Posted On: March 1, 2011 by Steven D. Silverman

Fraudulent Misrepresentation Under Maryland Law

In Maryland, to establish a claim of fraudulent misrepresentation, a plaintiff must prove: (1) that a false representation was made, (2) that its falsity was either known or that the representation was made with such reckless disregard to the truth as to be equivalent to actual knowledge of falsity, (3) that the representation was made for the purpose of defrauding the plaintiff, (4) that the plaintiff had the right to, and did, reasonably rely on the representation, and would not have acted had the misrepresentation not been made, and (5) that the plaintiff suffered damage directly resulting from the misrepresentation. See Swinson v. Lords Landing Village Condo., 360 Md. 462, 476, 758 A.2d 1008, 1016 (2000) (citing Gittings v. Von Dorn, 136 Md. 10, 15-16, 109 A. 553, 553-54 (1920); Martens Chevrolet v. Seney, 292 Md. 328, 333, 439 A.2d 534, 537 (1982)).

In determining the amount of damages for fraudulent misrepresentation in Maryland, the Court of Appeals adopted the “flexibility theory” in Hinkle v. Rockville Motor Co., 262 Md. 502, 519, 278 A.2d 42, 47 (1971). In doing so the court stated, “[it] has never taken a rigid stand in adopting one theory of damages to the exclusion of all others but has rather employed a flexible approach.” This approach uses four rules as a guide for the proper measure of damages in cases of fraudulent misrepresentation, which include:
(1) If the defrauded party is content with the recovery of only the amount that he actually lost, his damages will be measured under that rule;
(2) if the fraudulent representation also amounted to a warranty, recovery may be had for loss of the bargain because a fraud accompanied by a broken promise should cost the wrongdoer as much as the latter alone;
(3) where the circumstances disclosed by the proof are so vague as to cast virtually no light upon the value of the property had it conformed to the representations, the court will award damages equal only to the loss sustained; and
(4) where . . . the damages under the benefit-of-the-bargain rule are proved with sufficient certainty, that rule will be employed.”
Hinkle, 262 Md. at 511-12, 278 A.2d 42.

Additionally, a plaintiff may recover punitive damages in an action for fraud where “‘conduct of an extraordinary nature characterized by a wanton or reckless disregard for the rights of others’ is evident.” Thomassen Lincoln-Mercury, Inc. v. Goldbaum, 45 Md. App. 297, 305, 413 A.2d 218, 223 (1980) (quoting Wedeman v. City Chevrolet Co., 278 Md. 524, 532, 366 A.2d 7(1976)). Maryland Courts have also held that punitive damages may be awarded in arbitration where appropriate, unless the arbitration agreement precludes such an award. Regina Const. Corp. v. Envirmech Contracting Corp., 80 Md. App. 662, 674, 565 A.2d 693, 699 (1989). Generally, Arbitrators are accorded a fair amount of discretion in fashioning remedies and sanctions, which includes punitive damages. Id.

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