Summary Judgment Affirmed on Negligent Misrepresentation Claim

Where an attorney working for a bank gave the bank president advice about his resignation but also recommended that he seek independent counsel, the Court of Appeals affirmed summary judgment on a negligent misrepresentation claim.

In Batten v. Community Trust and Banking Company, No. E2017-00279-COA-R3-CV (Tenn. Ct. App. Aug. 26, 2019), plaintiff was the president and CEO of defendant bank. Plaintiff had an employment contract with the bank that included a provision allowing him to resign and receive 36 months of additional compensation. When the Tennessee Department of Financial Institutions (TDFI) examined the bank, it found serious problems, eventually declaring that the bank was in a troubled condition.

After the examination but before the “troubled condition” was officially declared, the bank hired attorney Kathryn Edge to perform legal services in connection with the TDFI examination. As president, plaintiff signed the attorney’s engagement letter. After reading a memo prepared by the attorney, plaintiff became concerned about his future and consulted with the attorney. According to plaintiff, he asked the attorney if she “was aware of any reason why he might not receive his severance benefits, and she replied that she was not aware of anything that would result in the severance not being paid.” Plaintiff alleged that the attorney recommended he resign immediately, rather than wait, and she helped him draft his resignation letter. According to the attorney, she advised him to seek independent counsel during this time.

Plaintiff resigned from his position, and the bank was subsequently determined to be in a troubled condition. Pursuant to federal regulations, a bank in a troubled condition cannot pay out a golden parachute provision, and plaintiff was thus never given his severance. Plaintiff brought suit against the bank for various contract claims and against the attorney for negligent misrepresentation. The trial court granted the attorney summary judgment on the negligent misrepresentation claim, and the Court of Appeals affirmed, although on different grounds.

In Tennessee, the tort of negligent misrepresentation provides that “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.” (internal citations omitted). In this case, the trial court ruled that plaintiff could not make a negligent misrepresentation claim because his allegations were based on a representation about a future event (i.e., the future payment of his severance), rather than a present or existing fact, but the Court of Appeals disagreed. The Court noted that “a misrepresentation about a future event can be the basis of a negligent misrepresentation claim if the misrepresentation about the future event is based on a present fact.” (internal citation omitted). The Court concluded that viewing the evidence in the light most favorable to plaintiff, the attorney’s “alleged statement that she was not aware of anything that would affect [plaintiff’s] ability to receive the severance package appears to be an unsupported conclusion based on the existing facts known to her: the already negotiated severance contract, Bank’s current financial and regulatory situation, and [attorney’s] professional experience with banks in similar situations.”

Although the Court of Appeals found that plaintiff could possibly satisfy the element of the claim requiring a representation regarding a present or existing fact, it determined that there were two elements that plaintiff could not satisfy. First, the Court ruled that plaintiff could not show that the attorney intended for him to rely on the representation or that such reliance was justifiable. In negligent misrepresentation claims, Tennessee has “limit[ed] liability to only those whose use of the information is reasonably foreseeable.” In this case, the Court found that the attorney “did not intend for [plaintiff] to rely on their conversations,” pointing to the facts that plaintiff knew that the attorney was representing the bank, and that she “informed him verbally and in writing to consult his own counsel.” The Court further found that plaintiff’s alleged reliance was not justifiable, noting that “given [plaintiff’s] banking knowledge, his appreciation of the facts and circumstances at the time of the events at issue, and the amount of money involved, a sophisticated professional like [plaintiff] would not have justifiably relied on the conversation with [the attorney].”

Second, the Court ruled that the alleged misrepresentation did not take place within a business transaction in which the attorney had a pecuniary interest. The Court stated:

[A]t the time the parties spoke, [the attorney] was not giving advice for the guidance of [plaintiff] in a business transaction but was gratuitously helping him with a personal matter. She was not acting in a transaction in which she had a pecuniary interest. The trial court correctly dismissed the claim for negligent misrepresentation on summary judgment.

Judge Stafford wrote a separate opinion dissenting from the majority’s holding on the negligent misrepresentation claim, stating that he believed there were questions of fact on this claim. He wrote that “it was entirely foreseeable that [plaintiff] would rely on [attorney’s] advice,” seeing that the attorney provided advice directly to plaintiff and even assisted him in drafting his resignation letter. While he conceded that some factors weighed in favor of any reliance being unjustified, he wrote that the conclusion was not clear cut and thus not appropriate for summary judgment. He also argued that the misrepresentation was made within the context of a business transaction, stating that the attorney was acting within the course of her employment with the bank, and that her representation of the bank “was not purely gratuitous.” He also rejected the depiction of plaintiff’s situation as a “personal matter.”

Negligent misrepresentation claims require very specific showings, and while this case is quite fact specific, it’s an important read for anyone litigating such a claim. The dissenting opinion pointed out that because the trial court decided this issue on different grounds, “neither party substantively address[ed] the question of whether the alleged misrepresentation involved a business transaction” in their appellate briefs, and only the defendant briefly addressed reasonable reliance. It would be interesting to know whether this case would have had a different outcome had the relevant issues been fully briefed.

            NOTE: To aid lawyers in giving clients guidance about how long it takes to receive an opinion after oral argument in the appellate courts, we are going to start sharing that information with readers.   Please understand that the length of time that elapses between oral argument and the date the opinion is released is dependent on a multitude of factors, not the least of which is the complexity of the issues presented.  In this case, the opinion was released eight and a half months after oral argument.