Holding Court: Been Hornswoggled?
Holding Court is a series by retired Rye City Court Judge Joe Latwin. Latwin retired from the court in December 2022 after thirteen years of service to the City.
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By Joe Latwin
With a current case in Manhattan involving a former President, there has been much talk about fraud. What is fraud?
Fraud is a Common Law civil tort. The elements of fraud that need to be proved are: (1) a misrepresentation or omission of a material fact; (2) the falsity of that fact; (3) that the statement was intentionally made; (4) and made for the purpose of inducing the other party to rely upon it; (5) justifiable reliance of the other party on the misrepresentation; and (6) damages were suffered because of the misrepresentation.
Since only factual representations are actionable, a statement of opinion or belief is not. For example, a letter indicating familiarity with property and stating a belief as to that property’s approximate worth, was not found actionable, nor was an opinion that a violin was made by Stadivari. However, a statement of opinion may be actionable in fraud if the opinion is not believed by the person rendering the opinion. If it were otherwise, I might have had many cases against people who called me ugly!
A fact is material when a reasonable person would consider it of importance.
Intent to deceive may be proved by showing the person who made the statement knew it was false at the time it was made, or it may be inferred if the representation was made recklessly without knowledge of or a genuine belief as to its accuracy. This often happens in cases of accountant’s certifications of financial records.
The reliance on the misrepresentation must be justifiable. In determining justifiable reliance, the court will consider the knowledge and experience of the claimant, any relationship of trust, confidence, or superior knowledge, and disability of the person deceived. There is o justified reliance when the person deceived new or should have known the true facts. A factor strongly mitigating against reliance is the existence of disclaimers. A claimant is also expected to exercise ordinary diligence in determining the facts. Where an inspection of the property would have disclosed the condition of the property or the facts are accessible in public records, reliance is not justifiable. No one who has seen me could justifiably rely on someone calling me ugly!
Fraud must be proved by clear and convincing evidence. This is higher than the usual preponderance of the evidence in most civil cases.
The damages that may be awarded are the actual damages – actual pecuniary damages suffered as a result of the fraud. This so-called out-of-pocket rule compensates for what was actually lost, not what might have been gained.
The case against the former President is slightly different. It is brought under a section of the Executive Law rather than as a Common Law tort. Under Executive Law section 63, The Attorney General can sue:
any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business. . .. The word “fraud” or “fraudulent” . . . shall include any device scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions. The term “persistent fraud” or “illegality” shall include continuance or carrying on of any fraudulent or illegal act or conduct. The term “repeated” as used herein shall include repetition of any separate and distinct fraudulent or illegal act, or conduct which affects more than one person.
In my years as an Assistant Attorney General, section 63 was used to go after consumer frauds. I used it myself in a few antitrust cases. In those cases, there were large numbers of people who had been hornswoggled, and for whom we were trying to recover for their losses.
