How To Prove A Successful Business Fraud Claim Under NY Law
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A few years back, both the Wall Street Journal and Bloomberg reported that former news anchor Dan Rather's breach of contract, wrongful termination and fraud lawsuit against his former employer, CBS, had been revived. Predictably, for the reasons set forth in this article, Mr. Rather's minor victory was short-lived; however, reviewing that case was - and remains - useful in the sense that it provided the impetus for us to review the standards of what a plaintiff must prove in order to prevail on a business fraud claim.
Why Fraud Claims Are Really Tough to Prove - and Win
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. In other words, when it comes to fraud claims, broad-based, general or blunderbuss allegations will not suffice.
Moreover, and in contrast to standard tort actions, which are decided 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.
The 5 Things a Plaintiff Needs to Prove to Prevail on a Fraud Claim:
- That the defendant made a representation of fact;
- That the defendant's representation of fact was untrue;
- 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;
- 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,
- 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.
As a practical matter, when you consider the 5 elements or proof needed below, and the fact that they must be proved through "clear and convincing evidence," it is most likely that fraud claims will be dismissed - even before document discovery or depositions take place.