MIAMI BUSINESS LITIGATION: LIABILITY FOR AIDING AND ABETTING FRAUD

Under Florida law, an underlying fraud can expose third parties to liability for the fraud. As Florida’s Second District Court of Appeal explained in Ramel v. Chasebrook Construction Co., 135 So.2d 876 (Fla. 2d DCA 1962), an underlying fraud exists when the defendant makes a false statement concerning a material fact, the defendant knows the statement is false, and has the intention to induce the plaintiff to rely on the misrepresentation, and, in reliance on that representation, the plaintiff suffers injury. Fraudsters enlist third parties to perpetuate the fraudulent schemes, sometimes by lulling the victim into a false sense of security and thereby failing to detect the fraud. Under Florida law, one theory of liablity to sue third parties is “aiding and abetting fraud.” Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

To successfully plead the claim of aiding and abetting fraud, the plaintiff must allege (1) the existence of the underlying fraud, (2) knowledge of the fraud, and (3) the defendant provided substantial assistance to the commission of the fraud. XP No. 54 Ltd. P’ship v. Fidelty & Deposit Co. of Maryland, 917 So.2d 368 (Fla. 5th DCA 2005). One important method that fraudsters use is to have a knowledgeable third party, such as an accountant, assist the fraud by vouching for certain facts or making statements that are likely to lead the victim to believe the business deal is honest and legitimate. Third parties try sometimes claim they cannot be liable for their statements to fraud victims, claiming they made no statement of fact, but instead merely gave their opinion. However, the Ramel decision explained in pertinent part: “Even if the representations are viewed as expressions of opinion, they would be governed by the principle that statements of a party having exclusive or superior knowledge may be regarded as statements of fact although they would be considered as opinion if the parties were dealing on equal terms.” In Gilison v. Flagler Bank, 303 So.3d 999 (Fla. 4th DCA 2020), Florida’s Fourth District Court of Appeal reversed the trial court’s dismissal of a claim against bank and accountants for aiding and abetting fraud. The victim of the fraud was a lender to the alleged fraudster, Chariots of Palm Beach, Inc., a retail seller and renter of luxury cars. The appellate court in Gilison explained in pertinent part: “[T]he bank had superior knowledge through the accountants that Chariots’ books contained fraudulent misrepresentations. The accountants, one of whom also served as the bank’s President and CEO and another as a board member, prepared Chariots’ balance sheets. The plaintiffs alleged through them the bank knew the books contained inaccurate and fraudulent information. Since 2011, the accountants reported 1099-INT income to the plaintiffs in excess of $300,000 per year. But Chariots’ books reflected significantly smaller debt than would support those interest payments. An employee of the accounting firm flagged the discrepancy and notified Mackail, a principal of the accountants and CEO of the bank. The discrepancy remained on Chariots’ books without proper documentation. The complaint alleged the plaintiffs relied on Chariots’ representation that it could sell the cars it financed only after Chariots paid off their loan. It alleged the bank knew through the accountants that Chariots obtained duplicate titles for those cars. The plaintiffs’ reliance on this representation caused them injury when Chariots paid the bank money owed to them.”

Third parties sometimes try to disclaim liability for fraud claiming they lack knowledge there was fraud. Concerning this often raised defense, the United States Court of Appeals for the Eleventh Circuit, in Woods v. Barnett Bank of Fort Lauderdale, 765 F.2d 1004 (11th Cir. 1985), explained that a defendant has knowledge of an underlying fraud if it has general awareness that its role was part of an overall improper activity. Seidman & Seidman v. Gee, 625 So.2d 1 (Fla. 3d DCA 1992), explained that knowledge of the fraud will be imputed to a corporation when the plaintiff demonstrates “without dispute, that a corporate officer’s fraud intended to and did benefit the corporation, to the detriment of” the plaintiff. In Seidman & Seidman, the corporation’s managing officer knew about the ongoing fraud and the corporation benefited from the managing officer’s fraudulent conduct.

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.