Cromeans v. Morgan Keegan & Company, Inc. et al
ORDER entered by Judge Nanette Laughrey. Plaintiff Cromeans' motion to vacate, [Doc. 455], the Order entered on 11/5/2013, [Doc. 170], is granted as to Cromeans' negligent misrepresentation claims against Armstrong Teasdale. Cromeans' motion to vacate is denied in all other respects. (Barragan-Scott, Alana)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
JOHN W. CROMEANS., JR.,
Individually and on behalf of all
others similarly situated,
MORGAN KEEGAN & CO., INC., et al.,
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
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 Cromeans 1 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
Therefore, the Court denies Cromeans’ motion to vacate the grant of summary
judgment in favor of Armstrong Teasdale on the legal malpractice claim.
Justifiable reliance is a necessary element of all negligent misrepresentation
SEC v. Frank, 388 F.2d 486 (2nd Cir. 1968), Rospatch Securities Litigation
v. Rospatch Corp., 760 F.Supp. 1239 (W.D. Mich. 1991, and Azrielli v. Cohen Law
Offices, 21 F.3d 512 (2nd Cir. 1994).
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
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,
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
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, 655 A.2d 1354, 1361-62 (N.J. 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, 876 A.2d 253, 267-68 (N.J. 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); Mehaffey,
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, 71 A.3d 552, 567-68 (Conn. App. 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, 781 N.E.2d 849,
856-58 (Mass. App. 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 910, 915-16 (6th Cir.1991) (stating that under
Michigan law of negligent misrepresentation, an attorney owes a duty to third parties
whom the attorney knows will rely on the information and whom the attorney should
reasonably foresee will rely on the information); and Horizon Financial v. Hansen, 791
F. Supp. 1561, 1573-74*(N.D.Ga.1992) (concluding that attorneys' opinion letters
support claim for negligent misrepresentation under both Pennsylvania and Georgia law,
which both follow § 552 of the Restatement of Torts).
Missouri has followed § 552 since at least 1997. See Ligon Specialized Hauler,
Inc. v. Inland Container Corp., 581 S.W.2d 906, 908-09 (Mo. App. E.D. 1979) (citing
§ 552 “as a persuasive frame of reference for the cause of action” of negligent
misrepresentation). Since Ligon, Missouri courts have extended the cause of action as
defined by § 552 to negligent misrepresentations made by a variety of professionals,
including accountants, MidAmerican Bank & Trust Co. v. Harrison, 851 S.W.2d 563, 564
(Mo. App. W.D. 1993); architects, contractors, and manufacturers, Chubb Grp. Of Ins.
Cos. V. C.F. Murphy and Assoc., Inc., 656 S.W.2d 766 (Mo. App. W.D. 1983); and real
estate brokers, see Springdale Gardens, Inc. v. Countryland Dev., Inc., 638 S.W.2d 813
(Mo. App. 1982); as well as sellers and their brokers, see Kesselring v. St. Louis Group,
Inc., 74 S.W.3d 809 (Mo. App. E.D. 2002). Today, Missouri Courts regularly cite
Colgan v. Washington Realty Co., 879 S.W.2d 686, 689 (Mo. App. E.D. 1994), as
adopting the § 552 test for the elements of a claim of negligent misrepresentation under
Missouri law. See e.g. Kesselring v. St. Louis Group, Inc., 74 S.W.3d 809, 813 (Mo.
App. E.D. 2002) (citing Colgan as “adopting the Restatement (Second) of Torts, Section
552 test for negligent misrepresentation”).
The Court is aware of Missouri cases which in dicta state that a non-client must
prove an intentional tort, such as fraud, in order to state a claim against a lawyer for a
See, e.g., Roth v. La Societe Anonyme Turbomeca France, 120
S.W.3d 764, 776 (Mo. Ct. App. 2003); Macke Laundry Svc. Ltd. Partnership v. Jetz Svc.
Co., 931 S.W.2d 166, 178 (Mo. Ct. App. 1996); Mark Twain Kansas City v. Jackson, 912
S.W.2d 536, 538 (Mo. Ct. App. 1995); Kennedy v. Kennedy, 819 S.W.2d 406, 410 (Mo.
Ct. App. 1991); and White v. McCoy Land Co., 101 S.W.2d 763 (Mo. App. 1936), aff’d
White v. Scarritt, 111 S.W.2d 18 (Mo. 1937) (and cases cited therein). But none of these
cases actually held that a negligent misrepresentation claim was not permissible in
Instead, they were decided on other grounds or the issue of negligent
misrepresentation was not even raised by the pleadings. Further, the above cases which
were decided after the recognition of § 552 in Missouri, and did not mention § 552 or its
approval by other Missouri courts.
Finally, in the Donahue opinion the Missouri
Supreme Court followed a national trend recognizing a cause of action for legal
malpractice by non-clients. Given the national trend to recognize negligent
misrepresentation claims against lawyers by non-clients and the consistent application of
§ 552 to other professionals, the Court predicts that Missouri courts will likewise
recognize such a claim against lawyers by non-clients so long as the requirements of
§ 552 are satisfied.
misrepresentation claim, the Court turns to the additional arguments made by Armstrong
Teasdale as to why summary judgment should be granted on that claim. Armstrong
Teasdale argues that Edward Li’s information should not be attributable to it because
Mr. Li was not an employee of Armstrong Teasdale.
It also argues that Mr. Li’s
knowledge should not be imputed to the Armstrong Teasdale lawyer who actually
prepared the offering statement because that lawyer did not have the information, and to
impute the information to that lawyer would violate well-established principles of
Under Missouri law, a corporate entity “can obtain knowledge only through its
agents and, under the well-established rules of agency, the knowledge of agents obtained
in the course of their employment is imputed to the corporation.” Wandersee v. BP
Products North America, Inc., 263 S.W.3d 623, 629 (Mo. 2008) (citing Packard Mfg. Co.
v. Indiana Lumbermens Mut. Ins. Co., 203 S.W.2d 415, 421 (Mo. 1947), and Am. Jur. 2nd
Corporations, § 1442)). Wandersee involved a claim against the defendant corporation,
BP, for injurious falsehood based on BP’s accusation that the plaintiffs had stolen some
of BP’s property. In that case, the court held that the knowledge of BP’s agents was
attributable to “BP itself” and that the plaintiffs had produced sufficient evidence, in the
form of the knowledge of BP’s agents, to support a jury finding that BP had actual
knowledge of the falsity of a theft accusation. Id. at 629-30. See also Major Cadillac,
Inc. v. General Motors Corp., 280 S.W.3d 717, 722 (Mo. Ct. App. 2009) (current
corporate counsel’s lack of knowledge concerning presence of arbitration clauses in
agreements drafted by previous corporate counsel did not limit GM’s knowledge of the
arbitration clauses; as corporation, GM’s knowledge is not limited to one employee or
agent). Therefore, the fact that the lawyer making the false statement did not know it was
false does not show that Armstrong Teasdale lacked knowledge of the false statement.
Armstrong Teasdale also suggests that Mr. Li’s knowledge could not be shared
within the firm because of professional rules of confidentiality, and therefore, his
knowledge should not be imputed to the lawyer who prepared the offering statement that
contained the false information. This argument is unpersuasive because the information
Mr. Li gathered was publicly available. Information available to the public is not subject
to non-disclosure rules. In re Lim, 210 S.W.3d 199, 201-202 (Mo. 2007). Further,
Mr. Li is not an attorney and never provided legal services to DED. And he did provide
the information to Maria Desloge, an Armstrong Teasdale employee.
Finally, Armstrong Teasdale argues it cannot be liable for negligent
misrepresentation because Cromeans never read the Official Statement or anything
Armstrong Teasdale wrote, and was at most an indirect recipient of statements made by
Section 552 does not require the recipient of the negligent
misrepresentation to have received it directly from the defendant.
(Second) of Torts, § 552, comment g., Information supplied directly and indirectly.
(“[D]irect communication of the information to the person acting in reliance upon it is not
necessary.”) In addition, Cromeans was given a bullet point summary of the offering
statement prepared by Morgan Keegan and that summary contained the false information
about the Mamtek project.
A reasonable juror could therefore find the element of
justifiable reliance satisfied.
In summary, there is evidence that Armstrong Teasdale, in the course of its
professional duties, supplied information that it knew to be false to Morgan Keegan,
knowing that Morgan Keegan intended to supply it to potential bond purchasers. Further,
Cromeans arguably relied on that information and suffered loss as a result. This is
sufficient to make a submissible claim for negligent misrepresentation under § 552.
While Armstrong Teasdale disclaimed any responsibility for checking the accuracy of the
facts, it could not with impunity include facts in the offering statement that it knew to be
false, particularly in light of its affirmative statement that it knew of no facts contrary to
the offering statement.
In view of the above, the order granting summary judgment to Armstrong
Teasdale on the negligent misrepresentation claim was in error and is vacated.
Plaintiff Cromeans’ motion to vacate, [Doc. 455], is granted as to Cromeans’
negligent misrepresentation claims against Armstrong Teasdale. Cromeans’ motion to
vacate is denied in all other respects.
s/ Nanette K. Laughrey
NANETTE K. LAUGHREY
United States District Judge
Dated: December 1, 2014
Jefferson City, Missouri
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