Fraud Actions in California

What constitutes fraud?

In California, fraud occurs when the at-fault party misrepresents relevant facts, makes false promises, or otherwise deceives the victim with the intention depriving them of their money, property, and/or rights.   There are several different types of fraud under the law, but before we examine the different types of fraud, it is worth noting the fundamental differences between a breach of contract action and a fraud action.

Differences between Fraud and Breach of Contract

Fraud actions and breach of contract actions are close conceptual cousins of one another, but, importantly, if a breach of contract claim is brought on the same facts as a fraud claim, the two cannot be simultaneously filed.

Most breach of contract actions are actually quite simple at their core.  The plaintiff must prove the existence of a contract, the breach of said contract, and that he or she suffered damages as a result of breach.

To succeed on a claim of fraud, however, the plaintiff must prove that the defendant misrepresented the facts (and/or their intentions), plaintiff relied on that misrepresentation, and that plaintiff has suffered damages as a result of said reliance.  When a plaintiff is coaxed into entering a contract with a defendant based on these misrepresentations, it is sometimes known as "fraudulent inducement."

The Various Types of Fraud Actions in California

In California, there are several different types of fraud actions, each representing a unique situation.  A skilled fraud attorney must be able to accurately identify the theory of fraud under which the plaintiff should sue for the greatest chance of successful resolution.

Requirements of Intentional Misrepresentation

Intentional misrepresentation occurs when the at-fault party intentionally convinces the victim to rely on false facts, which the victim then relies on and is damaged by.

Intentional misrepresentation requires the following:

- The false statement must have been a false statement of fact, not opinion.  "Puffery" – grandiose embellishment in the form of an opinion about one’s own skills – is allowable.  For example, a salesman is allowed to brag about his store, even if he is exaggerating its good qualities.

- There was intent to defraud with the false statements.

- The victim relied on the false statement, in significant part, and such reliance was reasonable.  If the victim knew or should have known that the statement was false, then the victim’s reliance on the false statement was not reasonable.  This can be very fact specific, as what a victim is expected to know depends on their skillset and knowledge.  A skilled fraud attorney will attempt to downplay their client’s skillset and knowledge so that reliance on the false facts is seen as reasonable.

- The victim suffered damages as a result of the fraud.

Negligent Misrepresentation

Negligent misrepresentation, otherwise known as constructive fraud, is similar to intentional misrepresentation, except that, when the at-fault party convinces the victim to rely on false facts, it is not done so intentionally.  The at-fault party may have believed that the false statement was true, but the important thing to remember about negligent misrepresentation is that, despite making a false statement without any intent to defraud the victim, the at-fault party should have known that the victim would rely on the false statement, and further, should have known that there were no reasonable grounds for believing that the statement was true.

It is easier for the victim to succeed under a theory of negligent misrepresentation as opposed to intentional misrepresentation, as the victim need only prove that the defendant did not have a reasonable basis to believe that the relied-upon statement of fact was true.

Concealment

Concealment fraud requires the existence of a relationship between two or more parties in which disclosure is required (i.e., an accountant and his manager, the trustee of an estate and the eventual heirs).  Because the relationship demands full disclosure, any attempt to conceal facts or otherwise prevent disclosure therefore constitutes fraud.

Concealment fraud requires the following:

- Defendant had a duty to disclose certain facts, but did not.  Importantly, a defendant can have satisfied this element of concealment if he or she discloses only selective information that is intended to mislead the victim.

- Defendant failed to disclose certain material facts.

- In failing to disclose those facts, defendant intended to defraud the victim.

- The victim cannot have been aware of the concealed fact.

- The victim suffered damages as a result of their reliance on the concealed fact(s).

False Promise

False promise fraud, otherwise known as promissory fraud, involves a contract in which the at-fault party makes a promise that he or she does not intend to fulfill.  In making a promise to the victim, the at-fault party attempts to induce the victim to rely upon the promise.

False promise fraud requires the following:

- A promise was made that is relevant to the contract.

- Defendant did not intend to fulfill the promise at the time it was made.

- Defendant intended that the victim would rely on the promise, and the victim did, in fact, reasonably rely on the promise.

- Defendant did not fulfill the promise.

- The victim suffered damages as a result of their reliance on the false promise.

Plaintiff’s Remedies

In fraud actions, the type of fraud helps dictate the victim’s available remedies.  Generally, however, victims of fraud may not only claim actual, compensatory damages, but may also claim punitive damages (in California, up to seven times the compensatory damages amount).  Under the various theories of fraud, negligent misrepresentation stands as the lone exception.  Because negligent misrepresentation does not involve intent to defraud, punitive damages are not available (punitive damages requires malice, intentional misrepresentation, deceit, concealment, and/or fraud – California Civil Code section 3294).

As fraud claims open the door to substantially larger damage awards than standard breach of contract claims (thanks to punitive damages), a skilled attorney will assess your case and, assuming the facts are amenable to a possible fraud claim, will attempt to prioritize the fraud action.

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For a free consultation with an experienced fraud attorney, call the Law Offices of Brian O’ Grady at (650) 318-6131 to set up your appointment today.