Fraud in the business context can take many forms. Claims for fraud in Colorado business litigation have been upheld in a variety of contexts including representations about the financial stability of a company in recruiting an employee or in M&A transactions, the qualifications of a business to perform services, securities fraud, or the quality or specifications of a company’s product. Three generally varieties of common law (non-statutory) fraud exist in Colorado business litigation involving 1) fraud based on overt misrepresentations, 2) fraud based on concealment of material information, and ) that deemed “constructive fraud” under Colorado law. The elements of each are described below.
Fraud Based on Misrepresentation:
A plaintiff seeking to prevail on a fraud based on misrepresentation in Colorado must establish five elements: (1) that the defendant made a false representation of a material fact; (2) that the one making the representation knew it was false; (3) that the person to whom the representation was made was ignorant of the falsity; (4) that the representation was made with the intention that it be acted upon; and (5) that the reliance resulted in damage to the plaintiff. Bristol Bay Prods., LLC v. Lampack, 312 P.3d 1155, 1160 (Colo. 2013). Fifth element, focusing on the “reliance” of the plaintiff, is broken down further into each of three more distinct sub-parts: requiring the plaintiff to prove separately a) actual reliance, b) the reasonableness of that reliance, and c) that the plaintiff’s reliance caused its damages. Id.
Fraud Based on Concealment:
The elements of fraudulent concealment in Colorado are: (1) the concealment of a material existing fact that in equity and good conscience should be disclosed; (2) knowledge on the part of the party against whom the claim is asserted that such a fact is being concealed; (3) ignorance of that fact on the part of the one from whom the fact is concealed; (4) the intention that the concealment be acted upon; and (5) action on the concealment resulting in damages. Ackmann v. Merchants Mortg. & Trust Corp., 645 P.2d 7, 13 (Colo. 1982).
“Constructive fraud is defined as a breach of duty that the law declares fraudulent because of its tendency to deceive, violate confidence, or injure public interests. Neither actual dishonesty nor intent to deceive is an essential element of constructive fraud. Such fraud often arises if a special confidential or fiduciary relationship exists, which affords one party the power and means to take undue advantage of the other.” Scott Sys., Inc. v. Scott, 996 P.2d 775, 780 (Colo. App. 2000).