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

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