THE SMELL TEST: YOU’LL KNOW IT WHEN YOU SEE IT

June 16, 2011 § Leave a comment

Sometimes you know something ain’t right.  It doesn’t pass the smell test.

Or, as US Supreme Court Justice Potter Stewart opined, famously employing a different sense when attempting to define obscenity:  “I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it …”  Jacobellis v. Ohio, 378 US 184, 197 (1964).

Returning to the olfactory realm, we encounter the fetid aroma of impropriety in chancery proceedings now and then.  Parties conceal assets from one another, warring child custodians grab a child and run and then lie about the whereabouts, witnesses lie under oath, 8.05 statements just don’t add up, et cetera and so on.

But is it fraud?

A finding of fraud opens the defrauded party to all manner of equitable relief.  Before you set out to claim fraud, though, there are some things you need to know.

The Elements of Fraud

The elements of fraud, which must be proven by clear and convincing evidence:

  1. A representation;
  2. its falsity;
  3. its materiality;
  4. the speaker’s knowledge of its falsity or ignorance of its truth;
  5. the speaker’s intent that it should be acted on by the person and in the manner reasonably contemplated;
  6. the hearer’s ignorance of its falsity;
  7. the hearer’s reliance on its truth;
  8. the hearer’s right to rely thereon; and
  9. the hearer’s consequent and proximate injury.

In re Estate of Law, 869 So.2d 1027, 1029 (Miss. 2004), citing Levens v. Campbell, 733 So.2d 753, 761-62 (Miss.1999). See also Spragins v. Sunburst Bank, 605 So.2d 777 (Miss.1992); Martin v. Winfield, 455 So.2d 762 (Miss.1984)

 Pleading Requirements

MRCP 9(b) states: “In all averments of fraud or mistake, the circumstances constituting the fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other conditions of mind of a person may be averred generally.” The comment is worth reading.

A party is not entitled to relief on the basis of fraud where the complaint fails to state the circumstances constituting fraud with particularity and the parties did not try the issue by consent. Brown v. Chapman, 809 So.2d 772, 774 (Miss. App. 2002).

Fraud cannot be inferred, presumed, or charged in general terms. The specific acts of fraud must be definitely averred. Nichols v. Tri-State Brick and Tile Co., Inc., 608 So.2d 324, 331 (Miss. 1992).

This is important:  If a finding of fraud is important to your client’s case, you must plead it, identifying the specific acts you claim are fraud, and specifying for each the acts complained of.  The other party may challenge the sufficiency of your pleadings using MRCP 12(b), but if she does, the court is required to give you an opportunity to amend.  What if the other party creates a nightmare scenario for you by not going the 12(b) route and simply waiting for trial, then objecting right and left to any proof you offer of fraud, moving ultimately to dismiss for failure to plead properly?

The Badges of Fraud

The Mississippi courts have recognized ten “badges of fraud” that a court may use to consider in making a determination whether a party’s intent was fraudulent:

  1. Inadequate consideration for the transfer.
  2. Conduct out of the ordinary course of business.
  3. An absolute conveyance as security for a loan.
  4. Secrecy.
  5. The transferor’s insolvency.
  6. A transfer of all the transferor’s property.
  7. Retention of possession by the grantor.
  8. Failure to list the property covered by the conveyance.
  9. The relationship between the transferor and the transferee.
  10. Whether the transfer was to someone with no apparent use for the property.

A&L, Inc. v. Grantham, 747 So.2d 832, 843 (Miss. 1999).

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