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When Can (and Should) Businesses Pursue Claims for Fraudulent Inducement in Florida?

Business fraud can take many different forms. But, one of the most common forms is what is known as “fraud in the inducement,” or simply fraudulent inducement. Fraudulent inducement involves making false or misleading statements in order to secure a contract (or “induce” contract execution) and then relying on ongoing concealment to keep the contract in place.

But, when a party to a business relationship conceals information about its finances, products or services, this usually comes out eventually—and when it does, litigation often ensues. While the concealing party may try to justify its efforts or rely on the contract’s integration clause, parties that have been fraudulently induced to enter into commercial contracts will have clear legal remedies in most cases.

The ”Elements” of a Claim for Fraudulent Inducement in Florida

To determine whether your company has a claim for fraudulent inducement, it is necessary to understand the “elements” of this cause of action. All causes of action in commercial litigation have a specific set of facts that the plaintiff must prove in order to secure a favorable judgment in court. These are the elements of the claim. In Florida, the elements of a claim for fraudulent inducement are:

1. The Defendant Made a False Statement of Material Fact

A claim for fraudulent inducement requires evidence of a false statement of material fact. A statement can be false either as a result of a direct misrepresentation (i.e., stating a company has secured a government contract when it hasn’t) or as a result of an omission (i.e., stating a company’s assets without revealing that it is insolvent). Misrepresentations and omissions can take numerous different forms and involve numerous pieces of information, all of which can be more or less relevant to a party’s decision to enter into a contract.

To give rise to a claim for fraudulent inducement, a false statement must also be material. The more relevant a statement is to a party’s decision to enter into a contract, the more material the statement is. If a party makes a false statement that is material to another party’s decision to contract, then the first element of a claim for fraudulent inducement has been satisfied.

2. The Defendant Knew (or Should Have Known) Its Statement was False

Similar to other types of fraud claims, claims for fraudulent inducement require evidence of some level of intent to defraud. Misstatements that are purely accidental do not rise to the level of fraud—although they may give rise to other causes of action in some cases.

To establish liability for fraudulent inducement, a plaintiff must be able to prove that either: (i) the defendant knowingly made a false statement of material fact; or (ii) the defendant should have known that its statement was false. For example, even if a company executive or sales representative isn’t fully aware of the company’s financial condition if the executive or representative makes statements regarding the company’s financial condition when making a sales pitch or negotiating a contract, he or she would generally have an obligation to ensure that his or her statements are accurate.

3. The False Statement was Made to Induce Contract Execution

The third element of a claim for fraudulent inducement requires evidence that the defendant’s false statement was made for the purpose of inducing contract execution. Here, there can often be a fine line between pre-negotiation discussions and negotiations focused on getting a deal done. Even if a party makes a false statement of material fact, if the statement was not intended to assist with securing a contract, then it does not trigger liability under the law of fraudulent inducement.

Of course, as a practical matter, it can be difficult to say that a knowingly false statement made to a potential counterparty lacked any business-related intent. As a result, in fraudulent inducement litigation, it is not unusual for emails and text messages from several months before the parties’ negotiations to play a key role in settlement negotiations or at trial.

4. The Plaintiff Relied on the False Statement, Resulting in Harm

The final element of a fraudulent inducement claim is detrimental reliance. If a party knows that a statement is false, or if a false statement does not play a role in the party’s decision to contract, then the statement does not justify a claim in commercial litigation. On the other hand, if a party’s reliance on a false statement causes the party to enter into a contract that subsequently results in financial loss or loss of goodwill, then the party may be entitled to substantial damages, contract rescission and/or other legal or equitable remedies.

Defenses to Fraudulent Inducement Claims in Florida

When evaluating the possibility of pursuing a fraudulent inducement claim, it is also important to consider the defenses that your company’s counterparty may have available. There are a variety of potential defenses to fraudulent inducement claims—all of which are (or aren’t) available in different scenarios. Some examples of potential defenses to fraudulent inducement claims in Florida are:

  • Insufficient Evidence of Any Element of the Cause of Action – In commercial litigation, the plaintiff has the burden of proving its claim by a preponderance of the evidence. If evidence of any element of the cause of action is lacking, the defendant can use this as a complete defense to liability.
  • Statute of Limitations – In Florida, the statute of limitations for fraud claims is generally four years of the date of the fraud. Expiration of the statute of limitations can also serve as a complete defense to a claim of fraudulent inducement.
  • The Contract’s Integration Clause – An integration clause is a common boilerplate contract provision that states that neither party is relying on statements made prior to the contract’s execution. However, while defendants will often assert integration as a defense, the general rule is that contracting parties cannot use broad integration clauses to avoid liability for fraud.

Speak with a Commercial Litigation Attorney in Confidence

If you have questions about pursuing a fraudulent inducement claim in Florida, we invite you to get in touch. Please call 305-768-9909 or contact us online to schedule an appointment at Edelboim Lieberman Revah.

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