Asserting Fraud Claims in Maryland
It’s common for clients to ask me whether they are a victim of fraud – either in a business transaction or in personal or family matters. The law of fraud in Maryland is complicated, with unique rules for pleading and proving a claim, and complex issues related to the measurement of damages. This article does not fully cover all of these issues, but I will discuss here some key points relevant to fraud claims.
Fraud is also sometimes called “intentional misrepresentation” or “deceit.” In this article I am only addressing civil lawsuits that assert claims of fraud, not criminal prosecutions for fraud. There are crimes arising from fraudulent conduct, but that is a separate (and also complicated) area of the law.
A civil lawsuit claiming fraud offers a remedy to someone who has been intentionally deceived by another’s representations about the existence of — or absence of — material facts, when that person relies on the false representations, was justified in doing so, and is actually damaged by doing so. It only constitutes fraud if:
- the person making the representation knew that the representation was false, or
- made the representation with reckless disregard for the truth.
A critical element of a lawsuit for fraud in Maryland is to prove that the defendant intended to deceive the plaintiff. This is referred to the “scienter” requirement for fraud.
The false representation involved in a fraud claim can be:
- an affirmative misrepresentation of fact,
- the concealment of fact,
- a partially misleading disclosure of a fact, or
- even a nondisclosure of fact, if there was an affirmative duty on the person to disclose that fact.
Fraud generally does not encompass statements of mere opinion, or promises that amount only to predictions about future conduct or events. A statement of opinion or prediction might provide the basis for a fraud claim if the defendant possessed special information or qualifications that enhanced the credibility of their statement, however.
When bringing a lawsuit for fraud in Maryland, a plaintiff is required to state in the complaint specific facts supporting each allegation of fraud. This is known as the requirement to “plead fraud with particularity,” and is a higher standard for pleading than in other types of lawsuits.
Another thing that distinguishes fraud from other types of lawsuits is that the plaintiff in a fraud lawsuit must prove each of the elements of fraud by clear and convincing evidence. This is a higher standard of proof than the preponderance-of-the-evidence standard that applies in most civil lawsuits.
In cases where a person discovers that he has been induced into a contract by fraud, that person can choose between two available remedies – to rescind the contract, and have the parties placed back in their positions held before the contract was signed, or to ratify the contract and seek monetary damages for the fraud. To seek rescission, though, the plaintiff is required to promptly ask for recission upon discovering the fraud, and then tender back the benefits received under the contract.
There are several complicated issues relating to the measurement of damages in a fraud case, with courts having flexibility in awarding damages based on the circumstances. The assessment of damages in a fraud case may include measuring how much was lost out-of-pocket due to the fraud, or sometimes by a benefit-of-the-bargain measurement. Damages for fraud can even include compensation for emotional distress, but only if the distress is reflected in some physical manifestation.
Although a claim of fraud may sometimes be based on improper concealment of a fact, when it comes to business relationships courts have struggled to determine what level of concealment constitutes fraud, and under what circumstances. Typically, businesses engaged in an “arm’s length” commercial transaction are not in the type of confidential relationship that can support a claim for fraud based on concealment. There could be exceptions to this general observation, however, if the parties on either side of a transaction also have a separate confidential relationship distinct from their business roles.
Beyond classic fraud, so-called “constructive” fraud can arise when a defendant owes an equitable duty to a plaintiff because they are in a confidential relationship – such as attorney and client, or guardian and ward. As with classic fraud, clear and convincing proof is required to prove constructive fraud.
Even when an intention to deceive is not present, Maryland law also provides a cause of action for negligent misrepresentation, when someone makes a material misrepresentation in a manner that is sufficiently careless, and that misrepresentation results in monetary damages, but the conduct doesn’t rise to the level of being deliberately fraudulent.
Whether a claim for negligent misrepresentation is available can sometimes depend on whether there is a contract between the parties, or at least the risk of economic loss. The measurement of damages also can vary depending on whether the risk of failure to exercise due care gave rise to a threat of serious personal injury.
The broad theme here is that successfully proving fraud can complicated, and the brief discussion in this article does not fully cover all aspects of the subject. If you believe you may have been the victim of fraud, or if you or your company is being accused of committing fraud, I would welcome the opportunity to discuss these matters with you. Please contact me at email@example.com or (410) 489-1996.
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