Brogan v. Mitchell International Inc.

Brogan v. Mitchell, No. 81932 (2/20/98)

Docket No. 81932--Agenda 22--March 1997.
MICHAEL T. BROGAN, Appellee, v. MITCHELL INTERNATIONAL, INC.,
Appellant.
Opinion filed February 20, 1998.

JUSTICE NICKELS delivered the opinion of the court:
The issue presented for review is whether there exists a legal duty to avoid
negligent misrepresentations that cause emotional, rather than physical, harm. Plaintiff,
Michael T. Brogan, is a former employee of the defendant, Mitchell International, Inc.
Plaintiff filed an amended three-count complaint in the circuit court of Cook County,
alleging negligent misrepresentation, breach of fiduciary duty and breach of contract.
Defendant's motion to dismiss the complaint was granted and plaintiff appealed. The
appellate court reversed only the dismissal of plaintiff's count alleging negligent
misrepresentation, finding that there exists a duty to avoid inaccurately conveying
information that causes emotional harm. No. 1--95--0235 (unpublished order under
Supreme Court Rule 23). This court granted defendant's petition for leave to appeal
(166 Ill. 2d R. 315). We reverse.

BACKGROUND
Plaintiff's amended complaint contains the following allegations. Plaintiff
responded to a newspaper advertisement placed by defendant soliciting employment
applications for the position of marketing manager. On January 13, 1994, plaintiff
interviewed with defendant's human resources manager, who told him that the
company was expanding and growing. Plaintiff later interviewed with defendant's
vice-president, who told him that the company was a "$35 million per year" company
which was going to "double its size" over the next two to three years. On February
25, 1994, defendant's vice-president offered plaintiff the position. Relying on these
representations, plaintiff accepted the offer and terminated his previous employment.
Plaintiff began working for the defendant on March 21, 1994. Shortly
thereafter, plaintiff learned from other employees that defendant's financial condition
was not strong. Plaintiff determined that his new company was not a "$35 million per
year" company and that it was not likely to double in size in the next several years.
On May 31, 1994, defendant announced that it was suffering severe financial
difficulties. On June 2, 1994, plaintiff was fired as part of what defendant described
as an "economically-induced restructuring."
From these allegations, plaintiff set forth a two-count complaint that was
dismissed. Plaintiff subsequently filed an amended complaint containing three counts.
Count I sought recovery under a negligent misrepresentation theory, alleging that
defendant acted as a "recruiting firm" and was therefore in the business of supplying
information to plaintiff when it hired him. Count I further alleged that defendant's
misrepresentations caused plaintiff economic loss and severe emotional injury. Count
II alleged that defendant breached a fiduciary duty owed to the plaintiff. Count III
alleged that defendant breached an express contract of employment.
Defendant moved to dismiss the action pursuant to section 2--615 of the Code
of Civil Procedure (735 ILCS 5/2--615 (West 1992)). Defendant argued that plaintiff's
complaint failed to state a cause of action for negligent misrepresentation because as
a prospective employer defendant was not in the business of supplying information
to others for guidance in their business transactions. Defendant also argued that
plaintiff failed to plead facts showing any fiduciary or contractual relationship
between the parties. The circuit court agreed with defendant's arguments and
dismissed plaintiff's entire complaint. Plaintiff appealed.
The appellate court affirmed the circuit court's dismissal of the counts seeking
recovery under theories of breach of fiduciary duty and breach of contract, but
reversed the court's finding that plaintiff's complaint failed to state a cause of action
for negligent misrepresentation. No. 1--95--0235 (unpublished order under Supreme
Court Rule 23). The appellate court did not address the issue of whether defendant
was in the business of supplying information. Instead, the appellate court determined
that plaintiff's complaint states a cause of action for negligent misrepresentation
because it alleges that the misrepresentation caused severe emotional distress. Relying
on Corgan v. Muehling, 143 Ill. 2d 296 (1991), the appellate court reasoned that
plaintiff's allegation that he suffered severe emotional harm equates to physical harm
for purposes of establishing a duty to convey accurate information.
We allowed the defendant's petition for leave to appeal. Defendant argues that
the appellate court erred in equating emotional harm to physical harm for purposes
of stating a cause of action for negligent misrepresentation. Plaintiff did not enter an
appearance in this court and did not file a brief challenging the dismissal of the
remaining counts in his complaint. Therefore, the sole issue before this court is
whether the appellate court erred in finding that there exists a duty to avoid negligent
misrepresentations that cause emotional, rather than physical, harm.

ANALYSIS
A motion to dismiss under section 2--615 tests the legal sufficiency of a
pleading. Doe v. Calumet City, 161 Ill. 2d 374, 384 (1994). In determining the legal
sufficiency of a complaint, all well-pleaded facts are taken as true and all reasonable
inferences from those facts are drawn in favor of plaintiff. Connick v. Suzuki Motor
Co., 174 Ill. 2d at 490. A reviewing court must determine whether the allegations in
a complaint, when viewed in a light most favorable to the plaintiff, are sufficient to
state a cause of action upon which relief can be granted. Connick, 174 Ill. 2d at 490.
The sufficiency of a complaint is an issue of law that we review de novo. Busch v.
Graphic Color Corp., 169 Ill. 2d 325, 333 (1996).
In order to state a cause of action for negligent misrepresentation, plaintiff's
complaint must first allege facts establishing a duty owed by the defendant to
communicate accurate information. Board of Education v. A, C & S, Inc., 131 Ill. 2d 428, 452 (1989). To date, this court has recognized a duty to communicate accurate
information in only two circumstances. First, this court has imposed a duty to avoid
negligently conveying false information that results in physical injury to a person or
harm to property. Board of Education, 131 Ill. 2d at 454-56; see generally
Restatement (Second) of Torts sec. 311 (1965). Second, this court has imposed a duty
to avoid negligently conveying false information where one is in the business of
supplying information for the guidance of others in their business transactions.
Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69, 89 (1982).
The appellate court determined that plaintiff's complaint states a cause of
action for negligent misrepresentation under a theory of physical injury. The appellate
court found that plaintiff's allegation that he suffered severe emotional harm "satisfies
the pleading requirement of a physical injury." The appellate court cited to Corgan
v. Muehling, 143 Ill. 2d 296 (1991), apparently reasoning that under Corgan severe
emotional harm may be equated with physical harm.
The appellate court misread Corgan and failed to distinguish between the torts
of negligent misrepresentation and negligent infliction of emotional distress. In
Corgan, plaintiff sought to recover damages from her psychologist under a theory of
negligent infliction of emotional distress after they engaged in sexual intercourse
under the guise of treatment. This court first determined that the special nature of the
therapist-patient relationship gives rise to a duty on the part of the therapist to refrain
from activity that could cause emotional or mental harm. Corgan, 143 Ill. 2d at 307.
A second issue in Corgan was whether a plaintiff must plead physical
manifestations of the emotional distress in order to state a claim for negligent
infliction of emotional distress. Several states had imposed such a pleading
requirement for negligent infliction of emotional distress claims because of the
difficulty in separating valid claims from those that are feigned or imagined. Corgan,
143 Ill. 2d at 309. This court in Corgan rejected the requirement that a plaintiff
asserting a claim of negligent infliction of emotional distress plead physical
manifestations of the distress. The court reasoned that juries were capable of
determining whether claims of emotional distress were genuine. Corgan, 143 Ill. 2d
at 312.
The appellate court erred in relying upon Corgan as support for its holding
that there exists a duty to avoid negligent misrepresentations that cause only emotional
harm. The appellate court appears to have mistakenly seized upon the discussion in
Corgan rejecting the requirement that plaintiffs plead physical symptoms in claims for
negligent infliction of emotional distress and applied it to the question of the scope
of the duty to avoid negligent misrepresentations.
There exists no broad duty to avoid misrepresentations that cause only
emotional harm. This court has adopted the Restatement (Second) of Torts sec. 311
(1965), which is entitled "Negligent Misrepresentation Involving Risk of Physical
Harm." Board of Education, 131 Ill. 2d at 456. Physical harm is defined as
encompassing personal injury or property damage, not emotional injury. Board of
Education, 131 Ill. 2d at 456. The limited nature of negligent misrepresentation
liability serves to preserve the proper sphere of contractual-based recovery and
prevents the creation of tort liability which could unduly impede the flow of
communication in society. With these considerations in mind, we find that the
appellate court erred in equating emotional harm with physical injury for purposes of
establishing a duty to convey accurate information.
In Board of Education v. A, C & S, Inc., 131 Ill. 2d 428 (1989), it was
acknowledged that this court has not yet established the full extent of negligent
misrepresentation liability. Other states have recognized a duty to avoid negligent
misrepresentations in the employment context. See, e.g., Pearson v. Simmons
Precision Products, Inc., 160 Vt. 168, 624 A.2d 1134 (1993); D'Ulisse-Cupo v. Board
of Directors of Notre Dame High School, 202 Conn. 206, 520 A.2d 217 (1987); Eby
v. York-Division, Borg-Warner, 455 N.E.2d 623 (Ind. App. 1983). However, plaintiff
has not filed a brief in this case and presents no argument for expanding negligent
misrepresentation liability beyond its present scope. Therefore, we stop at reversing
the appellate court's determination that there exists a duty to avoid negligent
misrepresentations that cause emotional injury, rather than physical harm.

CONCLUSION
For the foregoing reasons, the judgment of the appellate court is reversed and
the judgment of the circuit court is affirmed.

Appellate court judgment reversed;
circuit court judgment affirmed.

JUSTICE HEIPLE, dissenting:
The complaint filed in this case by plaintiff Michael T. Brogan contained the
following allegations. Brogan responded to a newspaper advertisement soliciting
employment applications for the position of Mitchell's marketing manager. On
January 13, 1994, Brogan interviewed with Mitchell's human resources manager, who
told him that Mitchell was expanding and growing. On January 28, Brogan
interviewed with Mitchell's vice-president, who told him that Mitchell was a "$35
million per year" company which was going to "double its size" over the next two to
three years. On February 14, the company's president enthusiastically described to
Brogan Mitchell's anticipated growth in the near future. On February 25, Mitchell's
vice-president offered Brogan the position as marketing manager, telling Brogan that
the position was a "real opportunity." On March 4, the vice-president told Brogan that
the real benefit of the offered position was its future.
The complaint alleged that on the basis of these representations, Brogan
terminated his previous employment, declined to seek employment elsewhere, and
accepted the position with Mitchell. Shortly after beginning work on March 21,
Brogan learned from other employees that Mitchell's financial condition was not
strong. Specifically, he discovered that Mitchell was not a "$35 million per year"
company and that it was not likely to "double its size" over the next two to three
years. On May 31, Mitchell announced that it was experiencing severe financial
difficulties. On June 2, Brogan was fired as part of what Mitchell described as an
"economically-induced restructuring."
The complaint alleged that as a result of the misrepresentations by Mitchell's
management regarding the company's financial strength, Brogan suffered substantial
economic harm and severe emotional harm attending the loss of employment.
Defendant Mitchell International, Inc. moved to dismiss the complaint on the grounds
that it was not subject to suit for negligent misrepresentation because it was not in the
business of supplying information. The circuit court dismissed the action with
prejudice.
When the legal sufficiency of a complaint is challenged by a motion to dismiss
under section 2--615 of the Code of Civil Procedure (735 ILCS 5/2--615 (West
1992)), we must accept all well-pleaded facts as true and determine whether the
allegations of the complaint, when interpreted in the light most favorable to the
plaintiff, are sufficient to establish a cause of action upon which relief may be
granted. Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 490 (1996).
I agree with the majority that a defendant may not be held liable for emotional
harm allegedly caused by a negligent misrepresentation. I nevertheless dissent because
I believe that, in this case of first impression, this court should follow the lead of
courts in other states by holding that parties to employment negotiations have a duty
to avoid causing economic loss through negligent communication of inaccurate
information.
This court has heretofore allowed recovery of economic damages caused by
a negligent misrepresentation only when the defendant was in the business of
supplying information. As the majority notes, however, the court has indicated that
there may be other appropriate bases of liability for economic loss in negligent
misrepresentation actions. Board of Education v. A, C & S, Inc., 131 Ill. 2d 428, 454
(1989). I believe that allegations of negligent misrepresentation in the employment
context, such as those in the instant case, implicate many considerations similar to
those which have led us in the past to impose a duty of care upon suppliers of
information.
For example, prospective employers offering information about themselves to
potential employees are in a position of decided superiority from which to verify the
accuracy of that information. The potential employee is therefore justified in expecting
that the prospective employer will use care in obtaining and communicating that
information.
Furthermore, the employment relationship is not readily analogous to the
relationship between a typical buyer and seller of goods, in which economic damages
based on negligent misrepresentation are precluded. Rather than ending with the
delivery of certain merchandise, as does the typical commercial relationship, the
employee/employer relationship is only just beginning during hiring negotiations.
Because prospective employers know that the information provided during these
negotiations will be relied upon and will influence the relationship well into the
future, they should be under a duty of care in providing this information to potential
employees.
Finally, as with parties who contract with each other for the production of
information, an employer and employee possess many common interests. Both stand
to benefit from the employer's success and suffer from its failure. Both thus have an
interest in obtaining accurate information about the condition of the firm or potential
employee. Given this commonality of interest, each party should be permitted to hold
the other to a duty of care in making representations.
These considerations apply forcefully in the instant case when the allegations
of the complaint are taken as true, as they must be in the current procedural posture.
First, Mitchell was uniquely capable of verifying the accuracy of the information
regarding its financial strength it provided Brogan during the hiring negotiations.
Second, the parties clearly contemplated that their mutual decision to embark on an
employment relationship was merely the beginning of a long-term association. Finally,
Brogan and Mitchell shared an interest in the accuracy of any information which
might affect the firm's employment of a marketing manager.
I would therefore hold that Mitchell had a duty to use reasonable care to insure
the accuracy of the information it provided Brogan during the parties' hiring
negotiations. Similar reasoning has led courts in other states to allow negligent
misrepresentation actions for economic loss within the employer/employee context.
See, e.g., Pearson v. Simmonds Precision Products, 160 Vt. 168, 624 A.2d 1134
(1993); Branch v. Homefed Bank, 6 Cal. App. 4th 793, 8 Cal. Rptr. 2d 182 (1992);
D'Ulisse-Cupo v. Board of Directors of Notre Dame High School, 202 Conn. 206, 520 A.2d 217 (1987); Eby v. York-Division, Borg-Warner, 455 N.E.2d 623 (Ind. Ct. App.
1983); Myers v. Coradian Corp., 92 A.D.2d 643, 459 N.Y.S.2d 929 (1983). By failing
to recognize such a duty, the majority encourages other potential defendants to engage
in the types of exaggeration, distortion, and deception which allegedly caused
Brogan's damages in the instant case.
For these reasons, I respectfully dissent.

JUSTICE HARRISON, also dissenting:
I agree with Justice Heiple that Mitchell had a duty to use reasonable care to
insure the accuracy of the information it provided Brogan during the parties' hiring
negotiations. I would further hold, however, that a cause of action exists for negligent
misrepresentations that cause emotional harm. Because juries are capable of
determining whether claims of emotional distress are genuine, as this court has already
recognized (Corgan v. Muehling, 143 Ill. 2d 296, 312 (1991)), there is no justification
for differentiating emotional injuries from physical ones.
The majority is concerned that the recognition of tort liability here "could
unduly impede the flow of communication in society," but I fail to see the social
utility in protecting the sort of misconduct committed by the employer in this case.
Implicit in the majority's position is the belief that our system must make allowances
for dishonesty in order to function and that business cannot thrive without the freedom
to trick employees. I hope this is not true, but if it is, it is time for the system to
change.