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Kevin Schlosser Writes, "Lack of Reasonable Reliance Defeats Fraud Claim But Not Breach of Fiduciary Duty"

Apr 4, 2022Litigation & Dispute Resolution

I have explained that the cause of action for fraud is a civil “tort.” (See the topic heading for “Tort” in the “Select a Topic” feature of this Blog.) Torts are judicial-made causes of action that constitute a basis to be compensated for what the courts consider to be wrongs that society should recognize are actionable and compensable.

The tort of fraud comes with a robust package of dividends that affords victims of fraudulent misconduct added benefits and flexibility in seeking legal remedies. See, for example, my post, Fraud Breathes New Life Into Otherwise Time-Barred Causes of Action (listing punitive damages, rescission, discharge of debts in bankruptcy, and extending statutes of limitations not only for fraud but other causes of action). But as I have cautioned, with this great power comes significant legal responsibilities: What Do Fraud and Spiderman Have in Common? With Great Power Comes Great Responsibilities. So, for example, a cause of action for fraud must be alleged in a complaint with particularity. Under both New York rules of practice, CPLR 3016(b), and the Federal Rules of Civil Procedure, FRCP 9(b), the circumstances constituting the alleged fraud must be stated in detail in the pleading asserting this cause of action or claim. And proving a case of fraud requires the plaintiff to satisfy the highest standard of proof in civil court: clear and convincing evidence.

I have also detailed another responsibility of those who wish to establish a claim of fraud: That they themselves act prudently, diligently and carefully in protecting themselves from the fraudulent conduct of others. This is contained in the element of reasonable or justifiable reliance on a fraud claim and is embodied in the two-year discovery rule, which can extend the six year statute of limitations to two additional years if the fraud was not discovered or could with reasonable diligence [not] have [been] discovered.CPLR 213(8).

While fraud comes with these powerful benefits and burdens, other torts could provide remedies where the stringent requirements of the fraud claim may stand in the way. One such cause of action is the claim for breach of fiduciary duty.

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