Cromeans v. Morgan Keegan & Co.

• Decision Date: 01 December 2014
• Docket Number: No. 2:12–CV–04269–NKL.,2:12–CV–04269–NKL.
• Parties: John W. CROMEANS, Jr., Individually and on behalf of all others similarly situated, Plaintiff, v. MORGAN KEEGAN & CO., INC., et al., Defendants.
• Court: U.S. District Court — Western District of Missouri

69 F.Supp.3d 934

John W. CROMEANS, Jr., Individually and on behalf of all others similarly situated, Plaintiff

v.MORGAN KEEGAN & CO., INC., et al., Defendants.

No. 2:12–CV–04269–NKL.

United States District Court, W.D. Missouri, Central Division.

Signed Dec. 1, 2014.

Andrew P. Campbell, Caroline Smith Gidiere, John C. Guin, Stephen D. Wadsworth, Campbell, Guin, Williams, Guy & Gidiere LLC, J. Timothy Francis, James L. North & Associates, Birmingham, AL, Richard E. McLeod, The McLeod Law Firm PC, Kansas City, MO, for Plaintiff.

Bernard Suter, Lisa Bertain, Elyse Whitehead, San Francisco, CA, Charles W. Hatfield, Jeremy A. Root, Stinson Leonard Street LLP, Dale C. Doerhoff, Heidi Doerhoff Vollet, Timothy W. Van Ronzelen, Cook, Vetter, Doerhoff & Landwehr, P.C., Jefferson City, MO, for Defendants.

Bruce Alan Cole, Capistrano Beach, CA, pro se.

ORDER

NANETTE K. LAUGHREY, District Judge.

The Court previously granted partial summary judgment in favor of Defendant Armstrong Teasdale, LLP on Plaintiff John Cromeans' claims for legal malpractice and negligent misrepresentation. See [Docs. 93 and 170]. Cromeans filed a motion to vacate the order [Docs. 455 and 545] which the Court denied. Upon further consideration, the Court grants the motion to vacate, in part. It finds that summary judgment should be granted on the malpractice claims, but should not be granted on Cromeans' negligent misrepresentation claim.

I. Discussion

A. Legal Malpractice

In granting summary judgment to Armstrong Teasdale on the legal malpractice claim, the Court recognized that an attorney-client relationship must ordinarily exist before a plaintiff can recover for legal malpractice against an attorney. But this element of a legal malpractice claim may be satisfied if a non-client plaintiff can show that the attorney performed services specifically intended by a client to benefit the plaintiff. Donahue v. Shughart, Thomson & Kilroy, P.C., 900 S.W.2d 624, 629 (Mo. banc 1995). If specific intent is established, a six-factor balancing test is then used to determine, as a separate matter, the question of legal duty of attorneys to non-clients. Id. Because Cromeans' evidentiary submissions failed to show that Morgan Keegan specifically intended Armstrong Teasdale's services to benefit the bond purchasers, the Court granted summary judgment to Armstrong Teasdale on the legal malpractice claim.

In his motion to vacate, Cromeans argues that demonstrating the client's specific intent is not a necessary element of a legal malpractice claim when the attorney has actual knowledge that the clients' representations in offering documents are false or misleading, or when the attorney falsely states that he or she is not aware of any facts that contradict the offering statement. But Donahue contained no such exception and none of the cases cited by Cromeans¹ involved malpractice claims. Because Cromeans has not produced evidence to show that Morgan Keegan intended to benefit the bond purchasers when it retained Armstrong Teasdale to prepare the offering statement, his claim for malpractice must fail.

Therefore, the Court denies Cromeans' motion to vacate the grant of summary judgment in favor of Armstrong Teasdale on the legal malpractice claim.

B. Negligent Misrepresentation

Justifiable reliance is a necessary element of all negligent misrepresentation claims. Ryann Spencer Grp., Inc. v. Assurance Co. of Am., 275 S.W.3d 284, 288 (Mo.Ct.App.2008). In granting summary judgment to Armstrong Teasdale on Cromeans' negligent misrepresentation claim, the Court found that Cromeans could not prove reasonable reliance. Because Morgan Keegan did not hire Armstrong Teasdale to investigate the facts contained in the offering statement and Armstrong Teasdale disclaimed any responsibility for the accuracy of those facts, the Court concluded that justifiable reliance could not be shown. When making its decision, however, the Court overlooked evidence that Armstrong Teasdale made an affirmative misstatement of fact when it said “no facts have come to our attention which lead us to believe that the Official Statement contains” misrepresentations or omitted material facts. [Doc. 456, p. 5].

In his motion to vacate, Cromeans cites evidence that Armstrong Teasdale had a contract with the Missouri Department of Economic Development (DED) to assist DED in attracting Chinese businesses to Missouri. [Id., pp. 3–4; Doc. 492, pp. 4–5]. When DED wanted a background check on a Chinese company, Mamtek, it contacted Armstrong Teasdale's agent, Mr. Li, to obtain whatever information he could about Mamtek. Mr. Li is a non-lawyer based in China, who was retained by Armstrong Teasdale to fulfill Armstrong Teasdale's contract with DED. Mr. Li made a phone call and did an internet search. In April 2010, Mr. Li reported to DED and to Maria Desloge, who was Armstrong Teasdale's Associate Director of the China Trade and Investment Office, that Mamtek's plant in Fujian Province, China, never started to manufacture, and that it could not because it did not meet the “zoning” requirements for that location. The offering statement, however, stated that the plant was operational.

Citing the Restatement (Second) of Torts, § 552, Cromeans argues that Armstrong Teasdale is liable to the bond purchasers because Armstrong Teasdale knew that some statements in the offering statement were false. Section § 552 provides, in relevant part:

(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.

(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....

The national trend is to recognize a cause of action by non-clients for negligent misrepresentations by professionals, including lawyers, if the requirements of § 552 of the Restatement are satisfied. See Rest. (Second) of Torts, § 552, Information Negligently Supplied for the Guidance of Others (and cases cited therein); and McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 792–93 (Tex.1999) (stating that a “number of jurisdictions have held that an attorney can be liable to a nonclient for negligent misrepresentation, as defined in § 552 [of the Restatement of Torts],” in connection with the preparation of a variety documents and evaluations). Cf. Ronald E. Mallen and Jeffrey M. Smith, Legal Malpractice (2014 ed.), § 7.14, Recurring Issues—Negligent Misrepresentation (“General Principles. Growing authority over the last few decades has resulted in judicial acceptance that an attorney can be liable for a negligent misrepresentation ... The tort ... usually involves a claim by a nonclient.”); and Paul C. Peterson and Ryan Myers, Will the Real Intended Third–Party Beneficiary Please Stand Up?, 80 Def. Couns. J. 11, 19 (Jan.2013) (Although “courts have—for the most part—placed strict standing requirements on non-clients asserting general professional negligence claims against attorneys, courts have been more relaxed in permitting non-clients to assert negligent misrepresentation claims against attorneys.”).

See also, Petrillo v. Bachenberg, 139 N.J. 472, 655 A.2d 1354, 1361–62 (1995) (attorney “had a duty not to misrepresent negligently the contents of a material document on which he knew others would rely to their financial detriment”); Banco Popular North America v. Gandi, 184 N.J. 161, 876 A.2d 253, 267–68 (2005) (a non-client bank that relied on an attorney's opinion letter had a viable claim for negligent misrepresentation against the attorney when the attorney falsely stated in the opinion letter that he “was unaware of any material matters contrary to the representations and warranties” made by his client); Mehaffy, Rider, Windholz & Wilson v. Central Bank Denver, N.A., 892 P.2d 230, 236–37 (Colo.1995) (non-client stated claim for negligent misrepresentation against town's attorneys, whose opinion letters allegedly induced non-client to purchase bonds and contained material misstatements of fact; citing § 552 of the Restatement of Torts); Lappostato v. Terk, 143 Conn.App. 384, 71 A.3d 552, 567–68 (2013) (affirming trial court's denial of motion to set aside jury verdict in favor of plaintiff investor, or for judgment notwithstanding the verdict, on negligent misrepresentation claim, when jury could reasonably have found, based on ample evidence in the record, that plaintiff sustained a pecuniary loss by reasonably and justifiably relying on misrepresentations of decedent's attorney that attorney knew or should have known were false); DeLuca v. Jordan, 57 Mass.App.Ct. 126, 781 N.E.2d 849, 856–58 (2003) (negligent misrepresentation claim could lie against attorney who, whether because of incompetence or lack of due care, made misrepresentations on which non-client justifiably relied; citing § 552 of the Restatement of Torts); J.M.K. 6, Inc. v. Gregg & Gregg, P.C., 192 S.W.3d 189, 202–4 (Tex.App.2006) (defendant law firm could be liable to non-client purchasers for negligent misrepresentation, because attorney allegedly directly represented to them that the client-seller had complied with all procedures for converting apartment complex into condominiums and closing could proceed, which was not true; citing § 552 of the Restatement of Torts); Molecular Technology Corp. v. Valentine, 925 F.2d...