There are many flavors of fraud,* including fraudulent concealment, fraudulent conveyance, securities fraud, insurance fraud, mail fraud, wire fraud,1 and constructive fraud, to name a few. Although they each have distinct elements, they are all related to “fraudulent misrepresentation,” which is an intentional tort recognized by Nevada courts to allow recourse for victims of fraud.
To prove fraud in Nevada, a plaintiff must prove the following:
- the defendant made a false representation,
- with knowledge or belief that the representation is false or without a sufficient basis for making the representation,
- with the intent to induce the plaintiff to act or refrain from acting on the representation,
- which representation the plaintiff justifiably relies upon, and
- which reliance damages the plaintiff.
See J.A. Jones Const. Co. v. Lehrer McGovern Bovis, Inc., 120 Nev. 277, 290–91, 89 P.3d 1009, 1018 (2004).
Special Rules in Fraud Cases
Nevada, like most, if not all, other states, has special rules that apply in fraud cases. For example, whereas most civil cases require a “preponderance of the evidence” standard of proof (more probably true than not); in fraud cases, the plaintiff bears a higher burden and must prove his or her case by “clear and convincing evidence” (highly and substantially more probably true than not). See Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1260, 969 P.2d 949, 957 (1998).
Additionally, when alleging fraud in a complaint, the plaintiff must do so with more specificity than would suffice in most other kinds of cases; the complaint in a fraud case must set forth the time, place, persons, specific alleged misstatements, and explanations as to how the alleged statements were false or misleading. See In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1545 (9th Cir. 1994). See also NRCP 9(b).
The heightened fraud standard is likely due to the severity of the consequences for having committed fraud. For instance, once a preliminary showing has been made that fraud has occurred, the plaintiff is entitled to use certain evidence, called parol evidence,2 that in other cases would be deemed inadmissible. See Havas v. Alger, 461 P. 2d 857, 860 (Nev. 1969). Additionally, evidence that the fraud defendant has been convicted of criminal fraud (and perhaps in instances where he or she has been found civilly liable for fraud) can be used to call doubt upon the defendant’s honesty (what courts call “character for truthfulness”) in future court proceedings where the fraud defendant testifies. See FRE 609.
Another advantage the plaintiff has in a fraud case is that once fraud is proven, and a judgment is rendered, that judgment is not dischargeable in bankruptcy. See 11 U.S.C. § 523(a). Furthermore, in some cases, like if the fraud is part of a racketeering scheme, the plaintiff is entitled to an award equal to three times the damages actually caused by the fraud. See NRS 207.470.
Trying to prove each element of fraud or defending a fraud claim involves a complex analysis of the law and the facts and reliance upon Nevada public policy. For example, although Nevada courts have defined fraud to include false statements made with the intent to induce action or inaction in the plaintiff, no Nevada court has expressly clarified whether a plaintiff still has a case for fraud when the defendant makes the false statement to someone other than the plaintiff, and if so, to what extent the defendant must believe or intend that the third party will repeat the statement to the plaintiff.3
Perhaps the most difficult element of fraud to prove is the intent. Because intent is a measure of the defendant’s mental processes, a plaintiff must rely on external manifestations of a defendant’s internal purpose, which evidence is usually circumstantial. As one justice of the Supreme Court aptly put it, “[i]t is seldom that a fraud or conspiracy to cheat can be proved in any other way than by circumstantial evidence, as knaves have usually sufficient cunning to have no witnesses present who can testify directly to their fraudulent contrivances.” See Thompson v. Bowie, 71 U.S. (4 Wall.) 463, 472–73 (1866).
These and other considerations make every fraud case different and most of them complicated. If you or someone you know has been a victim of fraud, or are being wrongfully accused of having committed fraud, consult an attorney with experience litigating fraud cases.
1Mail fraud and wire fraud are crimes for which there is no private right of action (meaning one person cannot sue another for committing mail or wire fraud). However, mail and wire fraud can be elements of both Nevada racketeering and federal RICO, which do endow a private right of action upon individuals. For a fuller treatment of the differences between civil causes of action and crimes, read this blog post.
2In contract law, evidence beyond the four corners of a contract representing a complete agreement between the parties (e.g., oral statements made prior to the signing of the contract) that either contradicts or adds to the written terms of the contract is typically not admissible in court. Fraud is one exception to this rule.
3At least one Nevada court has, however, implied that a defendant may still be liable to the plaintiff for false statements made to a third party. See Nev. Power Co. v. Monsanto Co., 891 F. Supp. 1406, 1417–418 (D. Nev. 1995) (“[defendant asserted] that it made no direct representations . . . to [plaintiff] . . . [plaintiff] admitted it did not rely on any statement [defendant] may have made to a third party.”)
Other courts in the country that have addressed this issue have almost unanimously decided in favor of allowing statements to a third party to constitute fraud on the plaintiff. These courts have arrived at different standards of intent however, ranging from defendant “intends or has reason to expect that the statement will be repeated” to whether the defendant “should have reasonably foreseen [that the plaintiff] would be injured by his misrepresentation.” See, e.g., Nader v. Allegheny Airlines, Inc., 512 F.2d 527, 547 (D.C. Cir. 1975) & Ostano Commerzanstalt v. Telewide Systems, Inc., 794 F.2d 763, 765–66 (2d Cir. 1986).
*See also a related article in the Lawyer’s Edge column published in the November 2011 issue of Boulder City Magazine.Tags: Legal