13.4.9 Consequent and Proximate Injury.

• Jurisdiction: Arizona

13.4.9 Consequent and Proximate Injury. The ninth element of a fraud claim requires proof of an injury that was proximately caused by the recipient’s reliance on the misrepresentation.⁹³ In other words, the misrepresentation must be the “legal cause” of the claimant’s damages.⁹⁴ “A fraudulent misrepresentation is a legal cause of a pecuniary loss resulting from action or inaction in reliance upon it if, but only if, the loss might reasonably be expected to result from the reliance.”⁹⁵ Importantly, not all losses that in fact result from the reliance are legally caused by the representation.⁹⁶ “Pecuniary losses that could not reasonably be expected to result from the misrepresentation are, in general, not legally caused by it and are beyond the scope of the maker’s liability.”⁹⁷ This means that the pecuniary losses must be within “the foreseeable risk of harm” that the misrepresentation creates.⁹⁸ A case that demonstrates the importance of establishing the proximate cause of the pecuniary losses is Comerica Bank v. Mahmoodi.⁹⁹

As discussed above, the bank in Mahmoodi alleged that it suffered pecuniary losses from its reliance on fraudulent accounting records.¹⁰⁰ These records had been submitted to the bank by the defendant borrowers per the terms of a 7.5 million dollar line of credit agreement.¹⁰¹ The bank argued, had it known that the borrowers were overstating the accounts receivables (which were securing the line of credit), it would have accelerated the loan per the terms of the agreement.¹⁰² The trial court granted summary judgment for the bank,¹⁰³ but the court of appeals reversed and remanded the case for trial.¹⁰⁴ The court of appeals pointed out that the...