Kevin Schlosser Authors, "Establishing Fraudulent Intent through Circumstantial Evidence & Inference"

Media Source: www.nyfraudclaims.com The August 10, 2016 decision in Amusement Industry, Inc. v. Stern, 07Civ.11586 (S.D.N.Y. Aug. 10, 2016) is quite an instructive analysis of fraud claims. This post will address the analysis on proving intent to defraud. The magistrate judge issued a report and recommendation recommending that plaintiffs’ motion for summary judgment be granted on their fraud cause of action, resulting in $13 million in damages. In Stern, the defendants agreed to purchase a portfolio of eleven retail shopping centers for approximately $128 million. In the course of this transaction, the defendants had procured a loan by defrauding Citigroup, and one of the defendants pled guilty to committing wire fraud. Prior to the closing with Citigroup, one of the defendants had approached the plaintiffs and requested that they contribute money to the investment in the portfolio. Based upon representations made by defendants, plaintiffs eventually agreed to invest $13 million in the portfolio. One defendant had repeatedly invoked his Fifth Amendment rights when questioned about the series of misrepresentations, forgeries, and manipulation of emails. (The court had previously determined that defendant’s invocation of the Fifth Amendment right could be used as an inference of wrongdoing.) There were a number of alleged misrepresentations. Among them: The equity interest that defendants promised to plaintiffs turned out to conflict with the financing documents with Citigroup and therefore could not have been implemented. Defendants also misrepresented to plaintiffs that another sophisticated investor was involved in the deal and would guarantee plaintiffs’ investment. In addressing plaintiffs’ motion for summary judgment on their claim for fraud, the court focused on the element of intent to defraud. Defendants argued that there were disputed issues of fact regarding whether there was the required intent to defraud plaintiff. On the element of intent to defraud, the court noted: “In New York, to establish ‘the requisite showing of intent to deceive,’ a party must establish a defendant’s “guilty knowledge or willful ignorance.”…‘[M]ere carelessness’ is not sufficient…nevertheless because fraudulent intent ‘is rarely susceptible to direct proof,’ it may ordinarily be ‘established by circumstantial evidence and the legitimate inference[s] arising therefrom.’” The court continued: “such an inference may be shown, for example, by establishing a motive to defraud or by identifying ‘conscious behavior by the accused party.’” Citing two of the misrepresentations made to the plaintiffs to obtain their investment in the real estate portfolio, the court concluded: “The extensive and ongoing nature of both misrepresentations regarding [the alleged outside investor and the ownership interest granted to plaintiff], as well as the uncontroverted evidence of forgery, easily establishes that [defendant] held the requisite intent to defraud. The court ruled: “In sum, no reasonable jury could fail to conclude that [defendant] made the misrepresentations with the intent to defraud [plaintiff].” Stern is a good resource for cases and factual analysis of the element of intent. It shows how circumstantial evidence and inferences can be used to satisfy that element.