Tuesday, October 23, 2007

On pleading fraud with particularity

In federal court, you begin with the rule of Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999), in which the Court of Appeals stated that “the ‘circumstances’ required to be pled with particularity under Rule 9(b) are ‘the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.’” 176 F.3d at 784. In pleading fraud against multiple defendants, the plaintiff “must identify, with particularity, each individual defendant’s culpable conduct; defendants cannot be grouped ‘together without specif[ication of] which defendant committed which wrong.’” Arnlund v. Smith, 210 F. Supp.2d 755, 760 (E.D. Va. 2002). Compare Juntti v. Prudential-Bache Securities, Inc., 1993 WL 138523 at *2 (4th Cir.) (“It is not sufficient to argue that ‘[e]ach count . . . incorporates the factual allegations of the Complaint, which specify each defendant’s individual conduct’”); Adams v. NVR Homes, Inc., 193 F.R.D. 243, 251 (D. Md. 2000) (“where there are multiple defendants, plaintiffs must, where the gravamen of the claim is fraud, allege all claims with particularity as to each of the defendants”). In addition, the plaintiff must plead facts showing reliance. See Kline v. Nationsbank, 886 F. Supp. 1285, 1295-96 (E.D. Va. 1995) (granting motion to dismiss fraud claim for failure to comply with Rule 9(b) where plaintiff generally alleged reliance without stating any facts about how she relied on the particular representation). Non-compliance with Rule 9(b) is grounds for dismissal under Rule 12(b)(6). See Harrison, 176 F.3d at 783 n.5; Lasercomb America, Inc. v. Reynolds, 911 F.2d 970, 980 (4th Cir. 1990) (“a complaint which fails to specifically allege the time, place and nature of the fraud is subject to dismissal on a Rule 12(b)(6) motion”).

In Virginia state court, “[w]here fraud is relied on, the pleading must show specifically in what the fraud consists, so that the defendant may have the opportunity of shaping his defence accordingly, and since fraud must be clearly proved it must be distinctly stated.” Mortarino v. Consultant Engineering Services, 251 Va. 289, 295, 467 S.E.2d 778, 782 (1996). “[T]he rule is well established that fraud must be clearly alleged in order that evidence intended to prove fraud may be admitted.” Brooks v. Bankson, 248 Va. 197, 206, 445 S.E.2d 473 (1994) (citing cases). Because of the ease with which a plaintiff might otherwise seek to expand an ordinary contract or negligence claim into fraud with the addition of a few words in a pleading, Virginia law requires that “[a]s in federal practice, charges of fraud must be pleaded with ‘particularity.’” Middleditch & Sinclair, Virginia Civil Procedure 385 (2d ed. 1992) (citing cases).

Isn't that the law, or did I just make it all up? Sometimes I wonder - just when I think I've got one little corner figured out, someone says blah-blah-blah, that's not the law.

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