Torts § 552 cmt. a; see also Dobbs § 472, at 1350-51; 2 Harper § 7.6, at 405-06. Such a person is also in a position to weigh the use for the information against the magnitude and probability of the loss that might attend the use of the information if it is incorrect. Restatement (Second) of Torts § 552 cmt. a. Under these circumstances, the foreseeability of harm helps support the imposition of a duty of care. See J.A.H. ex rel. R.M.H., 589 N.W.2d at 258 (reasonable foreseeability of harm to person who is injured is a factor in deciding whether a legal duty exists). Additionally, the pecuniary interest which a person has in a business, profession, or employment which supplies information serves as an additional basis for imposing a duty of care. See Restatement (Second) of Torts § 552 cmts. c, d. On the other hand, information given gratuitously or incidental to a different service imposes no such duty. See id.; see also Meier, 454 N.W.2d at 581-82 (defendant in business of selling and servicing merchandise, not supplying information). Thus, our approach in the application of the tort of negligent misrepresentation has been to consider the facts of each case to determine if the defendant is in the business or profession of supplying information to others. See Hendricks, 609 N.W.2d at 492; Fry, 554 N.W.2d at 265; Haupt, 514 N.W.2d at 910. The facts to support the tort, however, have traditionally arisen only in the context of commercial transactions. Historically, those cases which were responsible for developing the tort arose from a business or financial setting, and the recognition of negligent misrepresentation as a separate tort has from the beginning been confined largely to financial or commercial harm in the course of business dealings. See Keeton § 105, at 726. Consequently, the tort is generally thought to only apply to business transactions. See Pickering v. Pickering, 434 N.W.2d 758, 762 (S.D.1989) (claim by husband against wife for negligent misrepresentation did not arise from a business transaction); Robinson v. Omer, 952 S.W.2d 423, 428 (Tenn.1997) (advice supplied was for guidance in personal affairs, not business); see also G.A.W. v. D.M.W., 596 N.W.2d 284, 290 (Minn.Ct.App.1999) (Minnesota courts have only recognized the tort of negligent misrepresentation in a business or commercial setting). On the other hand, we observe that some courts have applied the tort in other contexts, such as adoption. See Gibbs v. Ernst, 538 Pa. 193, 647 A.2d 882, 891-93 (1994); M.H. v. Caritas Family Servs., 488 N.W.2d 282, 287-88 (Minn.1992); Meracle v. Children's Serv. Soc'y of Wisconsin, 149 Wis.2d 19, 437 N.W.2d 532, 536-37 (1989). Yet, no jurisdiction has recognized a tort in the context of a school counselor and a student. Our examination of both section 552 and our own cases reveals the business or commercial requirement for the tort does not actually concern the subject matter of the transaction between the plaintiff and the defendant, but requires the defendant to be in the business or profession of supplying information for the guidance of others. This is the fundamental requirement to support the imposition of a duty, which is essential for all negligence claims. See Alderson v. Rockwell Int'l Corp., 561 N.W.2d 34, 36 (Iowa 1997) ([o]ur general rule is that negligent misrepresentation under Restatement section 552 applies only to a defendant who is in the business [or profession] of supplying information to others). Additionally, the language of section 552 requires the information to not only be supplied for the guidance of others, but for the guidance of others in their business transactions. Restatement (Second) of Torts § 552(1). Yet, this additional requirement also does not exist to restrict the subject of the information to business matters. Instead, the supplied for the guidance of others in their business transactions requirement recognizes that the tort predominantly applies to situations where the information supplied harmed the plaintiff in its relations with third parties, as opposed to harm to a plaintiff in its relations with the provider of the information. See State by Bronster, 919 P.2d at 311. This means the tort does not apply when a defendant directly provides information to a plaintiff in the course of a transaction between the two parties, which information harms the plaintiff in the transaction with the defendant. See Fry, 554 N.W.2d at 265-66 (information was given to plaintiff by the defendant only in the context of a particular transaction between the parties, not to guide plaintiff generally). This situation is compatible with our approach that there is no duty imposed on parties who deal at arm's length. Id. at 265. We conclude that the context of the transaction in this case does not draw the case outside the scope of the tort of negligent misrepresentation. Instead, our task, as in other cases which assert a claim of negligent misrepresentation, is to determine if the defendanta high school counselor in this caseis in the profession of supplying information to others. In deciding this question, we observe that those same characteristics which exist when a person is found to be in the business of supplying information to others also exist in the case of a high school counselor. The counselor and student have a relationship which extends beyond a relationship found in an arm's length transaction. It is advisory in nature and not adversarial. The school counselor does not act for his or her own benefit, but provides information for the benefit of students. Furthermore, in matters that involve matriculation from high school to college, a high school counselor clearly assumes an advisory role, is aware of the use for the information, and knows the student is relying upon the information provided. Additionally, the counselor is paid by the school system to provide such advice, and has an indirect financial interest in providing the information. See Restatement (Second) of Torts § 552 cmt. d (pecuniary interest may be indirect). Thus, the counselor does not provide gratuitous information that the counselor would not expect the student to rely upon. Furthermore, the information is not incidental to some more central function or service provided by the counselor. See Meier, 454 N.W.2d at 581. Considering the rationale which supports the imposition of a duty of care on a person in the business or profession of supplying information, we discern no reason why a high school counselor should not fall within the category as a person in the profession of supplying information to others to support the imposition of a duty of reasonable care in the manner he or she provides information to students. We should not confine the tort to traditional commercial transactions when the rationale for the tort allows it to be applied beyond those factual circumstances which originally gave rise to the tort. In Ryan we indicated the tort applies not only to accountants, but logically can be extended to other professional purveyors of information. Ryan, 170 N.W.2d at 402 (tort could also apply to attorneys and abstractors); see Fry, 554 N.W.2d at 265. For the purposes of the tort of negligent misrepresentation, we conclude a high school counselor is also a person in the profession of supplying information to others. We understand that our expansion of the tort of negligent misrepresentation to include a high school counselor and a student relationship will impose a greater burden on school counselors. There is a concern, of course, that this greater burden may have a chilling effect on school counselors, who may refrain from providing information because of the potential for liability. However, any concern is diminished by the further limitations expressed in section 552(2), which provides as follows: (2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered (a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and (b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction. (3) The liability of one who is under a public duty to give the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them. Thus, liability for negligent misrepresentation is limited to harm suffered by a person for whose benefit and guidance the counselor intended to supply the information or knew the recipient intended to supply it and to loss suffered through reliance upon the information in a transaction the counselor intended the information to influence. See Knutson v. Bitterroot Int'l Sys., Inc., 5 P.3d 554, 560 (Mont.2000) (section 552(1) requires that the plaintiff was justified in relying upon the information); see also Rubinstein v. Collins, 20 F.3d 160, 172 (5th Cir.1994). Additionally, we observe that the tort applies only to false information and does not apply to personal opinions or statements of future intent. [4] See Darst v. Illinois Farmers Ins. Co., 716 N.E.2d 579, 584 n. 6 (Ind.Ct.App.1999) (claim failed because statements made were opinions); Wilkinson v. Shoney's, Inc., 269 Kan. 194, 4 P.3d 1149, 1165 (2000) (tort of negligent misrepresentation does not apply to statements of future intent); Trimble v. Washington State Univ., 140 Wash.2d 88, 993 P.2d 259, 264 (2000) (claim failed because statements made were not actually false); see also Restatement (Second) of Torts § 552 cmts. b, e. Finally, the standard imposed is only one of reasonableness, and the elements of proximate cause and damage must also be shown. Restatement (Second) of Torts § 552B (limited damages for negligent misrepresentation). Thus, these limitations will help to continue to promote the important public policy of encouraging interaction between high school counselors and students, and maintain the flow of necessary information to the students. We also observe that some states have enacted statutes giving schools and teachers immunity from any liability. See Brown v. Compton Unified Sch. Dist., 68 Cal.App.4th 114, 80 Cal.Rptr.2d 171, 172 (1998) (immunity from misrepresentations made within scope of employment); Hendricks v. Clemson Univ., 339 S.C. 552, 529 S.E.2d 293, 297 (S.C.Ct.App.2000) (tort claims act shields educational institutions from liability for negligent acts); see also Dobbs § 259, at 689. In this case, we find Sain has submitted sufficient facts to withstand summary judgment on the claim that the guidance counselor negligently told him that a specific English course would be certified by the NCAA Clearinghouse. The relationship between the high school counselor and the student, together with the activity engaged in by Sain and the counselor in this case, is sufficient to give rise to a duty for the counselor to use reasonable care when informing a student that a class will be approved by the NCAA. We continue to confine the tort of negligent misrepresentation to persons in the business or profession of supplying information to others, but find that a high school counselor falls within that language because the policies which support the imposition of a duty of care on such a person applies to a high school counselor.