Perhaps the most common business torts that you are likely to encounter, other than breach of contract theories, fall under the general heading of fraud.
Fraud is a general term that, in practical application, has many different names — i.e. fraud in the inducement, fraudulent misrepresentation, and common law fraud, just to name a few.
The various theories of fraud can often accompany a wide variety of business torts, ranging from contractual disputes, corporate shareholders’ rights actions, employment disputes over unpaid wages — anywhere someone is taken advantage of, a fraud claim will likely be found. This is because, in a nutshell, fraud is a very stern and serious situation — it can carry with it the possibility of punitive damages, and it is generally not even dischargeable in bankruptcy (a very rare distinction). Just because this area of the law is broad doesn’t mean that it is without parameters, and the fact is, certain types of fraud are actionable and others, unfortunately, are not.
From the outset, what sets fraud apart is what courts have referred to as its “heightened pleading standard” that, even from the outset when filing an initial complaint, requires a plaintiff to include the specific allegations of fact giving rise to the allegedly fraudulent conduct. Talbert v. Home Savings of America, F.A., 265 Ill. App. 3d 376, 382 (1st Dist. 1994). As the Illinois Supreme Court has held, the basic “building block” elements of a fraud claim require a plaintiff to plead in his complaint and ultimately prove that a defendant made:
(1) a false statement of material fact;
(2) the party making the statement knew or believed it to be untrue;
(3) the party to whom the statement was made had a right to rely on the statement;
(4) the party to whom the statement was made did rely on the statement;
(5) the statement was made for the purpose of inducing the other party to act; and
(6) the reliance by the person to whom the statement was made led to that person’s injury.
Cramer v. Insurance Exchange Agency, 174 Ill.2d 513, 520 (1996).
This same general threshold requirement is true whether the fraud being alleged is, for instance, fraudulent inducement where a plaintiff claims that he took a course of action that he otherwise would not have taken (see e.g. First Nat’l Bank of Elgin v. St. Charles Nat’l Bank, 152 Ill. App. 3d 923 (2nd Dist. 1987)) or fraudulent misrepresentation, where a defendant outright misrepresents himself (see e.g. Doe v. Dilling, 228 Ill.2d 324, 343 (2008)).
While the basic test may be the same even under different names, this isn’t to say that this stands for some “across the board” rule that any unrealized promise will end in a lawsuit. To the contrary, in fact, a “broken promise” in and of itself, usually won’t give rise to a cause of action — even if it would otherwise be considered fraud. This concept, known as “promissory fraud” was explained by the Illinois Court of Appeals in great detail in the case of Vance Pearson, Inc. v. Alexander, 86 Ill. App. 3d 1105 (4th Dist. 1980).
The general rule in Illinois is that “promissory fraud” where the fraud is an unrealized promise of future conduct that the speaker has no intention of living up to is not actionable. However, the Court in that case noted that Illinois courts “carve out” an exception where the statement is part of a “common scheme” to defraud.
As one might expect, the “lines” between these various concepts are not particularly clear in many instances — what is the difference between a “misrepresentation” and an “inducement”? What, exactly, constitutes a “common scheme?” The answer to these questions depends on the facts of each individual case. This is, at the end of the day, a complex area of the law with many different nuances, and it is never something to be taken lightly — fraud is one of the most factually complex business torts there is, and it is one with grave consequences that generally ensues a rigorous fight.
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