The following article was written by Benjamin Haynes, Esq.
Negligent Representation and the Duty Element
On August 8, 2012, the Minnesota Supreme Court overturned a decision, by the appellate court, which awarded $1 million against Tubby Smith and the University of Minnesota. Tubby Smith, the head basketball coach at the University of Minnesota, allegedly offered James Williams an assistant coaching position with the University of Minnesota. In reliance of that offer, Williams resigned from his previous position at Oklahoma State. After he had resigned, Williams was then notified by Tubby that Williams would not be offered the job at Minnesota. This lawsuit followed.
James Williams brought suit, in district court, against Tubby Smith and the University of Minnesota for negligent misrepresentation. The jury found in favor of Williams and awarded damages of $1,247,293. However, the district court granted the University’s and Smith’s motion to reduce the jury’s award. The award was reduced to $1,000,000. The court of appeals affirmed the district court’s decision. The University then sought review by the Supreme Court.
The facts in this case are of great importance, especially based on the timing of when certain events occurred:
March 30, 2007: Williams and Smith had a two-hour meeting discussing the role Williams could play as an assistant to Smith, and possible compensation.
April 1, 2007: Smith and Williams spoke again, discussing the possibility of Williams becoming an assistant coach. Williams was asked by Smith to fax over a copy of his resume.
April 2, 2007: Smith spoke with the Athletic Director, Joel Maturi, about hiring Williams as an assistant. Concerns about Williams’ past investigations by the NCAA were raised during this discussion. However, Smith reassured Maturi about Williams. After this conversation, Maturi directed others at the University to work on “temporary housing, transportation, University paperwork, keys, and ID” for Williams. In response to Maturi’s direction, the University went as far to prepare a Memorandum of Agreement between the University and Williams. This was never finalized, however.
Smith called Williams and told him that the University had agreed to pay the salary Williams had requested. Further, Smith asked Williams if he was, “ready to join him at the University of Minnesota.” Williams replied, “yes.” Williams at this time had believed that Smith had offered him a job, and he had accepted the position.
After Williams’ discussion with Tubby, Williams called his current employer, Sean Sutton, at Oklahoma State, and notified him that he would be leaving Oklahoma State for a position at Minnesota. Sutton asked Williams to submit a resignation letter.
April 3, 2007: While Williams was preparing his resignation letter, Smith called him and told him that the athletic director’s (Maturi) approval was needed for the offer to Williams.
Smith called Williams again and notified him that Maturi was strongly opposed to hiring him. Smith stated that the University and Smith were afraid that Williams would hurt the school’s reputation because of Williams’ past NCAA investigations.
Sutton received Williams resignation letter. Williams v. Smith, 2012 WL 3192812 (Minn.).
The court adopted the definition of negligent misrepresentation from the Restatement (Second) Torts § 552 (1976):
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 transaction, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care of competence in obtaining or communicating the information.
Further, to prevail on a negligent misrepresentation claim, the plaintiff must establish:
- A duty of care owed by the defendant to the plaintiff;
- The defendant supplied false information to the plaintiff;
- Justifiable reliance upon the information by the plaintiff; and
- Failure by the defendant to exercise reasonable care in communicating the information. See Bonhiver v. Graff, 311 Minn. 111, 122, 248 N.W.2d 291, 298 (1976).
Duty of Care:
The question of whether a duty of care exists is a question of law. Domagala v. Rolland, 805 N.W.2d 14, 22 (Minn.2011). The existence of a duty of care is a threshold requirement. Id. Without it, liability cannot attach. Id. Therefore, in order for Williams to succeed on a claim against Smith and Minnesota, he had to prove that Smith and Minnesota owed him a duty of care.
If a duty exists in a given case, it is derived from the legal relationship between the parties and a determination that the plaintiff’s interests are entitled to legal protection against defendant’s conduct. M.H. v. Caritas Family Servs., 488 N.W.2d (Minn. 1992). “Duty” is commonly reserved for obligations of performance, which rest upon a person in an official or fiduciary capacity, and includes such offices or relation as those of an attorney, guardian, executor or broker, a director of a corporation and a public official. Id.
The University argued that an employer owes no duty to a prospective employee in the context of negotiations for employment. Id. Williams contended that Smith owed him a duty of care because liability for misrepresentations can arise even during an arm’s length negotiation, and because once Smith chose to speak, he had a duty not to mislead Williams after Williams’ and Smith’s interests were “unified.” Id.
Arm’s Length Commercial Transaction
Since Minnesota had not before decided whether a negligent misrepresentation claim could be brought by a party at an arm’s length commercial transaction, the Supreme Court stated case law which held that their courts did not extend a duty of care to arm’s length commercial transactions. No duty is owed where two adversarial parties are negotiating at arm’s length to further their own economic interests. Onita Pac. Corp. v. Trustees of Bronson, 843 P.2d 890, 897 (Or.1992). The court further stated that the reasoning this duty is not extended under such circumstances, is because sophisticated parties negotiating a commercial transaction are entitled to legal protection only for intentional, fraudulent conduct. Id. Therefore, this duty would not extend to negligent misconduct.
The Supreme Court held that the legal relationship between Williams and Smith was not the type of relationship entitled to legal protection, and therefore no duty of care against negligent representation was owed. Id.
The court outlined three main reasons why they came to this conclusion:
- The relationship in negotiating potential employment was not a professional, fiduciary, or special legal relationship in which one party had superior knowledge or expertise. The court stated that the parties stood on equal footing regarding the scope of Smith’s authority in negotiating a prospective employment relationship. The court noted with great emphasis that Smith’s authority was equally available to both parties via the University’s public access web site. The website stated that the athletic director has the authority to hire a men’s basketball coach. The court then added that Smith notified Williams that Maturi had to sign off on Smith’s offer, and that there was no evidence that Smith told Williams that Smith had final hearing authority. Id.
- The nature of the relationship between Williams and Smith did not support a duty of care in this case. The court reasoned that both of these coaches were sophisticated business people who had decades of coaching experience and understood the hiring practices within this environment. Id.
- The court found that there was no reason or public policy which would warrant imposing a duty of care in the context of a prospective government employment relationship involving negotiations by sophisticated parties who do not stand in a special legal relationship. The court cited to a Texas case, which states, “It would be fanciful at best to suggest that every time one applies for a job with a potential employer that a fiduciary relationship is created. When a person enters into job negotiations he is looking out for himself while the potential employer is looking out for the needs of the business. American Med. Int’l. Inc. v. Giurintano, 821 S.W.2d 331, 340 (Tex.App.1991).
Dissent and My Thoughts
Justice Meyer dissented against the majority of the Minnesota Supreme Court. His main argument, that I essentially agree with, is that public policy does support imposing a duty of care on the University to supply accurate and truthful information to a prospective employee. The existence of a legal duty is a question of law based on public policy concerns. Smith v. Burger Cos., 569 N.W.2d 408, 415 (Minn.1997). Further, the court states “where the government official was in a position to know the truth, he had a duty to provide accurate information so that persons who relied on that information would not suffer loss through improper performance of the duty or neglect in its execution. Id.
Public policy was the main reason I believe that the court should have affirmed the court of appeals decision. As stated in the dissent, “Members of the public have no other access to factual information maintained by the government except through government officers and employees. Therefore, the policy of promoting accuracy through the prospect of tort liability outweighs the possibility of inhibiting performance of duties of office or employment. Id. While the majority got it right that there is no legal relationship creating a duty between the parties, however, public policy creates a duty owed.
Tubby offered the job to Williams and told him that he got Williams the money he wanted. Further, Smith knew that he had to get the Athletic Director’s approval, but represented to Williams that he had hiring authority. No evidence was presented to the court that Williams had access to publicly available information regarding the authority to hire within the men’s basketball program. Id.
On point two, the sophistication of the business people with experience in the hiring of college basketball environment, Williams testified that in all of his years of coaching, he did not know a single coach who did not possess the authority to hire his own staff. Id. Meaning, it was common practice in this environment and business that head coaches hired their own staff without having to ask permission from the AD. At trial, other experienced coaches, with no pecuniary interest in the case, testified that they had never heard of a university administrator vetoing the hiring decision of a head coach. Id.
The biggest factual issue, that I believe should have been the reason the court of appeals had their decision affirmed, was the fact that the disclosure, of Smith telling Williams that the AD’s approval was necessary, did not come until after Williams had orally resigned from his position at OSU and the head coach had filled the position. As the dissent states, “the majority has unfairly skewed the evidence to support its result, contrary to our standard of review.” Id.
Public policy generally is an equitable argument to be made in court in order for justice to be found at the conclusion of a legal issue. If there is not a statutory basis for providing justice, public policy will give a path to promote what is best for the public. Public policy in this case should have found that Smith knew his limits of his hiring authority and simply had a duty not to falsely represent the scope of his hiring authority when he knew that Williams would rely on that authority, and resign from his position.
I believe the jury, district court, and the court of appeals got this issue right the first time. The Supreme Court misplaced facts into legal arguments and came up with a skewed outcome. Public policy was not advanced in this court’s outcome, but an inequitable result was issued.