How To Prove A Successful Business Fraud Claim Under NY Law

As noted in our business litigation blog post, "Why Many (If Not Most) Business Fraud Claims Are Dismissed," a Manhattan judge recently decided that Dan Rather may amend his complaint to re-assert his claim that his former employer, CBS, engaged in fraud in wrongfully terminating his employment contract. Although we are admittedly not privy to many of the details (particularly given that the amended complaint has yet to be filed), this story is useful because it provides the impetus for us to review the standards of what a plaintiff must prove in order to prevail on a business fraud claim.

At the outset, it bears emphasis that given the highly inflammatory nature of a fraud claim, unlike, for example, a garden-variety negligence case, the New York State legislature saw fit to require a claimant to allege with great particularity the specific acts that constitute the fraud. See, CPLR 3016. Otherwise, the claim will be subject to dismissal at the pleadings stage, i.e., at the very beginning of the lawsuit, and before document discovery or depositions take place.

In addition, and in contrast to standard tort actions, which are determined based upon a "preponderance of the evidence," i.e., whether plaintiff's or defendant's version of the events is more likely, a fraud claim is an intentional act, and therefore, the plaintiff must satisfy a significantly higher evidentiary standard - clear and convincing evidence.

More specifically, the plaintiff will have to prove 5 things:

1. That the defendant made a representation of fact;
   
2. That the defendant's representation of fact was untrue;
   
3. That the defendant either knew that its representation of fact was untrue, or that the defendant made its representation of fact with reckless disregard for its veracity;
   
4. That the defendant made its representation of fact to plaintiff in an effort to convince the plaintiff to act in reliance on said representation; and,
5. That the plaintiff was justified in relying on the defendant's statements, and in so doing, suffered damages as a result.

Given the inherent difficulty in successfully detailing and proving these items, it should come as no surprise that a relatively high percentage of fraud claims are dismissed by the New York courts as a matter of course.


Long Island, New York trial lawyer Jonathan Cooper represents small businesses and individuals in breach of contract, breach of fiduciary duty, commercial litigation, personal injury and defective products cases in Nassau, Queens, Brooklyn, Bronx, New York City, Suffolk and Westchester. In order to schedule a free consultation with Mr. Cooper, please contact his main office located in Cedarhurst, Long Island at 516.791.5700.

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