Court Opinion

ID: 9476228
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:50:40.464159+00
Date Added: 2024-06-11T17:45:11.577773
License: Public Domain

EDITH H. JONES, Circuit Judge,
dissenting:
This case requires us to analyze, from the standpoint of a Texas court, the cause of action for negligent misrepresentation. The majority, in my view, have construed this tort far more broadly than either the Texas courts or Restatement § 552 appears to warrant. I therefore respectfully dissent.
Texas law does not take a broad view of the tort of negligent misrepresentation, and Texas courts have often given it a narrow and restricted scope. See, e.g., Cook Consultants v. Larson, 700 S.W.2d 231, 234 (Tex.App. — Fort Worth 1985, writ ref’d n.r.e.) (section 552 applies only to those persons “holding themselves out in the community as possessing unique skills,” and cautions that “the expedition with which misinformation can be circulated and the potential magnitude of the loss require a restricted rule of liability for pecuniary loss caused by negligent misrepresentation” (emphasis added)); Bernard Johnson, Inc. v. Continental Constructors, 630 S.W.2d 365, 370 n. 4 (Tex.App.—Austin 1982, writ ref’d n.r.e.) (section 552 inapplicable to suits brought by a third party alleging negligent performance of a contract duty); Bell v. Manning, 613 S.W.2d 335, 338 (Tex.Civ.App. — Tyler 1981, writ ref’d n.r.e.) (refusing to impose § 552 liability on attorneys not in privity with plaintiffs).1 Every Texas case holding a *529defendant liable for negligent misrepresentation involves either a defendant who gave misinformation concerning the precise transaction in which he had a financial interest or a defendant whose profession was to give business advice or information. See, e.g., Cook Consultants, supra (surveyor liable for faulty surveying reports); Great American Mortgage Investors v. Louisville Title, 597 S.W.2d 425 (Tex.Civ. App. — Fort Worth 1980, writ ref’d n.r.e.) (title insurer held liable for erroneous representation in title policy binder); Susser Petroleum Co. v. Latina Oil Corp., 574 S.W.2d 830 (Tex.Civ.App.—Texarkana 1978, no writ) (fuel supplier held liable for misrepresentation on availability of fuel to meet contract); Rosenthal v. Blum, 529 S.W.2d 102 (Tex.Civ.App.—Waco 1975, writ ref’d n.r.e.) (physician liable for faulty diagnosis of patient); Shatterproof Glass Corp. v. James, 466 S.W.2d 873 (Tex.Civ.App.—Fort Worth 1971, writ ref’d n.r.e.) (accounting firm held liable for faulty audit reports).
The cases cited by the majority are readily distinguishable and do not support a broad interpretation of § 552 transactions. The Heilner case does not deal with or discuss negligent misrepresentation at all, but instead is plainly and explicitly bottomed on the concept of promissory estoppel. 670 S.W.2d at 656. Aetna Life & Casualty was a default judgment case whose holding is only that the tort of negligent misrepresentation is recognized in Texas, and that failure to answer or deny such allegations can be the basis of a valid default judgment. 576 S.W.2d at 117. It does not discuss the scope of § 552 transactions, and involved an insurer-defendant who would have been “in the business” of providing the information, which would have made irrelevant any question of whether there was a transaction in which the defendant had a pecuniary interest.
Similarly, Berry, the New Jersey Superi- or Court case cited, lends no support to the majority position. The case does not discuss the scope of any potential liability or even pass on whether a valid cause of action was present — it only holds that as the tort of negligent misrepresentation is recognized by New Jersey law, summary judgment against the plaintiff was inappropriate. As the court noted, however, “[t]he actual merit of the Berrys’ claims is, of course, for the trier of fact after the development of a full record.” 480 A.2d at 945. At most, the case might stand for the proposition that an employer can be “in the business” of providing information to an employee, but it nowhere discusses the scope or nature of a transaction in which the defendant has a pecuniary interest. Nor does the result in Berry suggest a compelling general direction for § 552; other courts have refused to impose liability in similar situations. See Devore v. Hobard Manufacturing Co., 367 So.2d 836, 839 (La.1979).
It is axiomatic that on questions of state law, we should not extend or expand existing law absent clear indications to the contrary. Jackson v. Johns-Manville Sales Corp., 781 F.2d 394, 397 (5th Cir.1986) (en banc); see also Rhynes v. Branick Manufacturing Corp., 629 F.2d 409, 410 (5th Cir.1980) (“[e]ven in the rare case where a course of Texas decisions permits us to extrapolate or predict with assurance where that law would be had it been declared, we should perhaps ... be more chary of doing so than should an inferior state tribunal”). In the case before us, there are no clear signs that Texas courts would give Restatement § 552 the same broad reading as the majority; in fact, the caselaw suggests otherwise.
Not only Texas caselaw, but the Restatement of Torts itself does not readily accommodate liability on the basis found by the *530majority. Negligent misrepresentation, as defined in § 552, results in liability on a less stringent basis than that of fraud. The drafters of the Restatement recognized that in everyday conduct, people often misspeak, misconstrue and misstate information that is of importance to others. Woe betide us all were liability generally to span the entirety of such errors! The tort as described by the Restatement was thus carefully hedged about by, inter alia, rendering liable only those who are in the business, profession or employment of supplying information to others or who have a pecuniary interest in the transaction in which false information is supplied. § 552(1). This case does not, as the majority concede, involve Howell’s business or profession, for Howell Petroleum is an oil company and the joint operator of the parties’ mineral lease. The majority therefore properly focussed on the definition of “transaction,” but their analysis, in my view, omits the “pecuniary interest” qualification of that requirement. The majority defined the issue as whether “this Court should define ‘transaction’ narrowly for § 552 purposes, to include only the insurance purchase that motivated Smith’s phone call, or more broadly to cover the drilling venture that linked the two parties and made insurance necessary.” Section 552(1) does not require such a dichotomy because it stipulates that liability can occur only where misinformation is supplied in the course of a “transaction in which the defendant has a pecuniary interest.” However, Section 552(2)(b) goes on to refer to a “transaction that [the defendant] intends the information to influence.” Therefore, because the transaction in which the defendant has a pecuniary interest must be the transaction that he intends the information to influence, the pecuniary interest must be directly related to the incorrect information. It is not reasonable to construe the word “transaction” differently in two subsections of § 552, as the majority in effect have done.
The majority’s misplaced dichotomy may be demonstrated in another way. Howell had no pecuniary interest in Geosearch’s insurance on the well. The only pecuniary interest identified by the majority is the joint investment of the parties in drilling the well. Yet this interest, to me, is a related interest rather than the direct pecuniary interest in the transaction on which I believe liability explicitly depends under § 552. Had the drafters of the Restatement sought to impose liability on a party who supplies misinformation in the course of a transaction related to one in which the defendant has a pecuniary interest, they could have done so with a simple but significant linguistic modification. The majority has, sub silentio, made this modification to § 552.
Finally, the logic behind the Restatement and Texas law do not lead to a conclusion that Howell should be held liable here. A 75-page, carefully bargained Operating Agreement between Howell and Geosearch specifically disclaims any duty on the part of Howell to carry physical damage insurance on jointly owned property. The Operating Agreement further provides that each party will be responsible for its own interest in the properties and will assume its portion of any loss that occurs. Geo-search should not be able to recover under the guise of a tort what it was unable to negotiate contractually with Howell. Put otherwise, because the Operating Agreement specifically took Howell out of the business of providing insurance for the joint owners, no social policy demands the imposition of a duty overriding that contractual limitation. The “pecuniary interest” test represents a rational constraint on liability for negligent misrepresentation: a party should not be exposed to potentially huge liability (here, over $250,000) where his own pocketbook did not provide the incentive to get the information right in the first place. Howell’s pocketbook was not involved in Geosearch’s quest for insurance coverage. Therefore, in my view, Howell had no legally enforceable duty to Geo-search pursuant to § 552, and the judgment should be reversed. I respectfully dissent.

. It is interesting to note that the result in two of these cases would be out radically different under the majority’s construction of § 552. In Bernard Johnson, the majority would view the *529transaction as the architect’s contract to design the bulkhead, rather than the submission of the plans to the third-party contractor, and thus the defendant would have been liable. Similarly, the secretary's statement in Bell would be viewed as merely part of the overall transaction in which her employer had a pecuniary interest; namely, his representation of his client. Under this interpretation, the misrepresentation to the non-client plaintiff would have been made "in the course of a transaction in which the defendant had a pecuniary interest," and thus liability would be imposed.