Fraud and Misrepresentation

• Pages: 151-181

CHAPTER VI

FRAUD AND MISREPRESENTATION

Although not inherently “competitive” torts, fraud and

misrepresentation potentially apply to a broad range of

commercial conduct. It is not uncommon for competitors to

bolster antitrust claims with claims of fraudulent conduct;1

more frequently, distributors or retailers join antitrust claims

against their suppliers with allegations of fraud or

misrepresentation.2 Not unlike the Federal Trade Commission

(FTC) Act and Lanham Act,3 which seek to prohibit

misrepresentations in markets for goods and services, the

antifraud provisions of the securities laws seek to promote

truthful disclosure in the capital markets. And RICO claims –

which often are predicated on allegations of fraud – frequently

are brought in the competitive context.4 This chapter

addresses each of these varieties of the business torts of fraud

and misrepresentation. – Eds.

1. See,e.g., Int’l Travel Arrangers v. NWA, Inc., 991 F.2d 1389 (8th Cir.

1993) (antitrust and fraud claims by wholesale tour operator against

airline, affiliated air carrier and tour operator); DeLong Equip. Co. v.

Washington Mills Electro Minerals Corp., 990 F.2d 1186 (11th Cir. 1993)

(antitrust and fraud claims by distributor against manufacturer and another

distributor), amended, 997 F.2d 1340 (11th Cir. 1993).

2. See supra note 1; Tel-Phonic Servs., Inc. v. TBS Int’l Inc., 975 F.2d 1134

(5th Cir. 1992) (antitrust, RICO and fraud claims by purchasers and

marketers of computer equipment and telephone calling software against

seller and its parent corporation); Tunis Bros. Co. v. Ford Motor Co., 952

F.2d 715 (3d Cir. 1991) (antitrust and fraud claims by tractor dealer against

manufacturer and employees).

3. 15 U.S.C. §§ 45, 1125; see supra Chapter 3.

4. Tel-Phonic Servs., Inc., 975 F.2d at 1137-41; Cayman Explor. Corp. v.

United Gas Pipe Line Co., 873 F.2d 1357 (10th Cir. 1989) (antitrust and

RICO claims by natural gas producer against pipeline company).

152 Business Tort Law

A. Introduction

Although fraud is a frequently-asserted business tort, the necessity

of proving intent and the “clear and convincing” evidentiary standard

imposed by many jurisdictions make it difficult to prove. Plaintiffs

seeking to avoid these hurdles have increasingly relied upon the related

tort of negligent misrepresentation, which has been applied by courts in a

variety of circumstances to impose liability upon those, such as

attorneys, accountants, and bankers, who are in the business of supplying

information. In addition, statutory causes of action sounding in tort may

be available in addition to, or in lieu of, common law claims.5 This

chapter surveys causes of action frequently asserted in business tort

litigation to redress fraudulent and misleading conduct.

B. Common Law Fraud

1. Nature of the Action

The fraud claim owes its existence to a perceived need to redress

invasions of financial and commercial interests.6 Also known as

“misrepresentation,” “fraudulent misrepresentation” and “deceit,” fraud

actions are available to protect intangible economic interests of persons

induced to enter into transactions as a consequence of the fraudulent

misrepresentations of others.7 Fraud is distinguishable from breach of

warranty, which also is based upon commercial representations, in that

fraud generally encompasses proof of fault (an intent to deceive),

5. Every state has enacted a “little FTC” act, prohibiting, in one form or

another, deceptive, and sometimes unfair, trade practices. See Chapter 3;

see generally ABA ANTITRUST SECTION, CONSUMER PROTECTION

HANDBOOK (2004). While these statutes vary widely in their exact

wording, most either prohibit a detailed list of specified practices and then

contain a catch-all provision, or simply omit the detailed listing and

contain only a broadly-worded prohibition. In addition to these little FTC

acts, some states, including Texas, have enacted industry specific fraud

statutes. See, e.g.,TEX.BUS. & COM. CODE ANN. § 27.01, Fraud in Real

Estate and Stock Transactions, and § 27.02, Certain Insurance Claims for

Excessive Charges.

6. See W. PAGE KEETON,PROSSER AND KEETON ON THE LAW OF TORTS

§ 105, at 726 (5th ed. 1984) [hereinafter KEETON].

7. See id.