Saturday, January 21, 2012

Defining Fraud in Litigation

I have been working on several cases involving fraud over the last couple of months. Fraud takes many shapes.  There are an endless number of ways to cheat someone out of money.  The facts of two cases are never really the same.  But they all end in the same way -- someone loses money.

There are also an endless number of ways to sue for fraud, or so it seems.  The first question is what type of relief does the plaintiff want.  Of course, the plaintiff wants money.  Lots of it and punitive damages.  But will money be enough to compensate for the fraud?  And is there enough money available, or are you dealing with a judgment proof defendant?  

Depending on the specific facts of the case, there are dozens of remedies other than money damages that are available to victims of fraud.  Contracts can be rescinded or reformed.  Fraudulent transfers of property can be set aside.  The court can grant preliminary or permanent injunctions.  The court can prevent a bankruptcy discharge.  The court can impose a constructive trust on assets in the hands of third parties.  

No matter what relief you seek, you will then have to prove that fraud occurred.  For that, you need a definition of fraud.  The case law interpreting fraud takes many different paths because of all of the remedies available, so there are dozens of definitions and elements in the case law.  The defendant will want to define fraud as strictly as possible.  But don't let the defendant frame the case in terms of the five-part test for a preliminary injunction or the four-part test for a constructive trust, for example.  

It is best to keep it simple.  Defining fraud as broadly as possible allows you to keep your options open regarding your damages.  I came across two good definitions recently.  Here they are:
Fraud is a generic term, which embraces all the multifarious means which human ingenuity can devise and which are resorted to by one individual to gain an advantage over another by false suggestions or by the suppression of truth. No definite and invariable rule can be laid down as a general proposition defining fraud, and it includes all surprise, trick, cunning, dissembling, and any unfair way by which another is cheated.  McClellan v. Cantrell, 217 F.3d 890, 894 (7th Cir. 2000);
There is no general rule for determining what constitutes fraud.  The existence of fraud depends on the particular facts of each case.  Generally, fraud has been held to mean "anything calculated to deceive, including all acts, omissions, and concealments involving a breach of legal or equitable duty, trust or confidence resulting in damage to another."  Carey Electric Contracting, Inc. v. First National Bank of Elgin, 74 Ill.App.3d 233 (2d Dist. 1979).
If you have a fraud case, I would try working one of these into either your response to defendant's motion to dismiss, or your motion for summary judgment.  Most cases would be easy to prove if either of those were the standards.

1 comment:

class action attorney said...

Litigation methods need to be examined carefully. This is to avoid fraudulent acts.