A Brightline For Negligent Misrepresentation

An interesting opinion recently came out of the Fourth District Court of Appeal, which established a brightline for when a negligent misrepresentation crosses the line from a gratuitous opinion to a statement which the speaker has a pecuniary interest in sufficient to justify the imposition of tort liability.

The court in Blumstein v. Sports Immortals, Inc., 36 Fla. L. Weekly D1886 (Fla. 4th DCA 2011) was faced with an appeal from an order granting a motion to dismiss for failure to state a cause of action for negligent misrepresentation. The second amended complaint alleged that Karahalios sought a $203,000 loan from Phillips. As collateral, Karahalios offered a collection of baseball memorabilia. However, before Phillips made the loan, he required that the collection be appraised as having a value of at least $300,000.

Therefore, Karahalios, Phillips, and Blumstein, an associate of Phillips, took the memorabilia to Sports Immortals, “experts at authenticating and appraising sports memorabilia.” The group told Platt, the Sports Immortals’ representative working with them, “that the appraisal was being done for the specific purpose of Phillips relying on it to make a loan against the memorabilia.” Platt issued an appraisal/evaluation indicating that the memorabilia was worth between $350,000 and $400,000. As a result of this appraisal, Phillips made the loan to Karahalios, who defaulted on it in October 2007.

After Karahalios defaulted, Phillips went to another appraiser to ascertain the current value of the memorabilia with the intent of selling it to recoup his money. However, that appraiser informed Phillips that the Sports Immortals’ valuation was incorrect because the autographs on the montage “were not authentic.” Phillips then returned to Sports Immortals and Platt for a reevaluation in February 2009. Platt’s evaluation report indicated that he “[s]poke with autograph authenticator for Lelands Auction House and upon reviewing the scan, felt the signatures were not authentic and would not place the item in their auction.” Therefore, Platt assigned no value to the montage.

Based on these facts, Blumstein alleged that both Sports Immortals and Platt owed Phillips a duty of care to conduct the appraisal/evaluation in a reasonable manner consistent with the requirements of a “memorabilia appraiser/evaluator/authenticator in the community.” Blumstein further alleged that the defendants failed to meet the standard of care when they issued the original appraisal and that this negligence was a direct and proximate cause of the damages.

The Fourth District Court of Appeal agreed with Blumstein that the complaint stated a claim for negligent misrepresentation. It explained that the Florida Supreme Court adopted the Restatement (Second) of Torts, section 552(1) to describe the elements of a cause of action for negligent misrepresentation:

(1) 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.

The court explained that comment c to this section describes the necessity of a pecuniary interest in triggering a legal duty:

The rule stated in Subsection (1) applies only when the defendant has a pecuniary interest in the transaction in which the information is given. If he has no pecuniary interest and the information is given purely gratuitously, he is under no duty to exercise reasonable care and competence in giving it.

The court noted that comment d was also relevant to its inquiry, because it explains that “[t]he fact that the information is given in the course of the defendant’s business, profession or employment is a sufficient indication that he has a pecuniary interest in it, even though he receives no consideration for it at the time. It is not, however, conclusive.”

The court explained that it observed in Reimsnyder v. Southtrust Bank, N.A., 846 So. 2d 1264, 1267 (Fla. 4th DCA 2003) that “[s]ection 552 has been interpreted as limiting liability for the supply of false information to those entities that are in the business of supplying a particular type of information.” This is because information given in the capacity of one in the business of supplying such information should conform to the care and diligence that should be exercised in that particular business or profession. The court distinguished this scenario from a “purely gratuitous” or “curbstone opinion,” like when an attorney gives an offhanded opinion on a point of law to a friend.

Therefore, the court held that the complaint sufficiently stated a cause of action for negligent misrepresentation because defendants were in the business of authenticating, appraising, buying, and selling sports memorabilia. Even though defendants were not paid for their opinion at the time, defendant had a sufficient, indirect pecuniary interest in their dealings with Phillips to justify the imposition of liability because defendants saw Phillips as a potential source of future business.

As a result, a brightline was established between purely gratuitous opinions and those opinions given in the course of business, even if no consideration is exchanged at that time, that, as a matter of law, must conform to the standards set for that profession or business or else such opinion is actionable at law as a negligent misrepresentation.