Fraud, Fraudulent Nondisclosure, Negligent Misrepresentation

Fraud is the civil action for a plaintiff to recover from a defendant who intentionally lied to the plaintiff and thereby damaged the plaintiff. Fraud is an intentional misrepresentation, and thus it requires an element of intent, also known as scienter.

In order for a plaintiff to prevail, there must have been: (1) a  false misrepresentation of a past or present material fact; (2)  knowledge by the person making the false assertion that it is false or ignorance of the truth of the assertion; (3) an intention to induce the plaintiff to act or to justify the claimant to act; (4) the plaintiff must have been induced to act or justified in acting in reliance on the representation; and (5) the plaintiff must suffer damage proximately caused by the misrepresentation.  Martens v. Minn. Mining & Mfg. Co., 616 N.W.2d 732, 747 (Minn. 2000).

Various “defenses” to the above elements exist, the most common of which is for the plaintiff to characterize the alleged misrepresentation as “puffing” (i.e., opinion) or a comment that is contingent on a future event.

Fraudulent nondisclosure (i.e., misrepresentation by omission) is a variation of fraud recognized in Minnesota, and it occurs where: (1) a party conceals a material fact; (2) the fact is within the concealing party’s knowledge; (3) the concealing party knows that the acting party will rely on this nondisclosure on the presumption that the fact does not exist; and (4) the concealing party has a legal/equitable duty to communicate the fact. The final, element, the duty to communicate (also called a duty of disclosure), has been divided by some courts into three subcategories. Under this approach, courts have found a duty to exist: (a) when a confidential or fiduciary duty relationship exists (b) when disclosure is necessary to clarify misleading information already disclosed; or (c) when one party has “special knowledge” of material facts to which the other party does not have access.Taylor Inv. Corp. v. Weil, 169 F. Supp. 2d 1046, 1064 (D. Minn. 2001).

Negligent misrepresentation is yet another variation of fraud is recognized in Minnesota and it occurs where:

One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

Florenzano v. Olson, 387 N.W.2d 168, 174 n. 3 (Minn.1986)

A successful plaintiff can recover damages equivalent to his “out-of-pocket” loss, that is “the difference between the actual value of the property received and the price paid for the property, along with any special damages naturally and proximately caused by the fraud prior to its discovery, including expenses incurred in mitigating the damages.” B.F. Goodrich Co. v. Mesabi Tire Co., Inc., 430 N.W.2d 180, 182 (Minn. 1988).

Finally, if the plaintiff sues on a negligent misrepresentation claim and is found to be negligent himself in relying on the defendant’s misrepresentation (i.e., the plaintiff should have known better), the defendant can use a comparative negligence defense that could diminish or even extinguish the defendant’s liability. Florenzano v. Olson, 387 N.W.2d 168 (Minn. 1986)

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