Allen v. Steele: A Landmark Case on Negligent Misrepresentation

If you go to an attorney for advice and the attorney gives you bad advice that you rely upon, and that advice harms you, don’t you have a right to sue the attorney? This is a question the Supreme Court of Colorado answered in Allen v Steele. Let’s break down that important case between the attorney and the prospective client.

Case Background

The Incident

At the age of 24, Jack Steele suffered major head injuries as a result of a traffic accident. Subsequently, he and his wife Danette Steele (now age 26) consulted the lawyer Katherine Allen concerning a potential negligence suit against another driver.

The Allegation

They accused Allen of misleading them about the statute of limitations. Allen had allegedly told them that they had five years to file the lawsuit; in fact, the three-year statute of limitations had already run out. That is, the Steeles had waited too long to sue.

The Legal Action

In response, the Steeles sued Allen and her professional corporation, Katherine Allen, P.C., for negligent misrepresentation and legal malpractice. In a decision that for years hamstrung Illinois plaintiffs, the trial court granted summary judgement on both claims. The Steeles appealed only the dismissal of their negligent misrepresentation claim.

Court Proceedings

Trial Court

The trial court granted Allen’s motion to dismiss the Steeles’ claims, finding that they did not plead enough facts to support a finding that Allen owed them a duty of care or that they otherwise maintained an attorney-client relationship. The Steeles took their case to the Court of Appeals.

Court of Appeals

The Colorado Court of Appeals reversed the trial court and found that the Steeles had stated a claim for negligent misrepresentation. In doing so, the court concluded that: [T]aking the facts alleged in the Steeles’ petition as true, they have stated facts sufficient to satisfy the elements of negligent misrepresentation, despite the fact that Allen did not issue an opinion letter.

Supreme Court of Colorado

The Supreme Court of Colorado overruled the Court of Appeals, holding that an initial consultation about a potential civil lawsuit was not sufficient to maintain a claim for negligent misrepresentation because the requisite element of ‘guidance to their business’ was not present.

Key Legal Takeaways

Elements of Negligent Misrepresentation

• To state a claim for negligent misrepresentation, the following elements must be met:
• The representation must have been made during the course of the defendant’s business, profession or employment.
• The misrepresentation must be of a material fact, made without reasonable care.
• The misrepresentation must be for the guidance of others in their business transactions.
• The defendant must know that the misrepresentation will be relied upon by the injured party.
• The injured party must justifiably rely on the misrepresentation to their detriment.

Business Transactions

The court explained that a ‘business transaction’ meant a commercial transaction, so that the alleged representation must be made in connection with the plaintiff’s business or professional dealings. A potential lawsuit wouldn’t qualify as a business transaction.

Attorney-Client Relationship

The court stressed that an attorney owes no duty of reasonable care to non-clients, and even prospective clients. One must be a client to state a claim for legal malpractice.

Implications for Attorneys and Clients

For Attorneys

Duty-of-care: Information provided to prospective clients does not create a duty of reasonable care (as against malpractice) until an attorney-client relationship is formed.

It is wise to document the nature of the consultation and the limits of the advice to ensure you won’t lose in a lawsuit.

For Clients

• Clarify the Relationship: Ensure that an attorney-client relationship is formally established before you rely on legal advice.
• Statute of Limitations: Be proactive in understanding the statute of limitations for your case to avoid missing critical deadlines.

Conclusion

The Allen v Steele case teaches that it is critical to clearly understand the relationship attorneys have with clients and prospective clients. For clients, it means not relying on an attorney-client until an engagement letter is signed. You should also be careful to keep track of applicable deadlines.