Coolite Corp. v. American Cyanamid Co., 52 A.D.2d 486 (1976)
In a cause of action for negligent misrepresentation, a plaintiff cannot recover damages for lost profits.
Summary
Coolite Corp. sued American Cyanamid Co. for negligent misrepresentation. The court addressed whether the defendant’s representatives made statements of opinion or fact, whether the claims were time-barred, and if a special relationship existed to support the claim. Crucially, the court also considered whether Coolite could recover lost profits. The court held that questions of fact existed regarding the nature of the statements and the statute of limitations. Further, the existence of a “special relationship” should be determined by the fact-finder. However, the court definitively ruled that lost profits are not recoverable in actions based on negligent misrepresentation under New York law, thus modifying the lower court’s order.
Facts
Coolite Corp. claimed that American Cyanamid Co. made negligent misrepresentations. Specific details of the misrepresentations are not elaborated in the short opinion, but the issues on appeal suggest they involved statements that induced Coolite to act. Coolite presumably relied on these misrepresentations to their detriment, seeking damages including lost profits.
Procedural History
The case reached the Appellate Division, which addressed multiple issues raised on appeal from the lower court’s decision on summary judgment. The Appellate Division’s order was appealed to the New York Court of Appeals. The Court of Appeals modified the Appellate Division’s order by granting the defendant’s motion for summary judgment to the extent of dismissing the complaint regarding damages for lost profits. The Court of Appeals affirmed the order as modified.
Issue(s)
1. Whether questions of fact exist as to whether the defendant’s representatives intended their statements to be opinions or positive statements of present intention?
2. Whether questions of fact exist as to whether the plaintiff’s claims are time-barred?
3. Whether a “special relationship” exists sufficient to make out a cause of action for negligent misrepresentation?
4. Whether the plaintiff can recover damages for loss of profit in an action grounded in negligent misrepresentation?
Holding
1. The question certified was answered in the negative, meaning that there were questions of fact as to the intention of the representatives’ statements.
2. The question certified was answered in the negative, meaning that there were questions of fact as to whether the claims were time-barred.
3. The existence of a special relationship should be left to the finder of fact.
4. No, because “the rule in this State is that all elements of profit are excluded from a computation of damages in an action grounded in fraud.” The court applied this rule to negligent misrepresentation as well.
Court’s Reasoning
The Court of Appeals determined that genuine issues of material fact existed regarding the nature of the statements made by the defendant’s representatives (opinion vs. fact) and whether the statute of limitations barred the plaintiff’s claims. Further, the existence of a “special relationship,” a prerequisite for a negligent misrepresentation claim, was deemed a factual question for the fact-finder to resolve, citing White v Guarente, 43 NY2d 356; International Prods. Co. v Erie R. R. Co., 244 NY 331; and Coolite Corp. v American Cyan-amid Co., 52 AD2d 486; and referencing the Restatement (Second) of Torts § 552.
However, the Court of Appeals definitively stated that New York law prohibits the recovery of lost profits in negligent misrepresentation cases, citing Reno v Bull, 226 NY 546, which concerns fraud. The court extended the rule regarding fraud to negligent misrepresentation, stating, “As for damages, the rule in this State is that all elements of profit are excluded from a computation of damages in an action grounded in fraud.” This bright-line rule limits the scope of recoverable damages in such actions, regardless of the specific circumstances or the foreseeability of such losses. This decision aligns with a more restrictive view of damages in cases lacking the element of intentional wrongdoing, as found in fraud cases.