Pearson v. Simmonds Precision Products

PEARSON_V_SIMMONDS_PRECISION_PRODUCTS.91-516; 160 Vt. 168; 624 A.2d 1134


[Opinion Filed 26-Feb-1993]

[Motion to Clarify Denied 19-Mar-1993]

 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P.
 40 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                                 No. 91-516


 Richard Pearson                              Supreme Court

                                              On Appeal from
      v.                                      Addison Superior Court

 Simmonds Precision Products, Inc.            November Term, 1992


 Michael S. Kupersmith, J.

 James W. Runcie of Ouimette & Runcie, Vergennes, for plaintiff-appellee

 Craig Weatherly of Gravel and Shea, Burlington, for defendant-appellant


 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


      ALLEN, C.J.   Defendant appeals from superior court denial of its
 motions for judgment notwithstanding the verdict and for new trial,
 following a jury verdict in favor of plaintiff for negligent failure to
 disclose and negligent misrepresentation.  We affirm in part and reverse in
 part.
      Plaintiff, who had been laid off from his previous job, interviewed for
 a senior test engineer position with defendant on April 28, 1987.  At the
 interview, plaintiff was told he would be working on Block 1 of Project 147,
 which involved the design of a fuel system for the Boeing B-2 bomber.  The
 factual dispute at trial centered on representations made by defendant to
 induce plaintiff to accept defendant's job offer.  Plaintiff claims that
 defendant assured plaintiff that his employment was not specifically tied to
 Block 1, that there would be other work for plaintiff in the event of the
 failure of Block 1, and that defendant's military work was only forty
 percent of its total work.  Defendant claims that it made no guarantees to
 plaintiff regarding job security and that the employment contract, which
 allows termination at the employer's will, should have dispelled any of
 plaintiff's mistaken beliefs about job security.  Defendant also denies
 having stated that its military work comprised only forty percent of its
 total work.
      Relying on defendant's representations, plaintiff began work for
 defendant on May 18, 1987 and relocated from New Hampshire to Vermont in
 July of 1987.  Defendant's Block 1 work was subsequently descoped, and
 plaintiff was laid off on September 25, 1987.  At trial, the jury found for
 plaintiff and awarded him $92,000 for loss of past income, $71,200 for loss
 of future income and $42,000 for emotional distress.
      Defendant appeals on several grounds, all of which relate to the two
 legal theories of the case below under the Restatement (Second) or Torts {{
 551, 552.  First, defendant argues that the court erred in denying its
 motion for a directed verdict on the negligent failure to disclose claim
 because, under the Restatement (Second) of Torts { 551, it did not owe a
 duty to plaintiff and because the employment contract constituted a complete
 disclosure of all facts regarding plaintiff's job security.  Defendant also
 asserts that the trial court erred in failing to charge the jury that any
 duty defendant owed to plaintiff under { 551 ended when plaintiff signed the
 employment contract and began work.  In addition, defendant contends that
 there was insufficient evidence of a false statement of existing fact to
 support a verdict of negligent misrepresentation.  Defendant further argues
 that it should have been granted a directed verdict because plaintiff's loss
 was not foreseeable.  Finally, defendant argues that the trial court erred
 in charging the jury that it could award damages for emotional distress, and
 in failing to set aside that portion of the verdict due to insufficient
 evidence.
      Contrary to defendant's contention, defendant owed a duty of care to
 plaintiff under Restatement (Second) of Torts { 551.  A party to a business
 transaction has a duty to exercise reasonable care to disclose to the other
 party the following information before the transaction is consummated:
          (b) matters known to him that he knows to be necessary
         to prevent his partial or ambiguous statement of the
         facts from being misleading; and
           (c) subsequently acquired information that he knows
         will make untrue or misleading a previous representation
         that when made was true or believed to be so; and

          . . .

           (e) facts basic to the transaction, if he knows that
         the other is about to enter into it under a mistake as
         to them, and that the other, because of the relationship
         between them, the customs of the trade or other
         objective circumstances, would reasonably expect a
         disclosure of those facts.
         Restatement (Second) of Torts { 551(2).
      There was ample evidence that plaintiff was hired specifically for
 Block 1 of Project 147, which was facing serious cutbacks, and that before
 plaintiff was hired, defendant knew there was a good chance that plaintiff's
 job would be eliminated.  Defendant failed to disclose this information to
 plaintiff prior to plaintiff signing his employment contract or beginning
 work, despite plaintiff's expressed concerns regarding job security.  This
 situation fits within Restatement (Second) of Torts { 551; thus, the trial
 court did not err.
      Defendant also contends that the trial court was wrong when it failed
 to hold that the employment contract constituted a complete disclosure
 regarding plaintiff's job security.  A jury, however, may find negligent
 misrepresentation, despite contractual disclaimers, where the facts support
 such a finding.  See Silva v. Stevens, 156 Vt. 94, 113, 589 A.2d 852, 863
 (1991) (jury could have found that plaintiffs justifiably relied on
 defendants' negligent misrepresentation in spite of "as is" clause of real
 estate sale contract).  The facts of the present case support the jury's
 finding.
      On his first day of work, plaintiff signed an employment agreement,
 which he had never seen before that stated that plaintiff's position could
 be terminated at any time.  This agreement, however, did not inform
 plaintiff that he was being hired specifically for Block 1 or that an
 alternative to Block 1, which decreased defendant's need for plaintiff's
 position, was likely to be adopted by defendant.  Therefore, it was
 reasonable for the jury to conclude, regardless of any such employment
 agreement, that defendant breached its duty to disclose this information to
 plaintiff.
      Defendant also asserts that the trial court erred in failing to charge
 the jury that any duty defendant owed to plaintiff under { 551 ended when
 plaintiff signed the employment contract and began work.  We need not reach
 the issue of whether { 551 requires a continuing duty to disclose after the
 transaction was completed.  All of defendant's alleged failures to disclose
 occurred prior to July 1987, the date of the second transaction between the
 parties, in which defendant gave plaintiff a loan to buy a house in Vermont
 and paid plaintiff's moving expenses.  Thus, defendant's failures to
 disclose took place before the consummation of the second transaction and {
 551 applies.
      Defendant contends that there was insufficient evidence of a false
 statement of existing fact to support a claim for negligent misrepresent-
 ation.  Plaintiff testified, however, that during his interview, he
 expressed concern that companies carrying a high amount of military work
 tend to hire and fire employees as military contracts are commenced and
 completed.  In response, defendant assured plaintiff that only 40% of its
 work was for the military, despite the fact that defendant's work load
 actually consisted of 70% military work.  Further, plaintiff testified that
 he was led to believe his position did not depend on a specific project
 because he was told that other work was available in the event Project 147
 was unsuccessful.  Plaintiff was hired, however, exclusively for Block 1 and
 was laid off due to a descoping of Block 1.  Although defendant presented
 contrary evidence, it is the role of the jury to evaluate witness
 credibility and to reconcile conflicting evidence, and "[n]o error arises
 merely because the jury accepts one party's proof over that of the other."
 Claude G. Dern Electric, Inc. v. Bernstein, 144 Vt. 423, 426-27, 479 A.2d 136, 138 (1984).
      Defendant also argues that it should have been granted a directed
 verdict on both negligence claims because any damage to plaintiff's career
 was not foreseeable.  To support its contention, defendant argues that
 plaintiff signed an employment agreement stating that his position could be
 terminated at any time.  Reliance damages are available, however, where "the
 loss might reasonably be expected to result from the reliance."  Restatement
 (Second) of Torts { 548A.  There was sufficient evidence that defendant knew
 that plaintiff was concerned about job security, had recently been laid off,
 and was concerned about the potential of another layoff from a company that
 performed a substantial amount of military work.  Defendant's
 misrepresentations and failures to disclose induced plaintiff to accept
 defendant's offer of employment.  Plaintiff's subsequent loss of employment
 and loss of future employment were foreseeable damages resulting from the
 reliance.
      Finally, defendant argues that plaintiff was not entitled to recover
 damages for emotional distress because {{ 551 and 552 of the Restatement
 (Second) of Torts limits recovery to pecuniary damages.  We agree.  The case
 went to the jury on two legal theories, negligent misrepresentation ({ 552)
 and negligent failure to disclose ({ 551).  Under the first legal theory,
 negligent misrepresentation, the damages recoverable are those necessary to
 compensate the plaintiff for the pecuniary loss suffered, (FN1) and not
 emotional distress.  Federal Land Bank Association v. Sloane, 825 S.W.2d 439, 443 (Tex. 1991) (in an action for negligent misrepresentation under the
 Restatement, plaintiff may not recover damages for mental anguish).  In
 Branch v. Homefed Bank, 8 Cal. Rptr. 2d 182 (Cal. Ct. App. 1992), a recovery
 for emotional distress was denied in an action for negligent
 misrepresentation.  With facts similar to those presented here, the court
 stated:
           In sum, this was a case in which plaintiff's direct
         loss resulting from the negligent conduct of the
         defendant was economic.  The consequential injury
         resulting from economic loss in terms of emotional
         distress is not compensable.  Recovery for worry,
         distress and unhappiness as the result of . . . loss of
         a job . . . is not permitted when the defendant's
         conduct is merely negligent.

 Id. at 187; see also  Crowley v. Global Realty, Inc., 474 A.2d 1056, 1058
 (N.H. 1984)(plaintiffs may not recover damages for mental and emotional
 distress in a claim for negligent misrepresentation).
      Under the second theory of liability, negligent failure to disclose,
 the Restatement { 551 contains no specific language limiting damages to
 pecuniary loss.  Section 551, however, is found in Chapter 22 of the
 Restatement, which is entitled "Misrepresentation and Nondisclosure Causing
 Pecuniary Loss."  The scope note to this Chapter reads, in part, as follows:
           So far as misrepresentation has been treated as giving
         rise in and of itself to a distinct form of tort
         liability, it has been concerned and identified with
         resulting pecuniary loss.

 Thus, emotional distress damages are not recoverable under { 551 of the
 Restatement.
      In support of his contention that damages for emotional distress are
 available, plaintiff cites Little v. York County Earned Income Tax Bureau,
 481 A.2d 1194 (Pa. Super. Ct. 1984) and Silver v. Nelson, 610 F. Supp. 505
 (E.D. La. 1985).  Neither case discusses the pecuniary loss limitation in
 the Restatement or the policy reasons for limiting recovery to pecuniary
 loss.  Little permitted recovery under { 905(b) of the Restatement because
 the plaintiff had been falsely imprisoned for five days as a result of the
 negligent misrepresentation. (FN2) Silver would have allowed recovery on the
 authority of a Louisiana case which permitted recovery for emotional
 distress in the absence of physical injury when a tractor-trailer
 negligently came to rest on the top of the car being operated by the
 plaintiff -- a case clearly distinguishable from the facts at hand.
      The jury award for emotional distress is reversed and the matter
 remanded for entry of judgment consistent with this opinion.
      Affirmed in part and reversed in part.  Remanded for entry of judgment
 consistent with this opinion.

                                         FOR THE COURT:




                                         Chief Justice


FN1.     Section 552B(1) of the Restatement (Second) of Torts states:
  (1)  The damages recoverable for a negligent
 misrepresentation are those necessary to compensate the
 plaintiff for the pecuniary loss to him of which the
 misrepresentation is a legal cause, including
   (a)  the difference between the value of what he has
 received in the transaction and its purchase price or
 other value give for it; and
   (b)  pecuniary loss suffered otherwise as a
 consequence of the plaintiff's reliance upon the
 misrepresentation.

FN2.     The comment to { 905(b) notes that the principal element of damage
 in an action for false imprisonment is emotional distress.  We do not
 suggest that recovery for emotional distress cannot be had where there is an
 infringement of some other interest.