Understanding Fraud in California

Fraud is something that can catch anyone off guard. Generally, the nature of fraud means that an individual is deceived in some way by someone who they rightfully trusted, and they were harmed or lost money because of it. This special nature of fraud means that someone who is defrauded can feel vulnerable and questioning whom they trust. In many cases, fraud is both a crime (between an individual and the government) and a civil matter (between two separate individuals).

pleading fraud in California

In regular parlance, fraud can be used to mean many things. In a legal context, however, fraud is a narrowly defined category. Some actions which someone might label as fraud wouldn’t be considered fraud under California law, and vice versa.

The Forms of Fraud in California

Fraud can come in several different categories, each which has a specific set of elements which must be proved. An incomplete list of the kinds of fraud include:

  • Intentional misrepresentation of a material (important) fact, known to be false, that led an individual to rely on that fact and be harmed.
  • Intentional concealment of a fact by a fiduciary (i.e., a business partner, mortgage broker, etc.), that an individual relied on, and they were harmed.
  • Negligent misrepresentation of a fact by a fiduciary that an individual relied upon, and they were harmed.
  • An opinion which is expressed as a fact by someone who holds themselves out as having special knowledge, and an individual relies on that opinion and is harmed.

Recognizing and Preventing Fraud

Fraud often occurs when an individual puts their trust in another party, and that party betrays their trust. Fraud also often occurs during complex financial transactions where the terms are difficult to understand. This also means that fraud can be difficult to recognize.

How does one recognize fraud? One key step is to keep good records of your financial dealings. Receipts, bank statements, paystubs, and other financial records can help you or your attorney recognize fraud. Know the terms of the contracts that you sign. But some financial transactions are complex and difficult to understand. Learning how these transactions work can help you recognize if someone is trying to take advantage of you.

It also helps to know who you are dealing with. How long have you known this person? Who recommended them? If they’re a contractor, do they get good reviews online?   How long have they been in business? Are they properly licensed with the state of California? Do they have any marks on their record? Often, a licensing agency will show when a licensed individual has a mark on their record.

Remedies for Fraud in California

If you think you have been defrauded, what are your options? How can you recover? Recovery usually comes in the form of damages. In the context of fraud, damages are usually measured one of two ways:

The “Out-of-Pocket” Rule

The most common measure of damages for fraud in California is the “out-of-pocket rule,” which “is directed to restoring the plaintiff to the financial position enjoyed by him prior to the fraudulent transaction, and thus awards the difference in actual value at the time of the transaction between what the plaintiff gave and what he received.” (Stout v. Turney (1978) 22 Cal.3d 718, 725.) The purpose of this rule is to compensate for a loss that an individual actually sustained. (Ibid.)

The “Benefit-of-the-Bargain” Rule

The other measure of damages for fraud in California is the “is concerned with satisfying the expectancy interest of the defrauded plaintiff by putting him in the position he would have enjoyed if the false representation relied upon had been true; it awards the difference in value between what the plaintiff actually received and what he was fraudulently led to believe he would receive.” (Stout v. Turney (1978) 22 Cal.3d 718, 725.)

Debt is Not Discharged during Bankruptcy

When you are awarded judgment in a case of fraud, the fraudulent party generally cannot discharge that debt during bankruptcy. (11 U.S.C. § 523.) What does this mean? This means that unlike other debts, if an individual owes a debt due to a fraudulent action, they cannot get rid of that debt; they must pay it back, no matter what.

Pleading Fraud in California

Pleading is the first stage of litigation. It is when the parties define the issues and figure out exactly what the dispute is over.  “In California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) Further, “[a] plaintiff’s burden in asserting a fraud claim against a corporate employer is even greater. In such a case, the plaintiff must ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.’”

What does this mean? It means that fraud can difficult to show. It also means that it is important to keep records of your dealings. The more detailed your records are, the better you or your attorney will be able to prove to the court that the fraudulent actions did occur.

The Value of Counsel

Proving fraud can be time consuming and difficult. Furthermore, the legal system can be difficult to navigate on your own. If you think that you have been defrauded, contact a San Diego lawyer soon. A knowledgeable attorney can help you identify fraud, understand your options, and work to make your recovery go smoothly.