Fraud In The Inducement In Florida: Litigation Cry Of The Buyer Who Did Not Beware

Posted about 2 years ago. Applies to Florida, 4 helpful votes

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Discussion of fraudulent inducement cause of action under Florida law.

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I. Elements of Fraudulent Inducement

The four elements of fraud in the inducement are not difficult to rationalize as they are; (1) misrepresentation of a material fact; (2) the maker of the misrepresentation knew or should have known of the statement's falsities; (3) intent by the maker of the statement that the representation induce another to rely and act on it; and (4) resulting injury to the party acting in justifiable reliance on the representation." Philadelphia Indem. Ins. Co. v. Kohne, 294 F.Supp. 2d 1319, 1328 (M.D. Fla. 2003). The elements are straightforward and simple to set out in a proper pleading, provided there is a minimum of specificity to illustrate the four points. Despite this, a party may not recover for a misrepresentation that in a latter written contract is satisfactorily explained. Englezios v. Batmasian, 593 So.2d 1077, 1078 (Fla. 4th DCA 1992). Similarly, if the plaintiff knew of the misrepresentation before even entering into the agreement, the expos

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II. Mixing with the Economic Loss Rule

Fraud in the inducement often goes hand-in-hand with a breach of contract. A person duped into a contract is not likely to bring any form of suit or even recognize the potential for suit until a breach brings the inherent problems to attention. For some time in Florida's judicial history, fraud arising from contracts was barred by the economic loss rule. This doctrine changed in HTP, Ltd. v. Lineas Aerea Costarricences, 685 So.2d 1238 (Fla.1996), provided the tort was distinct from and independent from the contract claim. The Third District has held that when the tort is inseparable the rule applies. Hotels of Key Largo, Inc. v. RHI Hotels, Inc., 694 So.2d 74, 77 (Fla. 3d DCA 1997). The Fourth District has specifically distinguished Hotels of Key Largo. Bankers Mut. Capital Corp. v. U.S. Fidelity and Guar. Co., 784 So.2d 485, 488-89 (Fla. 4th DCA 2001). To make matters less clear, some courts emphasize the timing of the fraud, as a fraud that occurred prior to and is distinct

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III Punitive Damages

IV. Punitive Damages Unlike a breach of contract, the tort of fraud in the inducement opens up the possibility of punitive damages. "The overwhelming weight of authority in this state makes it clear that proof of fraud sufficient to support compensatory damages necessarily is sufficient to create a jury question regarding punitive damages." See First Interstate Dev. Corp. v. Ablanedo, 511 So.2d 536 (Fla. 1987). However, some courts are loath to allow an award for punitive damages because the court has observed repeated instances of plaintiff abuse with the reasoning that nearly any breach might also be a fraud. Connecticut General Life Ins. Co. v. Jones, 764 So.2d 677, 682-83 (Fla. 1st DCA 2000). The Court in Jones went so far as to reverse the entire fraud verdict with this opinion. Id. at 684. Before asking for punitive damages, an attorney should carefully consider how a particular court has ruled on the issue in the past.

Additional Resources

Key Cases - Fraud in the Inducement 1. Philadelphia Indem. Ins. Co. V. Kohne, 294 F.Supp 2d 1319 (M.D. Fla. 2003). The court found that the insurer's resulting inability to defend its interests and the entry of a $ 4,000,000 consent judgment against its alleged insured was substantially prejudicial. The court found as a matter of law that the insurer did not refuse to defend. The driver neither notified the insurer of the victim's suit nor asked the insurer to defend. Consequently, the insurer did not have the opportunity to refuse to defend. The court found the insurer relieved of its duties to the driver and to the victim by virtue of the victim's unexcused breach of the policy's cooperation clause. 2. Englezios v. Batmasian, 593 So.2d 1077 (Fla. 4th DCA 1992). Appellant counterclaimed averring that appellee fraudulently misrepresented that the premises could have been used as a restaurant. The trial court granted summary judgment in favor of appellee. Appellant sought review. Appellant could not have recovered in fraud for an alleged oral misrepresentation that was adequately dealt with in the later written lease. It was appellant's burden to discover whether he could have operated a restaurant. The lease provided him an escape hatch. The re-dating of the lease was not a novation. It only confirmed appellant's liability. 3. HTP, Ltd. v. Lineas Aerea Costarricences, 685 So.2d 1238 (Fla. 1996). Defendants appealed the trial court's judgment. The court affirmed the judgment in favor of plaintiffs, finding that fraud in the inducement was an independent tort for which compensatory and punitive damages could be recovered. The court held that the trial court properly rejected defendants' proposed jury instruction for unjustifiable reliance. The court found that it was unreasonable to rely upon representations made by an allegedly dishonest party when negotiating a settlement. The court ruled that the trial court properly rejected defendants' proposed verdict form. The court held that the verdict form, which instructed the jury to determine whether defendants had fraudulently induced plaintiffs to enter into a settlement agreement, was proper. 4. Hotels of Key Largo, Inc. v. RHI Hotels, Inc., 694 So.2d 74 (Fla. 3d DCA 1997). Appellants sought review of the dismissal of their complaint seeking rescission of licensing agreements based upon alleged fraudulent misrepresentations. The court held that misrepresentations related to the breaching party's performance of a contract did not give rise to an independent cause of action in tort, because such misrepresentations were interwoven and indistinct from the heart of the contractual agreement. Appellants' complaint failed to state an action, and specifically, appellants' fraudulent inducement claim was barred by the economic loss doctrine. 5. Bankers Mutual Capital Corp. v. U.S. Fidelity and Guar. Co., 784 So.2d 485 ( Fla. 4th DCA 2001). Appellant alleged agreements were not observed and sued appellee, among others. Appellee was sued for fraudulent inducement, and its motion to dismiss was granted. The economic loss rule did not bar a cause of action for fraud in the inducement, where the fraud alleged pertained to a term of the contract and was relied upon in inducing the completion of the agreement. The fraud in the inducement allegations against appellee were stated with the requisite particularity. 6. Nautica Int’l Inc. v. Intermarine USA, L.P., 5 F.Supp 2d 1333 (S.D. Fla. 1998). The designer alleged breach of contract, breach of good faith and fair dealing, failure to pay invoices, unjust enrichment, breach of partnership agreement, demand on accounting, breach of joint venture agreement, defamation, tortious interference and fraud in the inducement. The court granted the motion to dismiss in part and denied it in part, holding that the designer established the existence of an oral agreement in the submission of a bid to obtain the production contract. The manufacturer only named itself as the prototype's producer constituting an express breach of a term of the agreement. Thus, the designer could claim for breach of implied covenant of good faith. The designer's breach of contract claim survived the motion to dismiss, as the manufacturer breached its assumed obligation to reimburse the designer for its employees' expenses accrued during their visit to the manufacturer's location. However, the designer failed state a claim for unjust enrichment because it did not allege that its contractual remedy was inadequate. 7. La Pesca Grande Charters, Inc. v. Moran, 704 So.2d 710 (Fla. 5th DCA 1998). The fraud claim was dismissed regarding defendant company president, because although he could be personally liable for acts committed within the scope of his position, the trial court held plaintiff could not sue for breach and fraud because both causes of action claimed the same damages. Plaintiff appealed. The appeals court reversed in part because the claim against defendant company president for fraud in the inducement should not have been dismissed because defendant company president's allegedly fraudulent statements about the condition of the yacht's engines induced plaintiff to buy the vessel; thus, plaintiff had a separate cause of action in tort for fraud, in addition to contract remedies, and the fact that the measure of damages were the same for the causes of action did not extinguish fraud claim. 8. First Interstate Dev. Corp. V. Ablanedo, 511 So.2d 536 (Fla. 1987). The district court affirmed the compensatory damage award. The district court, however, reversed and remanded the case for a new trial on the punitive damages claim. On review, the court quashed the portion of the district court's decision that denied petitioners a new trial regarding compensatory damages on the fraud claims, and claims for damages that allegedly resulted from a reduction in property value were distinct claims that had separate measures of damages. Therefore, the two-issue rule did not apply. The court held, however, that the punitive damages claim should have been submitted to a jury because the underlying fraud claim sufficiently warranted consideration by a jury. Therefore, the district court's decision regarding punitive damages was approved. 9. Connecticut General Life Ins. Co. v. Jones, 764 So.2d 677 (Fla. 1st DCA 2000). On appeal, the court reversed, finding that the evidence did not establish a distinct promise or inducement other than to provide compensation pursuant to the alleged employment agreement between the parties; no direct evidence was presented regarding appellants' intent at the time of the representation not to perform; and the alleged representations by appellant employer were only vague promises to pay appellee an undetermined amount at some future undetermined time when he returned to work. There was no breach of the essential terms of that employment agreement because appellee never returned to work.

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