Fraudulent Misrepresentations

In Virginia, a civil action for fraud requires more than just dishonest or unethical behavior on the part of the individual or business being sued. People lie all the time, and tort liability usually does not arise. The law of fraud is more concerned about pecuniary loss resulting from the intentional misrepresentation or nondisclosure of material facts. Several years ago, I posted a blog entry entitled “Fraud: What It Is, and What It Is Not.” There, I explained that a plaintiff bringing an action for fraud must allege and prove (1) a false representation, (2) of a present, material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reasonable reliance by the party misled, and (6) resulting damage. Today, I want to elaborate on the first of those elements: the requirement of a fraudulent misrepresentation.

First of all, when we talk of false or fraudulent misrepresentations, we’re not just dealing with the written word. Just as the hearsay rule can apply to nonverbal conduct intended as an assertion, the first element of fraud can apply to nonverbal conduct that amounts to an assertion of fact inconsistent with the truth. If a person acts in such a way as to suggest the existence of a fact, and that fact does not exist, a misrepresentation has occurred upon which a fraud action may potentially be based.

Second, bear in mind that while misrepresentations must be factual in nature, there are numerous situations in which statements phrased as apparent opinions or personal observations may contain sufficient factual content to support a fraud claim. A speaker’s state of mind, for example, can be misrepresented. “I intend to perform the duties specified in this contract” may be a false statement of fact if the speaker secretly does not intend to honor the contract. “I am a strong believer in restricting gun-ownership rights” may be a fraudulent statement if the speaker does not, in fact, hold that opinion.

Misrepresentations of law are a special category. Virginia courts generally hold that misrepresentations of law cannot constitute fraud because the law is presumed to be equally within the knowledge of all parties. (See Hicks v. Wynn, 137 Va. 186 (1923)). When someone announces to another person what the law will or will not allow, he’s basically just expressing an opinion about the probable legal consequences of particular behavior. So in this sense, a factual misrepresentation has not been made. But even if one assumes a statement of law is a “fact,” courts don’t allow fraud actions based on such statements as the law can easily be verified with a little due diligence.

As with defamatory falsehoods, fraudulent misrepresentations can be implied as well as expressed directly. If a statement can be reasonably interpreted as one that suggests the existence of undisclosed facts, and those “facts” are untrue, fraud liability can result. (See Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 135 S. Ct. 1318, 1330 (2015)).

In cases of actual fraud, a misrepresentation won’t be deemed fraudulent unless the speaker had knowledge of the untrue character of the statement. (This is essentially the third element of a fraud claim: that it be made intentionally and knowingly.) Some courts have held that it is sufficient if the speaker subjectively believes that what he is saying is false, even if he lacked actual knowledge of falsity.

Situations also arise in which the maker of a statement intentionally says something ambiguous, knowing that the listener might be misled into believing something that isn’t true. Intentionally misleading people to induce them to take action or refrain from action generally gives rise to fraud liability, and this sort of thing is no exception. It’s no defense to argue a truthful interpretation was possible if the intention of the speaker was to mislead through ambiguity.

And let’s not forget “fraud by omission.” Concealment of a material fact may constitute misrepresentation. (See Van Deusen v. Snead, 247 Va. 324, 328 (1994)). When courts ask you to speak not only the truth but “the whole truth,” it’s because half truths can be just as misleading as statements that are completely false. If a corporate CEO tells his shareholders only about the year’s positive developments and conveniently forgets to mention a $50 billion patent lawsuit he knows is about to be filed, he has misrepresented the company’s financial position (despite the fact that everything he said was literally true).


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