Constructive Fraud

What is constructive fraud?

Constructive fraud occurs when someone abuses a duty under a confidential or fiduciary relationship or where one has taken an unconscionable advantage of another. The relationship or duties need not be legal—they may be moral, social, domestic, or personal. The primary consideration is whether the relationship is based on trust and dependence, unlike a typical arm’s length transaction. Crucially, constructive fraud is different from actual fraud or fraudulent misrepresentation in that there is no requirement to prove the defendant’s intent to defraud.

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What legal issues arise related to constructive fraud?

The following disputes are among the most common to constructive fraud:

• A debtor becomes insolvent after a transfer of assets in which they did not receive adequate consideration in violation of Florida’s Uniform Fraudulent Transfer Act (“FUFTA”).
• An accountant or other professional induces a client to purchase land or other assets the professional owns by failing to disclose facts material to the asset’s value.
• A close family member conveys property for below market value to another family member and their partner under the mistaken belief that the grantees were married.

What are relevant laws related to constructive fraud in Florida?

Both statutory law and common law govern constructive fraud claims. A cause of action to prevent debtors from defrauding creditors by inducing insolvency exists under Chapter 726 of Florida Statutes, which codifies the Florida Uniform Fraudulent Transfers Act. Further, Subsections 95.11(3)(j) and 95.031(2)(a) govern when potential claimants must bring other actions based on constructive fraud.

In Florida, courts have recognized claims for constructive fraud in many contexts involving a confidential or fiduciary relationship. This case law has been critical in establishing what must be proven by the plaintiff and what defenses are available to the defendant in a constructive fraud case.

What is required to prove a case of constructive fraud in Florida?

The elements of a constructive fraud claim are:

• That a confidential or fiduciary relationship existed between the plaintiff and defendant;
• The defendant abused that relationship by failing to disclose a material fact or giving a false or misleading opinion;
• The plaintiff relied on the misleading opinion or nondisclosure; and
• The plaintiff’s reliance resulted in injury.

The elements of a constructive fraud claim under FUFTA are:

• The debtor made a transfer without receiving reasonably equivalent value; and
• The debtor either:
  • Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small compared to the business or transaction; or
  • Intended to incur, or believed or reasonably should have believed that they would incur, debts beyond their ability to pay as they became due.

When a set of facts is appropriate to meet the requirements of constructive fraud, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path forward to seek appropriate remedies, such as:

• Compensatory & Punitive Damages
• Injunctions
• Cancellation & Recission of Contract

To see what actions may be available for your unique situation, please contact our office to set up your initial consultation.

What are common defenses to constructive fraud in Florida?

The primary defenses to constructive fraud in Florida include:

• Fair consideration: A debtor under FUFTA could argue that they received fair consideration in exchange for the transferred property.
• Laches: The defendant may argue that the plaintiff unduly delayed in bringing an action.
• No confidential or fiduciary relationship: Evidence of only arm’s length transactions could negate the existence of a special relationship.
• No reliance: The defendant may claim that the plaintiff did not rely on any opinion given by the defendant or on any nondisclosure.
• Statute of limitations: The defendant may argue that the statute of limitations, typically four years from when the facts giving rise to the claim were discovered or should have been discovered with due diligence, bars the plaintiff’s claim.

When defending against a constructive fraud claim in Florida, one core strategy is to focus on disproving the element of a confidential or fiduciary relationship. Disproving the existence of a special relationship involves providing evidence of the parties’ strictly business relationship detached from any trust or dependence.

Another core strategy is to focus on disproving the plaintiff’s reliance. Disproving reliance may involve presenting witness testimony, documents, or other evidence to demonstrate that the plaintiff would have entered the transaction or agreement regardless of any nondisclosure or opinion given by the defendant.

To see what defenses may be available for your unique situation, please contact our office to set up your initial consultation.

Have more questions about a constructive fraud-related situation?

Crucially, this overview of constructive fraud does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to set up a consultation.