Minnesota Supreme Court Rejects Negligent Misrepresentation Claim Against University of Minnesota and Coach Tubby Smith

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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After five years of litigation, the shot clock has expired in a long-standing legal dispute between the University of Minnesota, its men’s basketball coach Tubby Smith, and Jimmy Williams. On August 8, 2012, the Minnesota Supreme Court reversed a $1 million jury award to Williams on his negligent misrepresentation claim against the university and Smith. In reversing the jury award, the court held that, because the prospective government employment relationship between the university and Williams was negotiated at arm’s length between sophisticated business persons and did not involve a professional, fiduciary, or other special legal relationship between the parties, Williams was not entitled to protection against negligent misrepresentations by the university’s representative (Smith). Williams v. Smith, et al., Nos. A10-1802 and A11-0567 (Minn. Aug. 8, 2012).

Background

In the spring of 2007, Smith and Williams spoke about the possibility of Williams becoming an assistant coach at the university. Based on certain comments made by Smith, Williams believed that Smith had offered him an assistant coaching job and he had accepted. As Williams was preparing to submit a resignation letter to Oklahoma State University, Smith told Williams that University of Minnesota Athletic Director Joel Maturi’s approval was needed for the offer to Williams. Maturi ultimately opposed the hiring of Williams when he learned that Williams had committed major National Collegiate Athletic Association (NCAA) recruiting violations when he had previously coached for the university. Consequently, Williams was not offered an assistant coaching position with the university.

Williams sued the university and Athletic Director Maturi asserting, among others, claims of common-law breach of contract, negligent misrepresentation, and estoppel. Williams claimed he had accepted the offer, resigned his position as assistant coach at Oklahoma State University, and placed his house on the market. All of the claims against the university and Maturi were dismissed by the district court, but the Minnesota Court of Appeals reversed dismissal of the negligent misrepresentation claim. The court of appeals thereafter remanded to the district court for trial on the negligent misrepresentation claim.

Williams then commenced a separate action against Smith for, among other things, negligent misrepresentation and fraud, and the district court consolidated the two cases. After Maturi was dismissed as a party to the litigation and only the negligent misrepresentation claims against the university and Smith remained, the jury returned a verdict in favor of Williams. Both parties appealed on various grounds, and the court of appeals affirmed the district court’s ruling in October 2011. The university then sought review by the Minnesota Supreme Court, and oral arguments were held on May 3, 2012.

The Minnesota Supreme Court’s Decision

The Minnesota Supreme Court granted the university’s petition to review on two issues: (1) whether a duty of care exists in arm’s-length negotiations between a prospective employer and a prospective employee; and (2) whether a person negotiating a contract with a government representative is conclusively presumed to know the extent of the authority of that representative. The university argued that an employer owes no duty of care to a prospective employee in the context of negotiations for an employment opportunity and, accordingly, Williams’s negligent misrepresentation claim fails as a matter of law.

To prevail on a negligent misrepresentation claim, a plaintiff must establish that: (1) the defendant owed the plaintiff a duty of care; (2) the defendant supplied false information to the plaintiff; (3) the plaintiff justifiably relied upon the information; and (4) the defendant failed to exercise reasonable care in communicating the information. Thus, on appeal, the first and third elements were at issue.

In analyzing whether the university owed a duty of care to Williams, the supreme court recognized that there is no general duty of care against negligent misrepresentations. Critical to the court’s analysis was consideration of the contexts in which it has previously recognized a duty of care. For example, the court has found a duty of care in the context of certain legal relationships, such as accountant/client relationships, attorney/client relationships, and other fiduciary relationships involving guardians, executors, and directors of corporations. The court also has extended the duty to special legal relationships in which one party has superior knowledge or expertise.

The court, however, has not recognized a duty of care in the context of prospective government transactions. Additionally, the court noted that it has previously declined to decide whether a negligent misrepresentation claim can be brought by a party to an arm’s-length commercial transaction, but it recognized that other states have not extended the duty of care to such commercial transactions.

Ultimately, in analyzing these principles, the court concluded that the relationship between Williams and Smith was not the type of relationship entitled to legal protection and, accordingly, no duty of care against negligent misrepresentation was owed. In refusing to recognize a duty, the court reasoned that (1) the relationship between Smith and Williams “in negotiating potential employment was not a professional, fiduciary, or special legal relationship in which one party had superior knowledge or expertise”; (2) the nature of the relationship between Smith and Williams did not support recognizing a duty of care, especially in light of the fact that both men were sophisticated business people, with decades of experiences with hiring practices of universities, who were negotiating at arm’s length and watching out for their own interests; and (3) public policy did not warrant imposing a duty of care.

Because the court held that Williams was not owed a duty of care, the negligent misrepresentation claim failed as a matter of law. Since the court concluded that no duty of care was owed, it was unnecessary for the court to address the reasonableness of Williams’s reliance.

Although the court’s decision in the Williams case is based on the relatively unique facts of the case, the holding in Williams is not limited to public entities and their employees. In light of Williams, all Minnesota employers may be less likely to be found liable for negligent or reckless misrepresentations made by their employees to applicants during the hiring process. Nevertheless, employers should avoid making misrepresentations during the hiring and job offer process, particularly since claims for intentional or fraudulent misrepresentations are unaffected by the Williams decision.

Ashlee M. Bekish is an associate in the Minneapolis office of Ogletree Deakins.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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