Generally, successful lawsuits for business fraud or misrepresentation includes the following:
- A misrepresentation
- Of a material fact or opinion of another
- Made for the purpose of inducing reliance by the other party
- Which induces reliance by the other party
- To his or her detriment
When dealing with corporate fraud cases, multiple factors need to be considered. These include the specific details and nature of the fraud or misrepresentation, and the relationship of the parties involved. These factors will affect the analysis of the above legal elements, among other factors. Other legal elements, such as reliance on the fraud or misrepresentation and if there was the specific intent to defraud, may also affect the analysis of the case.
In order for a valid, actionable lawsuit for business fraud or misrepresentation, the substance of the representation or statement must be material to the recipient’s choice to conduct in the business transaction in question. Usually, a representation or statement is material whether:
- A reasonable person would attach importance to its existence or non-existence when determining his or her choice of action in the business transaction in question; or
- The person making the representation or statement knows or has a reason to know that its recipient regards or is likely to regard the business matter important in determining his or her choice of action, although a reasonable person would not so regard it.
Corporate fraud has typically been defined as anything intending to deceive, including all acts, omissions, and concealments involving one’s breach of a legal duty, trust or confidence which results in damage or injury to another individual or business. Whether an act of business fraud has occurred is normally a question of fact that is dependent on circumstances of each individual business situation or business transactions. In other words, the fraud will be determined on a case-by-case basis. However, it should be noted that most often erroneous statements of matters of opinion will not amount to fraud, nor do instances of exaggerated or unwarranted “puffing.”
At the center of a business misrepresentation case is the fiduciary duty to refrain from making intentional false assertions that will mislead others to rely on that false representation. Thus, the essential requirement is that the person in a fiduciary relationship with another must make a knowingly false representation. The misrepresentation may be a verbal statement, an active gesture, or a knowing concealment of materially true and significant facts. Additionally, ambiguous and incomplete representations that are false and misleading will qualify as misrepresentations, even if the misrepresentation was made negligently or with the knowledge that the recipient might be misled by the false statement.
For example, a prospective seller of a business could be liable for fraud if they disclose financial records of the business which place the profitability of the business in a positive light, but would fail to provide additional records that are capable of producing an alternative interpretation. However, failure to disclose important facts, such as the seller’s financial records, which are subject to ordinary inspection and inquiry, or about which there is not expectation of disclosure, either because of the arm’s length business transaction or the absence of any communications between the parties, may not support an action for business fraud or misrepresentation. The intention of inducing reliance on the fraud or misrepresentation is the key to the scope of the misrepresenter’s liability.
If you believe you or your South Florida business requires assistance with a potential business fraud lawsuit, contact our South Florida business litigation lawyer today.