FRAUD AND PLEADING - AS WELL AS SOME CHANCERY COURT JURISDICTION ISSUES

Fraud must be alleged with particularity.  That is a simple statement, but is one that causes many attorneys a lot of problems. 

First, some ground rules.  In Tennessee, the courts look at the substance of the complaint, not the form of the complaint.  But, the court will not create a cause of action if the complaint does not allege sufficient facts.  You cannot rely upon allegations of law.  Finally, if you allege fraud, you must allege more than a “short and plain” statement.  The circumstances constituting fraud or mistake must be alleged with particularity.  That means the complaint must include the details.

According to the court of appeals, the term “fraud” for purposes of Rule 9.02 includes any cause of action alleging misrepresentation, including fraudulent concealment and conversion.  To allege these causes of action, the complaint must state the specific representations at issue and identify the persons who made and who received the false information.

This case discusses a cause of action that I did not realize exists in Tennessee – the tort of “aiding and abetting.”  That tort arises if the defendant knows of the wrong being committed and gives substantial assistance or encouragement to the bad actors.  Unlike civil conspiracy, this tort does not require participation in the activities or even knowledge of what actually is occurring.  Even though this tort extends to things other than “fraud,” the court of appeals states that the facts constituting “substantial” assistance must be plead with particularity. 

Two other concepts noted in this opinion.  “Intangible” property cannot be converted.  Money is intangible.  Therefore, the theft of money is not “conversion” unless the amount of money is specific and the funds are identifiable.  If someone removes $100.00 from your bank account, the amount is specific and the funds are identifiable.  If a convenience store is robbed, the perpetrator is not guilty of conversion.  Chancery Courts do not possess jurisdiction over claims for unliquidated damages.  If the exact amount of damages is alleged, the claim is not unliquidated.

So, read those civil procedure rules carefully when you draft your complaint and avoid being the attorney of record in the textbook case on appropriate pleading for the rest of eternity.       

See PNC Multifamily Capital Institutional Fund XXVI Limited Partnership, et al. v. Bluff City Community Development Corporation, et al.