Facts
- Rohrer Construction owned an undeveloped 1.3-acre parcel and hired engineers to conduct percolation (septic suitability) tests.
- The engineering work produced two separate reports reflecting widespread test failures, with only two successful tests across thirty total tests.
- Bruce Herrigel, Rohrer's attorney, sent the listing broker, William G. Bachenberg, Jr., a two-page “composite” made from one page of each report that, read together, suggested a smaller, more favorable set of results.
- Rohrer failed to sell the property; Bachenberg and a partner later purchased it at a sheriff’s sale.
- The composite report was used in marketing materials provided to potential buyers.
- Lisa Petrillo negotiated to purchase the property; Herrigel represented Bachenberg in the transaction and drafted the contract.
- Petrillo received only the composite report, not the full underlying reports or an explanation of the full testing history.
- The contract gave Petrillo a limited period to conduct her own percolation tests and to rescind if results were unsatisfactory.
- Petrillo retained engineers who, based on the composite report, recommended performing preliminary site-plan work in parallel with testing.
- After testing showed the property was unsuitable for a septic system, Petrillo sought rescission and recovery of her deposit and engineering costs; the seller refused.
Issues
- Whether a seller’s attorney owes a tort duty of care to a prospective purchaser, a nonclient, when the attorney provides information for the transaction and knows or should know the purchaser will rely on it.
- Whether supplying materially incomplete or misleading information (as opposed to mere nondisclosure) can support a negligent misrepresentation claim by a nonclient purchaser.
- Whether the buyer’s contractual right to conduct independent testing and rescind defeats reliance as a matter of law on summary judgment.
Decision
- The New Jersey Supreme Court affirmed the Appellate Division’s reversal of summary judgment for the seller’s attorney.
- The Court held that an attorney for a seller may owe a duty to a nonclient purchaser not to provide false, misleading, or materially incomplete information when reliance by the purchaser is foreseeable and intended.
- The Court ruled that a factfinder could determine the composite report was materially misleading because it created an inaccurate impression of the percolation history.
- The Court held that the contract’s testing-and-rescission clause did not eliminate reliance as a matter of law; reasonableness of reliance and causation were for the trier of fact.
- The case was remanded for further proceedings on breach, reliance, causation, and damages.
Legal Principles
- A lawyer may owe a limited, transaction-specific duty of care to a nonclient when the lawyer knows or should know the nonclient will rely on information the lawyer supplies in connection with the transaction.
- Under negligent misrepresentation principles, liability may attach when a lawyer provides information for the guidance of another in a business transaction and the information is false, misleading, or materially incomplete under the circumstances.
- The adversarial nature of a real-estate transaction does not create blanket immunity for an attorney who voluntarily provides factual information intended to influence the other side’s decision-making.
- Clauses permitting independent investigation (including testing contingencies) do not automatically bar reliance; they generally present factual questions about reasonableness and causation.
Conclusion
The court recognized that a seller’s attorney who prepares and circulates information for a buyer’s use may be liable to the buyer for negligent misrepresentation if the attorney supplies materially misleading or incomplete factual information that the attorney knows or should know will be relied upon, and it sent the case back for factfinding on breach and damages.