Fraud and Negligent Misrepresentation in Minnesota: Why the Elements Are the Easy Part

Two facts decide more Minnesota fraud cases than the elements do, and neither one appears in the elements.

The first is the damages rule. Minnesota measures misrepresentation damages by out-of-pocket loss — what you lost — and expressly rejects benefit-of-the-bargain. A fraud claim on a bad deal is therefore often worth less than the contract claim arising from the same transaction, not more. Plaintiffs who add a fraud count expecting it to enlarge the recovery frequently find it does the opposite.

The second is the duty rule. Negligent misrepresentation looks like the forgiving version of fraud — no proof of intent required. But the Minnesota Supreme Court has refused to extend it into arm’s-length dealing between sophisticated parties, which is precisely the setting in which most commercial deception happens. If you were negotiating a deal at arm’s length, negligent misrepresentation is usually not a fallback. Fraud, with its intent requirement, is the only claim you have.

Everything below assumes a Minnesota common-law claim. Statutory consumer claims run on different rules and different remedies — see Minnesota’s Consumer Fraud Act and deceptive trade practices statutes.

How many elements does a Minnesota fraud claim have?

Somewhere between five and eleven, depending on which line of authority you open. This is not a trick: Minnesota states the elements of fraud three different ways, all of them still cited.

The eleven-element formulation comes from then-Judge Blackmun’s survey of Minnesota law in Hanson v. Ford Motor Co., which the Minnesota Supreme Court adopted in Davis v. Re-Trac Manufacturing Corp. and repeated in Vandeputte v. Soderholm:

“1. There must be representation; 2. That representation must be false; 3. It must have to do with a past or present fact; 4. That fact must be material; 5. It must be susceptible of knowledge; 6. The representer must know it to be false, or in the alternative, must assert it as of his own knowledge without knowing whether it is true or false; 7. The representer must intend to have the other person induced to act, or justified in acting upon it; 8. That person must be so induced to act or so justified in acting; 9. That person’s action must be in reliance upon the representation; 10. That person must suffer damage; 11. That damage must be attributable to the misrepresentation, that is, the statement must be the proximate cause of the injury.”

Vandeputte v. Soderholm, 298 Minn. 505, 507, 216 N.W.2d 144, 146 (1974) (quoting Hanson v. Ford Motor Co., 278 F.2d 586, 591 (8th Cir. 1960)).

The seven-element prose version appears in Martens v. Minnesota Mining & Manufacturing Co., 616 N.W.2d 732, 747 (Minn. 2000).

The five-element version is what modern courts actually recite. In Hoyt Properties, Inc. v. Production Resource Group, L.L.C., 736 N.W.2d 313, 318 (Minn. 2007), the supreme court quoted Specialized Tours, Inc. v. Hagen, 392 N.W.2d 520, 532 (Minn. 1986):

“(1) there was a false representation by a party of a past or existing material fact susceptible of knowledge; (2) made with knowledge of the falsity of the representation or made as of the party’s own knowledge without knowing whether it was true or false; (3) with the intention to induce another to act in reliance thereon; (4) that the representation caused the other party to act in reliance thereon; and (5) that the party suffer[ed] pecuniary damage as a result of the reliance.”

The three formulations are not in conflict. The longer versions unpack materiality, proximate cause, and susceptibility to knowledge into separate numbered items; the short version folds them into element one. The practical point is that the number is not what matters. Minnesota fraud cases are decided on two of these elements almost to the exclusion of the rest: whether the statement was a false representation of past or existing fact, and whether reliance on it was reasonable. Plead all five. Prepare to litigate two.

Can I sue for fraud when someone breaks a promise?

Only if you can prove the promisor never intended to keep it — and the failure to perform is not, by itself, evidence of that.

Vandeputte states the rule:

“It is a well-settled rule that a representation or expectation as to future acts is not a sufficient basis to support an action for fraud merely because the represented act or event did not take place. It is true that a misrepresentation of a present intention could amount to fraud. However, it must be made affirmatively to appear that the promisor had no intention to perform at the time the promise was made.”

Vandeputte, 298 Minn. at 508, 216 N.W.2d at 147. Martens quotes this passage and treats present intent as “an additional element of proof” whenever the representation concerns a future event. 616 N.W.2d at 747.

This is the single most common defect in fraud pleading. A defendant who promised to deliver, promised to pay, or promised to keep supplying and then did not has breached a contract. To convert that into fraud you need evidence about the defendant’s state of mind at the moment of the promise — a contemporaneous internal document, a simultaneous inconsistent commitment to a third party, a plan already in motion. In Vandeputte the court affirmed summary judgment because nowhere in the affidavits, interrogatories, and depositions was there “one specific fact shown to support” the pleaded allegation that the promisor “made said representations without intent to perform.” In Martens, the complaint was dismissed on the pleadings for the same reason: it was “devoid of any specific claim that appellant’s statements were representations the appellant knew were false or had no intention of fulfilling at the time they were made.”

Related, and often overlooked: Martens also holds that “neither opinions nor statements that are ‘general and indefinite’ are representations of fact.” 616 N.W.2d at 747. Corporate aspiration documents, mission statements, and generalized descriptions of policy are not representations of fact, no matter how strongly the reader relied on them.

Is a lawyer’s statement about the law actionable as fraud?

Sometimes — and Hoyt Properties is the case to know, because it arose from a settlement negotiation.

Opposing counsel asked for a release of a parent corporation. Plaintiff’s principal asked, in substance, whether there was any basis to pierce the corporate veil. The parent’s attorney answered: “There isn’t anything. PRG and Entolo are totally separate.” The plaintiff signed the release and later learned of a pending third-party lawsuit alleging facts that would support piercing.

The supreme court held both statements actionable. Hoyt at 318:

“abstract statements of law or pure legal opinions are not actionable; however, a mixed statement of law and fact may be actionable ‘if it amounts to an implied assertion that facts exist that justify the conclusion of law which is expressed’”

quoting Miller v. Osterlund, 154 Minn. 495, 496, 191 N.W. 919, 919 (1923). “There isn’t anything,” viewed in the light most favorable to the plaintiff, implied that the attorney knew facts and that those facts did not support a piercing claim. “PRG and Entolo are totally separate” was a direct factual assertion. Had the attorney said instead, “I do not think someone could pierce the veil but I am not sure,” the court indicated the statement would have been pure opinion and not actionable.

Hoyt also mattered on the knowledge element. The attorney conceded at deposition that he had read the third-party complaint and had not yet formed an opinion about the facts alleged in it. That admission created a jury question on whether he made the representation “without knowing whether [it was] true or false” — the second half of element two, which does not require proof of actual knowledge of falsity.

Do I have to investigate before I can claim I relied?

No. Minnesota does not impose an investigation duty on the person to whom a representation is made.

Hoyt at 321: “We have held that a party can reasonably rely on a representation unless the falsity of the representation is known or obvious to the listener. . . . The listener is not under an obligation to conduct an investigation and thus may rely on the representation so long as it is not known by the listener to be false and is not obviously false.” (citing Spiess v. Brandt, 230 Minn. 246, 253, 41 N.W.2d 561, 566 (1950)).

Whether reliance was reasonable “is ordinarily a fact question for the jury unless the record reflects a complete failure of proof.” Hoyt at 321. That matters at summary judgment. In Hoyt itself the defendants argued that the plaintiff’s principal was a lawyer, an experienced businessman, and should have checked. The court agreed those facts “might well . . . lead a trier of fact to conclude that Hoyt’s reliance was in fact unreasonable” — but held that determination belongs to the factfinder, not to the court on summary judgment.

The plaintiff still must produce some evidence of both actual reliance and the reasonableness of it. In Hoyt the principal’s own deposition testimony that he agreed to the release because of the representation sufficed on actual reliance.

When does staying silent become fraud?

When a special circumstance creates a duty to speak. The governing enumeration comes from Klein v. First Edina National Bank, quoted in Richfield Bank & Trust Co. v. Sjogren, 309 Minn. 362, 366, 244 N.W.2d 648 (1976):

“As a general rule, one party to a transaction has no duty to disclose material facts to the other. However, special circumstances may dictate otherwise. For example: “(a) One who speaks must say enough to prevent his words from misleading the other party. . . . “(b) One who has special knowledge of material facts to which the other party does not have access may have a duty to disclose these facts to the other party. . . . “(c) One who stands in a confidential or fiduciary relation to the other party to a transaction must disclose material facts.”

Klein v. First Edina Nat’l Bank, 293 Minn. 418, 421, 196 N.W.2d 619, 622 (1972).

Sjogren itself notes the plaintiffs’ argument that these three are “merely illustrative” rather than exhaustive, and the court reached its result by asking whether the bank had actual knowledge that its depositor was so irretrievably insolvent that it had no reasonable expectation of performing. The distinction Sjogren draws is worth remembering: “The cases make a distinction between known irretrievable insolvency and where there is insolvency accompanied by reasonable hopes that by continuing the business fortune may be retrieved.” An insolvent buyer purchasing on credit is not bound to disclose its condition if it has a reasonable expectation of being able to pay.

Where a fiduciary relationship exists, the duty is stronger still. A fiduciary can “be liable for fraudulent misrepresentation by silence even though there was no evidence of fraudulent statements or of intentional concealment.” Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985) (quoting Murphy v. Country House, Inc., 307 Minn. 344, 350, 240 N.W.2d 507, 512 (1976)).

Disclosure duties in real estate purchases are their own subject; see seller and agent disclosure duties in a Minnesota purchase agreement.

What is negligent misrepresentation, and who can actually bring it?

Minnesota adopted Restatement (Second) of Torts § 552 in Bonhiver v. Graff, 311 Minn. 111, 122, 248 N.W.2d 291, 298 (1976). As quoted by the supreme court in Williams v. Smith, 820 N.W.2d 807, 815 (Minn. 2012):

“One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.”

The elements, per Williams: “(1) a duty of care owed by the defendant to the plaintiff; (2) the defendant supplies false information to the plaintiff; (3) justifiable reliance upon the information by the plaintiff; and (4) failure by the defendant to exercise reasonable care in communicating the information.”

Element one does the work. “[T]he existence of a duty of care is a threshold requirement. . . . Without it, liability cannot attach.” Williams at 816. And Minnesota has been deliberate about not extending that duty everywhere. Williams catalogs where the duty has been recognized:

The reasoning in Williams is the sentence to remember: “sophisticated parties negotiating a commercial transaction are entitled to legal protection only for intentional, fraudulent misconduct.” 820 N.W.2d at 817. The court’s holding was that “when a prospective government employment relationship is negotiated at arm’s length between sophisticated business persons who do not have a professional, fiduciary, or other special legal relationship, the prospective employee is not entitled to protection against negligent misrepresentations by the representative for the prospective government employer.” Id. at 809.

The court did not condone the conduct. It said outright that the way the plaintiff was treated “was unfair and disappointing” and that it did “not condone their conduct.” The claim failed anyway, on duty.

So: if your case involves a professional, a fiduciary, or a party with genuinely superior access to the facts, plead negligent misrepresentation. If it involves two businesses negotiating a deal, do not count on it. Prove intent.

Employment-specific misrepresentation has a separate statutory route in Minnesota — see false statements to induce employment under Minn. Stat. § 181.64.

Does the economic loss statute kill my misrepresentation claim?

If the transaction involved goods, it may. Minn. Stat. § 604.101 is a statute, not a judicial doctrine, and its subdivision 5 states its own displacing effect:

“The economic loss doctrine applies to claims only as stated in this section. This section does not alter the elements of a product defect tort claim or a common law claim for misrepresentation.”

Minn. Stat. § 604.101, subd. 5.

The scope provision reaches “any claim by a buyer against a seller for harm caused by a defect in the goods sold or leased, or for a misrepresentation relating to the goods sold or leased,” regardless of privity and regardless of whether UCC article 2 or 2A governed. § 604.101, subd. 2. The section “does not apply to claims for injury to the person.” Id.

Subdivision 4 is the operative bar for misrepresentation:

“A buyer may not bring a common law misrepresentation claim against a seller relating to the goods sold or leased unless the misrepresentation was made intentionally or recklessly.”

Minn. Stat. § 604.101, subd. 4.

That is a statutory abolition of negligent misrepresentation in goods transactions between buyer and seller. It reinforces the point above from a second direction: in a goods deal, intentional or reckless conduct is the price of admission.

Two limits worth checking before you concede anything. First, the section applies only where “the sale or lease that caused the seller to be a seller and the sale or lease that caused the buyer to be a buyer both occurred on or after August 1, 2000.” § 604.101, subd. 6. Second, “goods” is defined as “tangible personal property,” § 604.101, subd. 1(c) — a services contract, a real estate transaction, or a securities purchase is not within the section, and the common-law economic loss analysis governs instead.

How long do I have to sue?

Six years, running from discovery. Minn. Stat. § 541.05, subd. 1(6) provides that the following must be commenced within six years:

“(6) for relief on the ground of fraud, in which case the cause of action shall not be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud”

This is an accrual rule written into the statute itself, not an equitable tolling doctrine. But it is not unlimited. “The 6-year period begins to run when the facts constituting fraud were discovered or, by reasonable diligence, should have been discovered.” Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985). Constructive discovery starts the clock.

Toombs adds a fact-specific softening: “Delay in discovering fraud may be excusable when a confidential relationship exists,” and both the existence of a fiduciary relationship and “[t]he time when fraud reasonably should have been discovered” are questions of fact. 361 N.W.2d at 809. That is usually enough to defeat a motion to dismiss on limitations grounds where a fiduciary is the defendant, and rarely enough to survive a well-developed summary judgment record where the plaintiff sat on obvious red flags.

If the fraud involved moving assets beyond a creditor’s reach, a different statutory scheme with its own timing rules may apply — see Minnesota’s Uniform Voidable Transactions Act.

How specifically must fraud be pleaded?

With particularity. Minn. R. Civ. P. 9.02:

“In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.”

Read the second sentence as carefully as the first. State of mind may be alleged generally — you do not have to plead evidentiary proof of the defendant’s knowledge at the pleading stage. What must be particularized is the circumstances: who said what, to whom, when, and why it was false.

Martens shows the consequence of getting this wrong. The supreme court affirmed dismissal under Rule 12.02(e) because “the complaint does not set forth with specificity the elements of a fraud claim — in particular, that appellant knowingly made false representations of past or present facts that were susceptible of knowledge.” 616 N.W.2d at 747. The court framed the standard bluntly: “Our case law establishes a high threshold of proof for such a claim.” Id.

What is a Minnesota fraud claim actually worth?

Less than most clients expect, because of the damages rule.

“Minnesota subscribes to the rule that in transactions giving rise to a misrepresentation action, the damages are to be measured by ‘out-of-pocket’ loss. . . . In other words, the damages are the difference between the actual value of the property received and the price paid for the property, along with any special damages naturally and proximately caused by the fraud prior to its discovery, including expenses incurred in mitigating the damages. In this state we do not subscribe to the ‘benefit-of-the-bargain’ rule which allows the plaintiff to recover the difference between the value of the property received and the value to plaintiff that the property would have had if the representation had been true.”

B.F. Goodrich Co. v. Mesabi Tire Co., 430 N.W.2d 180, 182 (Minn. 1988).

The court’s stated reason is proof-based: benefit-of-the-bargain requires “overly hypothetical and speculative proof” about a world that never existed. Minnesota prefers to ask “not . . . what the plaintiff might have gained through the transaction but what he lost by reason of defendant’s deception.” Id. (quoting Tysk v. Griggs, 253 Minn. 86, 95, 91 N.W.2d 127, 134 (1958)).

There is an important escape hatch. Goodrich recognizes that “there may be some instances where the out-of-pocket rule does not work,” and follows Lewis v. Citizens Agency of Madelia, Inc., 306 Minn. 194, 235 N.W.2d 831 (1975), in declining to apply the rule “where that rule would not restore the injured party substantially to her former position.” In Goodrich itself the plaintiff had no out-of-pocket loss — it had received nothing of diminished value; it had been induced to refrain from finding a second tire supplier and lost its business. The court allowed recovery measured by the value of the business before the misrepresentation minus its value after.

The structural takeaway comes from Goodrich itself: “the rule works well where the plaintiff has received property in reliance on the misrepresentation, as in sales of goods or real estate, and the property received serves as the reference point for measuring the damages. The rule works less well where, as in this case, defendant’s misrepresentation prevents plaintiff from taking measures to protect the value of property it already has.” 430 N.W.2d at 182. It works poorly, and Minnesota will look for another measure, where the misrepresentation caused the plaintiff to forgo protective action rather than to acquire something overvalued. Frame the damages theory to fit that distinction from the first pleading.

Punitive damages

Not in the complaint. Minn. Stat. § 549.191:

“Upon commencement of a civil action, the complaint must not seek punitive damages. After filing the suit a party may make a motion to amend the pleadings to claim punitive damages. The motion must allege the applicable legal basis under section 549.20 or other law for awarding punitive damages in the action and must be accompanied by one or more affidavits showing the factual basis for the claim.”

The § 549.20 standard is “clear and convincing evidence that the acts of the defendant show deliberate disregard for the rights or safety of others.” § 549.20, subd. 1(a). A fraud verdict does not automatically produce a punitive award; it is a separate motion, a separate evidentiary showing, and a separate standard of proof.

No attorney fees

Common-law fraud in Minnesota carries no fee-shifting provision. This is a real difference from the statutory consumer claims, where Minn. Stat. § 8.31, subd. 3a allows “any person injured by a violation” of the listed statutes to “recover damages, together with costs and disbursements, including costs of investigation and reasonable attorney’s fees, and receive other equitable relief as determined by the court.”

Where the facts support both a common-law fraud claim and a statutory consumer claim, the statutory claim frequently carries the more valuable remedy. Plead both and let the record decide.

Reaching the people around the fraudster

A fraud that succeeded usually had help — a bank that processed the transfers, a professional who prepared the documents, a co-venturer who knew. Minnesota’s law of civil conspiracy and aiding-and-abetting governs whether those parties are reachable, and it has its own structural requirement: conspiracy is not a stand-alone tort. See civil conspiracy and aiding-and-abetting liability in Minnesota.

Where the deception took the form of taking property rather than inducing a transaction, conversion and the civil-theft statute may fit better than fraud — including their own punitive multiplier, which does not require a § 549.191 motion. See conversion and civil theft under Minn. Stat. § 604.14.

Madgett Law, LLC

Madgett Law, LLC represents plaintiffs in Minnesota fraud and misrepresentation cases: business deals induced by false financial statements, sales of businesses and assets on misrepresented numbers, professional and fiduciary misrepresentation, and consumer transactions where a common-law fraud claim runs alongside a statutory consumer claim. We evaluate at the outset which theory carries the recovery — because in Minnesota that is frequently not the fraud count — and we plead damages to fit the measure the court will actually apply. To discuss a matter, call 612-470-6529 or send us a message.

Sources: Minn. Stat. § 541.05, subd. 1(6) (six-year limitation for relief on the ground of fraud; accrual on discovery of the facts constituting the fraud); Minn. Stat. § 604.101, subd. 1(c) (definition of “goods”), subd. 2 (scope; misrepresentation relating to goods; no application to personal injury), subd. 4 (no common-law misrepresentation claim by buyer against seller unless intentional or reckless), subd. 5 (economic loss doctrine applies only as stated in the section), subd. 6 (application to sales or leases on or after August 1, 2000); Minn. Stat. § 549.191 (complaint must not seek punitive damages; motion to amend with affidavits); Minn. Stat. § 549.20, subd. 1(a) (clear and convincing evidence of deliberate disregard); Minn. Stat. § 8.31, subd. 3a (private remedies; costs, investigation costs, and reasonable attorney’s fees); Minn. R. Civ. P. 9.02 (circumstances constituting fraud stated with particularity; condition of mind averred generally); Hoyt Properties, Inc. v. Production Resource Group, L.L.C., 736 N.W.2d 313, 318, 321 (Minn. 2007) (five-element formulation quoting Specialized Tours; mixed statements of law and fact; knowledge or reckless assertion; no duty to investigate; reasonableness of reliance is a jury question); Specialized Tours, Inc. v. Hagen, 392 N.W.2d 520, 532 (Minn. 1986) (five required elements of fraud); Vandeputte v. Soderholm, 298 Minn. 505, 507–08, 216 N.W.2d 144, 146–47 (1974) (eleven-element formulation from Hanson v. Ford Motor Co., 278 F.2d 586, 591 (8th Cir. 1960); representation as to future acts; present intent not to perform); Davis v. Re-Trac Manufacturing Corp., 276 Minn. 116, 149 N.W.2d 37 (1967) (approving the eleven-element summary); Martens v. Minnesota Mining & Manufacturing Co., 616 N.W.2d 732, 747 (Minn. 2000) (seven-element prose formulation; high threshold of proof; Rule 9.02 specificity; opinions and “general and indefinite” statements are not representations of fact); Williams v. Smith, 820 N.W.2d 807, 809, 815–18 (Minn. 2012) (Restatement (Second) of Torts § 552; four elements of negligent misrepresentation; duty of care as threshold requirement; no duty in arm’s-length negotiation between sophisticated persons); Bonhiver v. Graff, 311 Minn. 111, 122, 248 N.W.2d 291, 298 (1976) (adoption of Restatement § 552); Richfield Bank & Trust Co. v. Sjogren, 309 Minn. 362, 366, 244 N.W.2d 648, 650 (1976) (quoting the three special circumstances of Klein v. First Edina National Bank, 293 Minn. 418, 421, 196 N.W.2d 619, 622 (1972); known irretrievable insolvency); Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985) (six-year period runs on actual or reasonably diligent discovery; fiduciary silence as fraudulent misrepresentation, quoting Murphy v. Country House, Inc., 307 Minn. 344, 350, 240 N.W.2d 507, 512 (1976)); B.F. Goodrich Co. v. Mesabi Tire Co., 430 N.W.2d 180, 182 (Minn. 1988) (out-of-pocket measure; rejection of benefit-of-the-bargain; Lewis exception where out-of-pocket would not restore the plaintiff).

This article is general legal information about Minnesota law. It is not legal advice, it does not create an attorney–client relationship, and no outcome is promised or implied. Statutes, rules, and case law change; verify current authority before relying on anything here.