Unlike in many jurisdictions, Michigan courts recognize a cause of action for innocent misrepresentation. If you are about to initiate a lawsuit for fraudulent misrepresentation, it may be helpful to remember this; as often times, litigants have a difficult time in proving the intent element under a fraudulent misrepresentation cause of action (or even surviving a motion for summary disposition).
As a quick reminder, the elements of a common-law fraud claim in Michigan are:
(1) the defendant made a material representation; (2) the representation was false; (3) when the defendant made the representation, the defendant knew that it was false, or made it recklessly, without knowledge of its truth as a positive assertion; (4) the defendant made the representation with the intention that the plaintiff would act upon it; (5) the plaintiff acted in reliance upon it; and (6) the plaintiff suffered damage.
Johnson v USA Underwriters, 328 Mich App 223, 936 NW2d 834, 840 (2019).
As hinted at above, an innocent misrepresentation claim eliminates the scienter, i.e., intent, element. As put succinctly by the Michigan Court of Appeals:
Innocent misrepresentation differs from “actionable” fraud by eliminating the requirement of “scienter and proof of the intention that the misrepresentation be acted upon” and adding that the injury suffered by the victim must benefit the one making the misrepresentation.
Hatfield v Progressive Michigan Ins Co, No. 341177, 2018 WL 3594470, at *6 (Mich Ct App. July 26, 2018).
As the phrasing suggests (“benefit the one making the misrepresentation”), under Michigan law, to prevail on such a theory of relief, the plaintiff must demonstrate that there is privity of contract between themselves and the defendant.
This wrinkle can present problems, for example, in the real estate context—where these cases often arise—where agents frequently make a representation (or misrepresentation, as the case may be) on behalf of the principal. Put differently, a defrauded buyer does not usually buy a piece of property directly from the agent/broker. On this point, interestingly, there are some decisions that appear to substitute the phrase “in the context of contractual negotiations” for the privity requirement. However, a review of the case law does not suggest that the standard is this lax.
This privity requirement may be a potential obstacle to bringing such a cause of action; however, a plaintiff can cover their bases by exercising breadth in terms of naming defendants and causes of action. Regardless, if one is considering a lawsuit based on a potential misrepresentation, the information above is certainly worthy of consideration.
