95 N.Y.2d 479 (2000)
Before a party can recover in tort for pecuniary loss from negligent misrepresentation, there must be either actual privity of contract or a relationship so close as to approach privity, requiring awareness of use for a particular purpose, reliance by a known party, and conduct linking the maker of the statement to the relying party.
Summary
Harold Parrott, a former employee of Pasadena Capital Corporation, sued Coopers & Lybrand (C&L) for professional negligence and negligent misrepresentation after C&L’s valuation of Pasadena’s stock, used to repurchase Parrott’s shares upon termination, was significantly lower than an independent valuation determined in arbitration. The New York Court of Appeals affirmed the dismissal of Parrott’s claim, holding that Parrott failed to establish a relationship with C&L approaching privity. The court emphasized that C&L was unaware its valuation would be used specifically for Parrott’s stock repurchase agreement and there was insufficient evidence of direct contact or reliance to create a near-privity relationship.
Facts
Harold Parrott purchased shares of Pasadena Capital Corporation stock per a 1992 agreement stating that upon termination, Pasadena would repurchase the stock at fair market value determined by a third-party appraisal for its ESOP. C&L provided biannual valuation reports for Pasadena’s ESOP. Parrott was terminated in May 1996. In September 1996, Pasadena, relying on C&L’s June 30, 1996 valuation of $78.21 per share, exercised its right to repurchase Parrott’s stock. Parrott challenged this valuation, and an arbitrator later determined the value to be $122.50 per share. Parrott then sued C&L.
Procedural History
Parrott sued C&L in Supreme Court, which denied C&L’s motion for summary judgment. The Appellate Division reversed, granting summary judgment to C&L and dismissing the complaint. The New York Court of Appeals affirmed the Appellate Division’s decision.
Issue(s)
Whether Parrott established a relationship with C&L so close as to approach privity, such that C&L owed him a duty of care in preparing its valuation report.
Holding
No, because Parrott failed to demonstrate that C&L was aware that its valuation reports would be used for the specific purpose of determining the repurchase price of Parrott’s stock under his individual stock purchase agreement, and because there was no direct contact or conduct linking C&L to Parrott demonstrating C&L’s understanding of his reliance.
Court’s Reasoning
The court reiterated the Credit Alliance tripartite test for establishing a relationship equivalent to privity in negligent misrepresentation cases: (1) awareness by the maker of the statement that it is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance. The court found that Parrott failed to satisfy these criteria. C&L’s awareness was limited to providing biannual valuations for Pasadena’s ESOPs generally, with no indication that C&L knew the reports would be used in connection with Parrott’s stock purchase agreement. Parrott also did not rely on the reports, as he never read them and immediately challenged the valuation. Finally, the court found no conduct directly linking Parrott and C&L demonstrating C&L’s understanding of any reliance on Parrott’s part. The court quoted Prudential Ins. Co. v Dewey, Ballantine, Bushby, Palmer & Wood, 80 NY2d 377, 382, stating the need to provide “fair and manageable bounds to what otherwise could prove to be limitless liability”. The court distinguished White v. Guarente, 43 NY2d 356, where the accountant’s services were specifically obtained to benefit the members of a limited partnership. The court also rejected a rule permitting recovery by any ‘foreseeable’ plaintiff, quoting Ossining Union Free School Dist. v Anderson LaRocca Anderson, 73 NY2d 417, 425, that such a rule would be overly broad.