The Curious Case of Constructive Fraud

The Curious Case of Constructive Fraud

We’ve blogged before about three common types of fraud (1) deceit/affirmative misrepresentation, (2) concealment/nondisclosure, and (3) false promise/promissory fraud.  These common types of fraud usually require that the alleged victim prove intent to deceive or a reckless disregard for the truth.

But another type of “fraud” also exists that doesn’t require proof of fraudulent intent at all. It’s technically one way a fiduciary duty can be breached that’s treated like fraud–hence the name, constructive fraud. Constructive fraud can come into play whenever a special or fiduciary relationship exists under the law–that is, a relationship where one party places trust or confidence in another (fiduciary). Some classic fiduciary relationships include those between clients and their attorneys, stockbrokers, and real estate brokers (or agents). Corporate officers and partners also come to mind.

Whenever a fiduciary engages in conduct that misleads someone to whom he or she owes a duty and that conduct is a substantial factor in causing harm, a claim for constructive fraud can be found, even if the fiduciary never intended to mislead or deceive anyone. Constructive fraud provides for the same remedies as traditional fraud but is much easier to prove because no fraudulent intent is required.

If you’re a fiduciary, avoid giving rise to constructive fraud by disclosing the truth, the whole truth, and nothing but the truth to those to whom you owe a disclosure obligation. It generally is better to do so in writing too. And if you’re in a relationship with a fiduciary, exercise reasonable diligence when you receive and act on information. And no matter where you fall, get needed legal guidance before it’s too late.

Topics: Business Fraud

About Business Litigation and Consumer Class Action Litigation at CDF

We represent companies in business litigation and consumer class actions, including matters involving business fraud and other tort and contract claims, consumer claims, failed business claims, investment/securities claims, government investigations and related claims, and real estate claims. We help clients limit risk, and we also add value by litigating strategically to reduce total legal spend.

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About David Hagopian

For more than 30 years, David G. Hagopian has successfully litigated for, as well as counseled and advised, employers and businesses throughout California. Hagopian defends employers in putative class, collective and representative (PAGA) actions alleging wage and hour violations, as well as in single and multiple plaintiff matters alleging wage and hour violations, wrongful termination, discrimination, harassment, retaliation, failure to accommodate, failure to engage in the interactive process, breach, defamation, and related employment torts. He also advises employers to comply with employment laws, regulations, and ordinances, audits wage and hour practices, prepares and revises employment handbooks, and recommends best employment practices.

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About Jeffrey L. Sikkema

Jeffrey L. Sikkema has been handling general business litigation for over 35 years, representing clients in trials and litigation in federal and state courts throughout the country. He has represented major corporations and companies in virtually every sector of the economy, including financial services, technology and retail, in a wide variety of high stakes business lawsuits and disputes.

His broad range of business litigation experience includes privacy law, Bus. & Prof. Code §17200, PAGA, business torts and fraud, breach of contract, unfair competition, trade secrets, investment litigation, failed business deals, and other areas, as well as defending against consumer class actions.

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