Tenant's Misrepresentation of Financial Condition Was Fraudulent

 Facts: A tenant signed a 13-year lease with the owners of an office building. Upon moving into the office space the tenant failed to secure a $75,000 security deposit bond, which was required under the lease. The tenant later moved out without notice or explanation, stopped paying rent, and removed its fixtures.

The owners sued the tenant for fraud, among other claims including breach of contract. The tenant asserted that the owners hadn’t established fraud because they hadn’t shown that the tenant “made a false material representation of past or existing fact, with knowledge or reckless ignorance of its falsity, which caused reliance to the detriment of the person relying on the representation.” A trial court dismissed the fraud claim. The owners appealed, amending their original complaint.

Decision: An Indiana district court reversed the lower court’s decision.

Reasoning: The appeals court determined that in their amended complaint, the owners satisfied the requirements for establishing fraud. The owners are not required to plead “any magic words to bring a fraud claim, but must plead at least ‘the first paragraph of any newspaper story,’” noted the appeals court. Here, the owners brought forward misrepresentations concerning past or existing facts—namely, that the tenant had misrepresented its financial condition and business credentials at the time of the lease negotiations to induce the owners into entering a long-term commercial lease.

• Ello v. Brinton, November 2015