Business relationships are not always formed with the parties acting in good faith. Unfortunately, there are times when individuals and companies misstate, withhold, or simply lie about an important fact in order to induce the other side to enter into a contract, resulting in serious financial consequences and lawsuits. Levy Goldenberg LLP, a leading commercial litigation and business law firm in Manhattan, has an impressive track record of prosecuting and defending fraudulent misrepresentation cases.
Proving and Defending a Fraudulent Misrepresentation Claim in New York
Deception alone is not enough to succeed. The common law elements of fraud in New York are:
- A misrepresentation or an omission of material fact which was false;
- Scienter, meaning that the misrepresentation or omission was known to be false and made for the purpose of inducing the plaintiff to rely upon it;
- Plaintiff’s justifiable reliance on the misrepresentation or material omission; and
A fraudulent misrepresentation case in New York City likewise requires a showing of reasonable reliance and that the damaged party would not have agreed to the contract or entered into the transaction had it known that the misrepresentation was false.
One of the biggest hurdles for plaintiffs to overcome is the heightened burden of proof applicable to fraud and misrepresentation actions. Fraud must be shown by clear and convincing evidence, meaning that there is a high degree of probability that fraud has occurred. This is a higher standard than the preponderance of the evidence. Another challenge is that the deceit may not be uncovered until long after the transaction. In New York, the statute of limitations to bring an action for fraud is six years from when the fraud occurred, or two years from when the fraud was discovered or could have been discovered with reasonable diligence, whichever is greater.
Half-truths and non-verbal representations may be actionable as false or misleading statements, but mere opinions and puffery are not. To illustrate, when someone expresses an opinion that an investment is safe, that a business opportunity is low risk or that a particular product is of high quality, that person would not be liable for a false representation if the opinion turns out to be incorrect. The same holds true when someone makes a prediction, unless that person actually knows that the future event will not occur. Individuals who did not make a false statement may be culpable under a theory of aiding and abetting fraud.
What Types of Fraud Exist in Business?
Fraud claims come in different shapes and sizes, so applying these elements to a particular set of facts can be challenging. Common examples of business or corporate fraud include:
- Fraudulent concealment of corporate information
- Falsifying records such as accounting and financial statements
- Selling fraudulent products or misrepresenting services
- Securities fraud
- Ponzi schemes
- Employment-related fraud
The vast majority of these claims relate to actual fraud, which should be distinguished from constructive fraud. A claim of constructive fraud arises from a special relationship of trust and confidence between the parties. Examples include attorney-client, trustee-beneficiary, accountant-client, and financial-adviser client relationships. Constructive fraud cases do not require proof of knowledge of the false statement. Scienter is inferred in those situations because the plaintiff is justified in trusting the defendant. This is significant because identifying one’s intent or statement of mind is often considered the most difficult element for a plaintiff to prove.
What is Negligent Misrepresentation?
Fraud claims are separate and distinct from claims alleging negligent misrepresentation, which involve careless or inadvertent false statements in circumstances where care should have been taken. These claims require the existence of a special relationship that imposes a duty to provide correct information to the plaintiff. In practice, these claims are most commonly brought with respect to loans and other financial transactions entered into based on reliance on the other party’s disclosure of financial information, such as in securities litigation brought by investors and derivative lawsuits. Levy Goldenberg LLP has experience in litigating negligent misrepresentation cases throughout Manhattan and the other boroughs of New York City.
What Is the Potential Recovery?
Even if fraud or misrepresentation has occurred, a plaintiff will not prevail if it suffered no loss. General allegations of reputational harm or nominal damages are insufficient. Actual compensable damages resulting from the fraudulent statement or wrongdoing is an essential element. Lost profits are not available for fraud claims because, under New York’s “out-of-pocket’ rule, damages should compensate plaintiffs for what they lost because of the fraud, not for what they might have gained. Thus, the potential recovery is limited to those damages that would restore the plaintiff to the position it held before the alleged fraud or misrepresentation. Punitive damages may also be awarded if the fraud was sufficiently egregious.
Choose Our Fraudulent Misrepresentation Attorneys at Levy Goldenberg
The experienced team of New York commercial litigation and business fraud attorneys at Levy Goldenberg LLP represents individuals and businesses throughout Manhattan and the five boroughs who seek to recoup their losses due to fraud and misrepresentation. We also aggressively defend those who have been wrongfully accused. Do not delay. Contact our New York office today to discuss your case.