An investor sued over an investment in a project to build a high-end karaoke bar. The complaint was dismissed except a fraud claim based on a statement about receiving $5 million in funding. The fraud claim was originally based on allegations that in an initial meeting the founder made false statements that (i) he had already received $5 million in funding, (ii) the investment was ‘no risk’ and (iii) that the karaoke bar would be completed by December 2014.It was also claimed that a business plan prepared by the defendants included false financial projections.
WHY THIS IS IMPORTANT… The court ruled that claims of fraud based on statements that the investment was no risk and the bar would be completed by December 2014 were not actionable. There was no showing these statements, when made, were false The fraud claim on the misrepresentation that he had already received $5 million in funding was on different footing. Since the evidence was unclear that the $5 million had been invested, the case was allowed to continue on that issue.
The bottom line is that a fraud case requires that a statement of fact made must be knowingly false and designed to be relied on by the party the statement was made to and actually relied on. Projections and opinions, unless proved to be knowingly false when made, will not support a cause of action.