Proving Damages in Fraud Cases

Proving Damages Suffered in a Fraud Case

Ralph Q. Summerford, CPA, ABV, CFE, CFF, CIRA Forensic Strategic Solutions, PC

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Legal Principles

? Proximate Cause ? Transaction and Loss Causation ? Foreseeability ? Reasonable Certainty ? Economic Loss Rule

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Proximate Cause

? Defined as: Causal connection between the fraud and the harm claimed ? Principle: Recoverable damages limited to those caused by the wrong ? Test: Fraud must be a direct and proximate cause of the loss ? Two-Part Analysis ? Restatement of Torts:

I. Is reliance on the fraudulent misrepresentation a substantial factor in the loss?

II. Is loss reasonably expected to result from reliance on the fraudulent misrepresentation?

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Transaction and Loss Causation

? Transaction Causation ? "But for" causation ? "But for" the fraud or misrepresentation, the person would have never entered into the transaction and suffered loss

? Loss Causation ? Present when the defrauded person suffers loss and the loss can be tied to the fraud ? Uncertainty as to the amount of damages does not bar recovery

? Federal courts ? Most require both Transaction and Loss Causation ? Not all states require ? most do not

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Foreseeability

? Recovery of damages limited to ? Foreseeable or ? Within contemplation of parties at time of misrepresentation

? Proximate cause almost always = foreseeable damages ? Some cases expressly do not make foreseeability a limitation

on recoverable consequential damages

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