Opinion ID: 374676
Heading Depth: 1
Heading Rank: 4

Heading: Denial of Appellants' Negligent Misrepresentation Claim.

Text: 33 The judge denied appellants' requested jury charge No. 36, which read in relevant part: 34 Plaintiff's (sic) third claim is that Bankers Trust Company through Silverman was negligent in making the representation they made at the time of closing with respect to the status of the stock. One who makes a statement with knowledge that the statement is required for a serious purpose and with knowledge that it is made for the bene(fit) of another person who is expected to rely upon it and (who) may be damaged if it is false is under a duty to such other person (or the agent who represents him) to exercise reasonable care that the statement is correct. 12 35 and refused to submit the issue of liability for negligent misrepresentation to the jury. Appellants excepted to the judge's actions. 36 During the colloquy over appellants' requested instruction, Bankers Trust made the same argument that it advances on appeal, namely, that New York does not recognize a negligent misrepresentation action without a fiduciary or contractual relationship between the parties. The district court accepted this argument and observed that a charge based on negligence would be impermissible as a matter of law on the submission of evidence and the complaint. 37 The scope of the negligent misrepresentation action was defined for New York, and indeed, for the common law generally, by a series of decisions of the New York Court of Appeals during its golden age. Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922) (Cardozo, J.); International Products Co. v. Erie R. R. Co., 244 N.Y. 331, 155 N.E. 662 (1927) (Andrews, J.); Courteen Seed Co. v. Hong Kong & Shanghai Banking Corp., 245 N.Y. 377, 157 N.E. 272 (1927) (Pound, J.); Ultramares Corp. v. Touche, Nevin, & Co., 255 N.Y. 170, 174 N.E. 441 (1931) (Cardozo, J.). Recent years have seen some advance from Ultramares, supra, the most restrictive of these classic decisions. See White v. Guarente, 43 N.Y.2d 356, 362, 401 N.Y.S.2d 474, 478, 372 N.E.2d 315 (1977); Restatement (2d) Torts § 552. The Court of Appeals there stated the basic elements of New York's negligent misrepresentation action to be: 38 As to duty imposed, generally a negligent statement may be the basis for recovery of damages, where there is carelessness in imparting words upon which others were expected to rely and upon which they did act or failed to act to their damage . . ., but such information is not actionable unless expressed directly, with knowledge or notice that it will be acted upon, to one whom the author is bound by some relation of duty, arising out of contract or otherwise, to act with care if he acts at all . . . . (Citations omitted.) 39 White v. Guarente, supra, 43 N.Y.2d at 362-63, 401 N.Y.S.2d at 478, 372 N.E.2d at 319. See also International Products, supra, 244 N.Y. at 388, 155 N.E. 662. 40 Appellants presented ample evidence of the first three elements of negligent misrepresentation. Murfitt's and Arnold's testimony entitled a jury to conclude that Silverman misrepresented the negotiability of the Equity National stock while expecting appellants to rely on his representations, on one or both of two occasions during the alleged telephone conversation between Murfitt and Silverman on March 2, 1972, and at the closing itself. In addition, a jury might have found that reliance on these alleged misrepresentations was the proximate cause of appellants' loss. The inquiry, then, must be whether the negligent misrepresentation claim fails either because Silverman's alleged misrepresentations were not expressed directly, with knowledge or notice that (they would) be acted upon, or because Bankers Trust was not bound by some relationship of duty, arising out of contract or otherwise. 41 In the classic genre of cases limiting the scope of accountant liability, it is the first of these requirements which has been thought to pose the most formidable barrier to the plaintiff. See Ultramares, supra; White v. Guarente, supra. Here, by contrast, this requirement was amply met by the direct dealings between Silverman and appellants' representatives, coupled with Murfitt's testimony that Silverman was informed of appellants' identities and intentions. These appellants seek redress, not as a mere member of the public, but as one of a settled and particularized class among the members of which the (information) would be circulated for (a) specific purpose, White v. Guarente, supra, 43 N.Y.2d at 363, 401 N.Y.S.2d at 479, 372 N.E.2d at 320. In short, granting appellants a negligent misrepresentation remedy in no way threatens to open the floodgates of liability as feared by Judge Cardozo in Ultramares, supra. 42 The remaining question is whether appellants had the requisite relationship to Bankers Trust. No New York decisions are precisely in point; in fact, New York's case law in this entire area is notably limited, perhaps because it has developed in the shadow of Ultramares. The general rule that applies in the majority of American jurisdictions at the present time is that the critical factor in the relationship between the parties is their reasonable expectations, not their formal legal relationship. This is reflected in the Restatement (2d) of Torts § 552 (1977), which states: 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. See Cooper v. Jevne, 56 Cal.App.3d 860, 128 Cal.Rptr. 724 (1976); Security National Bank v. Lish, 311 A.2d 833 (D.C.App.1973); Williams v. Polgar, 43 Mich.App. 95, 204 N.W.2d 57 (1972); Moore v. Kluthe & Lane Insurance Agency, Inc., 89 S.D. 419, 234 N.W.2d 260 (1975); Obde v. Schlemeyer, 56 Wash.2d 449, 353 P.2d 672 (1960). 43 Whether New York would apply this general rule appears to us to be an open question. It is true that a literal reading of the language in Ultramares suggests that the New York courts would apply the more restrictive requirement of formal legal relationship to claims based on negligent misrepresentation. However, it must be remembered that the reference to legal relationship in Ultramares was essentially dictum, since the case was decided on the privity issue. A prior case decided by the New York Court of Appeals, also written by Judge Cardozo, suggests a rule that is more in consonance with the current rule in other jurisdictions. This case, Glanzer v. Shepard, supra, involved buyers of beans who overpaid a seller in reliance on a negligently inflated certificate of weight provided by a public weigher engaged by the seller. Judge Cardozo established the weigher's liability to the buyers thus injured by looking inter alia to the prospective use of the weigher's representations, their proximity to the governance of conduct, and their appearance against prevailing standards of usage and fair dealing. 233 N.Y. at 239-41, 135 N.E. 275. This suggests a test quite similar to the one that currently appears in the Restatement, in that it focuses on the reasonable expectations of the buyers. Ultramares, decided nine years later, did not purport to overrule Glanzer ; in fact, it carefully distinguished Glanzer on the question of privity, and did not refer to that case's discussion concerning the origin of the legal duty. 44 In the most recent decision of the New York Court of Appeals to consider this issue, White v. Guarente, supra, such conflict as there may be between Glanzer and Ultramares was not explicitly resolved. The White Court defined negligent misrepresentation in terms of carelessness in imparting words upon which others were expected to rely; however, it limited the scope of liability with the requirement that the author of the words must be bound to the recipient by some relation of duty, arising out of contract or otherwise, to act with care if he acts at all. 43 N.Y.2d at 362-363, 401 N.Y.S.2d at 478, 372 N.E.2d at 319. While the reference to duty suggests Ultramares, the emphasis on reliance, and the open-ended notion that the duty can be one arising out of contract or otherwise, suggests the Glanzer notion of prevailing standards and buyer expectations. See Banker Trust Co. v. Steenburn, 95 Misc.2d 967, 991-92, 409 N.Y.S.2d 51, 66 (Sup.Ct.1978). See also Gediman v. Anheuser Busch, Inc., 229 F.2d 537, 543-44 (2 Cir. 1962). 45 Given the language of the few recent New York cases that have dealt with this issue, we predict that New York courts, when directly confronted with the issue, would hold that the Restatement's requirements that the seller be acting in the course of his business, that the information be supplied for the guidance of the buyer, and that the buyer justifiably relied on it, establish a sufficient relationship of duty between buyer and seller to support an action for negligent misrepresentation. 46 The criteria of Glanzer and the Restatement were met in this case. It was thus error to refuse to submit plaintiff's negligent misrepresentation claim to the jury. 47 The judgment is reversed and the cause remanded for a new trial consistent with this opinion.