Fraud

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If you believe you’ve been defrauded out of money or property or that you’ve been tricked into buying something or making an investment that turns out not to be what was promised to you, give us a call. You may have been a victim of civil fraud. If you have been accused of fraud or deception in a civil case, we can help defend you or your company.

Fraud is a type of tort, or civil wrong. It is a deception practiced with a view to gaining an unlawful or unfair advantage in a transaction. Fraud is a false representation of fact, whether by words, conduct or concealment, which misleads and is intended to mislead another so that he relies on it to his injury.

To win a fraud case as a plaintiff, you must prove five basic elements. First, you must establish that there was a false representation of fact made with knowledge of its falsity or with utter disregard and recklessness about its falsity. In certain cases where there is a special relationship between the parties, such as a fiduciary relationship, or where one party has substantially more bargaining power and access to information than the other, a fraud claim can be based on a failure to disclose a fact. If a person has a duty to speak, he or she must make a full and fair disclosure of the material facts. A partial disclosure is a concealment and may be fraud.

Civil fraud, like criminal fraud, involves an inquiry into the state of mind of the person who made a false statement or failed to disclose a material fact because the law requires you to prove that a false representation was made with knowledge of its falsity or with utter disregard and recklessness about its falsity. A person knows a representation is false when he is aware that it is not substantially true. A representation is made with utter disregard and recklessness when the person who makes the representation is totally or completely careless or indifferent to the consequences or the risk that the representation will cause the person to whom it is made to do or not to do certain things. If a person has no knowledge of a fact, but asserted it as true when it was false, this could be considered reckless. A representation recklessly made without knowledge of the truth is the same as a false representation knowingly made.

In fraud cases, it is important to understand what is a “fact” and what is not a “fact.” A fact is something that exists and is objectively verifiable. Statements of opinion, or sales talk, generally will not be considered statements of “fact” for purposes of a civil fraud claim. For example, if you are buying a sofa and the sales person states that the fabric “is of the highest quality,” you probably do not have a fraud claim when it wears out after a year. Expressions of opinions, even if they are false, are not considered a basis for fraud. Likewise, boastful assertions or highly exaggerated descriptions or claims are considered puffing or bragging and are not a false representation which would constitute fraud. On the other hand, if you tell the salesperson you are allergic to polyester, and the salesperson states that the sofa fabric is 100% wool when in fact it is polyester, you might have a fraud claim.

While fraud generally must be based on a false representation of a present or past fact, there is an exception to this rule. Occasionally, when a person makes a promise to perform a future act but has no present intent to perform that promise at the time he or she makes it, the law may recognize this as fraud. For example, if a buyer has no expectation of being able to pay the purchase price for goods or services, it is the same as an intention not to pay and can be considered fraud.

The second essential element for fraud is that the subject of the misrepresentation or failure to disclose must be material to the transaction at hand. To be material, a fact must be important, necessary or have influence on the transaction. It must be so substantial and important that it influenced the person to whom it was made or from it was concealed. If you are buying a house, and the realtor says that the sellers both graduated from Harvard, when in fact they did not, that false statement would not be considered material to the purchase of the home.

The third element of a fraud claim also involves an inquiry into the alleged bad actor’s state of mind because you must prove that when a person made a false statement, or failed to disclose a material fact, he or she had an intent to mislead you. A person intends to mislead another to rely on a representation when it is his or her purpose to mislead. In reality, a person’s intent is known only to himself unless he expresses it to others or indicates it by his conduct. For this reason, the law permits proof of intent by looking at the way in which a misrepresentation is made, the means used and all the facts and circumstances of a particular case.

A person is not liable to you just because he or she made a knowingly false statement or failed to disclose a material fact when there was a duty to speak. The false statement or omission must have caused you to do something in reliance on the false or missing information and your reliance must have been justifiable in the eyes of the law. This fourth element of a fraud case puts the focus on the alleged victim and his or her conduct. Reliance is considered justifiable when a person of ordinary care would rely on it under the same or similar circumstances. For example, if a seller’s false statement about an item for sale is obviously false, you would not be justified in relying on it. That is, any reasonable person could see that the statement did not match the thing itself.

The final element required to establish a fraud claim is damage directly caused by the false statement or concealment of material fact. Even if all the other elements fall right into place, but you have suffered no quantifiable loss, your fraud claim will fail. Direct damage means that a loss was caused by the representation or concealment in a natural and continuous sequence and without which the damage would not have occurred. The damages that can be recovered can be measured in a couple of different ways. Sometimes, you might be entitled to recover the difference between the actual value of the service or thing you bought and the value of the service or thing as represented by the other party. In other situations, establishing fraud might entitle you to recover all the money you parted with in reliance on the false statement or concealment of a material fact. The unique facts of a case will usually dictate the proper calculation of damages.

Fraud claims can rise in all sorts of situations, including commercial deals and individual consumer transactions. We have prosecuted and defended fraud claims involving such things as investments, retirement savings, purchases of a business, franchises, property sales and in the context of disputes over the management of closely held corporations and partnerships. If you believe you’ve been misled and have lost money as a result, or you have been sued for fraud, please contact us to discuss how we can help.