When Can (and Should) Your Florida Business Pursue a Claim for Fraud?

Fraud can prove incredibly costly for all types of businesses. If your business is dealing with fraud, you will want to consult with a Miami business dispute attorney promptly about the legal options you have available. While every case is unique, businesses that are facing losses due to fraud will have grounds to take legal action in most cases. With that said, when it comes to recovering fraudulent losses, time is often of the essence—and unnecessary delays can potentially lead to unnecessary losses.

In the commercial context, fraud claims can arise in three main scenarios:

• Fraud before the contractual relationship (fraudulent inducement)
• Fraud during the contractual relationship
• Fraud without a contract

Fraud Before the Contractual Relationship (Fraudulent Inducement)

In many cases, businesses will have fraud claims based on misrepresentations that another party made before they entered into a contractual relationship. This is referred to as “fraud in the inducement,” or simply “fraudulent inducement.”

If a counterparty misrepresented its financial standing, the availability of its product or the size of its customer base, these are all examples of issues (among many others) that could potentially justify a claim for fraudulent inducement under Florida law. Proving a claim for fraudulent inducement generally requires evidence of three “elements”:

• The counterparty made a false statement of fact and knew (or should have known) its statement was false;
• The counterparty made the false statement in an attempt to induce execution of the contract; and,
• The party filing the claim relied on the counterparty’s false statement to its financial detriment.

Oftentimes, when facing fraudulent inducement claims, counterparties will point to the “Integration” clause in their contract. An integration clause states that the contract reflects the parties’ entire agreement and understanding, and that neither party is relying on any other representations, statements or warranties. While relying on a contract’s integration clause can be a viable defense in some cases, generally speaking, parties cannot commit fraud and then attempt to shield themselves from liability while knowingly withholding information about the fraud they have committed.  

Fraud During the Contractual Relationship

Along with fraudulent inducement claims, businesses may also have claims for fraud during the course of a contractual relationship. False or misleading statements or omissions about a party’s ability to perform, the quality of its products or services, events that have transpired (i.e., cybersecurity breaches or governmental investigations), and numerous other issues can all potentially warrant claims for damages based on fraud.

In these cases, the terms of the parties’ contract will play a key role as well. For example, while many commercial contracts include limitations of liability, these clauses will often contain carve-outs for fraud-based claims. There may also be questions about whether a limitation of liability applies to fraud-based claims under the contract’s governing law. Additionally, if a party has a fraud claim, it may also have a claim for breach of various provisions of the parties’ contract—and deciding which claim (or claims) to pursue will require a critical assessment of both the relevant contract terms and the circumstances at hand.

Some examples of contract terms that will likely require careful consideration include:

• Representations and Warranties
• Limitation of Liability (or Liquidated Damages)
• Dispute Resolution (including Mandatory Alternative Dispute Resolution (ADR), Jurisdiction and Governing Law)

When considering potential legal action, it is important to consider the availability of relevant evidence as well. As with all types of civil and commercial litigation, substantiating a claim for fraud requires proof beyond a preponderance of the evidence. If a counterparty’s executive or representative made an oral representation that was not recorded, successfully pursuing legal action could prove challenging. On the other hand, if you have emails, fabricated invoices or other forms of documentation, then proving fraud could be relatively straightforward.

Fraud Without a Contract

While many commercial fraud claims arise in the context of a contractual relationship, businesses may be able to pursue fraud claims in a wide range of other situations as well. These can range from one company making misrepresentations in order to prevent other parties from contracting (i.e., if a competitor makes false claims about your business) to fraud schemes that involve obtaining access to companies’ proprietary data or financial accounts.

Proving fraud in this scenario generally requires evidence of a fraudulent representation and intent to deceive. Evidence of financial harm is generally required as well. If your business has been defrauded, an experienced Miami business dispute attorney will be able to evaluate the evidence that is available and help you make an informed decision about whether to pursue legal action. Your business’s attorney will be able to obtain additional evidence through the discovery process as well; and, if the fraud is causing ongoing harm to your business (or is threatening imminent harm to your business), your business’s attorney may be able to obtain emergency injunctive relief that protects your business while it pursues litigation.

In all scenarios, informed decision-making is essential, and, as noted above, it will most likely be in your business’s best interests to act quickly. Not only could prompt legal action be necessary to mitigate your business’s losses, but it could also be necessary to protect your business’s ability to collect any judgment that is awarded. If you are dealing with fraud in relation to a commercial contract, you will also need to ensure that you are making informed decisions about whether and to what extent to deviate from your business’s contractual obligations. While fraud may justify non-performance, this isn’t necessarily the case, and breaching your business’s obligations could make the situation more complicated than necessary.

Speak with a Miami Business Dispute Attorney at Gonzalez Law Offices, P.A. in Confidence

If your business is dealing with fraud, we encourage you to contact us promptly for more information. Our attorneys can help you understand your business’s options and make informed decisions about your next steps. To speak with an experienced Miami business dispute attorney at Gonzalez Law Offices, P.A. in confidence, call us at 305-676-6677 or tell us how we can get in touch online today.