“Fraudulent inducement” is one of those legal terms that tends to confuse the average person, but the underlying concept is fairly simple. In the context of civil litigation, fraudulent inducement means one person makes an intentional misrepresentation that another person “reasonably relies” upon to their detriment. For example, if someone makes a material misrepresentation of fact—either by lie or omission—in order to get you to sign a contract, you may have cause to seek damages for fraudulent inducement.
Court Rejects Celebrity Chef's Speculative Injuries
However, fraudulent inducement still requires some proof that you suffered damages as a result of the misrepresentation. It is not enough to merely prove the other party to a contract lied to you. A recent New York case involving a major restaurant chain provides a useful illustration of this concept.
Kyle Connaughton is a well-known chef who specializes in Japanese cuisine. In 2010, Connaughton began developing a concept for a fast-food restaurant focused on ramen, a traditional Japanese noodle soup. Connaughton sold his concept to Chipotle Mexican Grill, Inc. Chipotle then hired Connaughton as an “at-will” employee to work. This meant either party could terminate employment at any time. But if Connaughton remained employed, he would be entitled to periodic grants of company stock.
Connaughton's employment lasted until November 2012, when the company terminated the agreement. A month earlier, Connaughton said he learned that Chipotle had been consulting with another chef regarding a ramen restaurant concept since approximately 2008. Connaughton believed that Chipotle employees had been using this other chef's design work in developing his plans for a ramen restaurant. Connaughton said he was concerned the other chef would accuse him of stealing his ideas.
Connaughton subsequently sued Chipotle, alleging among other things fraudulent inducement. He said had Chipotle informed him of its preexisting relationship with the other chef, he never would have agreed to work for the company. In April 2014, Manhattan Supreme Court dismissed the case, stating Connaughton failed to state a viable claim for fraudulent inducement. In January 2016, a divided five-judge panel of the Appellate Division, affirmed the Supreme Court.
The majority said that even if Connaughton's allegations were true, they did “not give rise to a reasonable inference that he sustained calculable damages based on the defendants' actions.” In other words, the court could not ascertain what injuries Connaughton actually suffered. Keep in mind, he did not allege breach of his employment, which was at-will, and he was paid for the work performed. In a fraudulent inducement case, the plaintiff must demonstrate he has actually lost something of value. Here, the court said that at best, Connaughton might suffer a hypothetical injury down the road “depending on the future actions” of other parties, such as the other chef contracted by Chipotle. This was not enough to sustain his lawsuit.