Opinion ID: 1154737
Heading Depth: 4
Heading Rank: 1

Heading: The Requirement of Actual Reliance.

Text: (4) Plaintiffs begin their argument by observing that the statutes pertaining to the tort of deceit (Civ. Code, งง 1709, 1710) do not expressly require a showing of actual reliance. This leads plaintiffs to the conclusion that reliance, in California, is merely one method of proving causation, which, they contend, can be pled by alleging that defendants' misrepresentations had the purpose and effect of causing plaintiffs to purchase or to sell, whether or not such misrepresentations ever came to plaintiffs' attention. It is true that the relevant statutes do not expressly mention the element of reliance. Civil Code section 1709 provides only that [o]ne who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers. Nor is there any mention of reliance in Civil Code section 1710, which offers three definitions of deceit that may pertain to this case: 1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true; [ถ] 2. The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true; [and] [ถ] 3. The suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact.... However, like much of our law, the law of deceit in California is not purely statutory; it is a mixture of statutory and common law. Provisions of the Civil Code that are substantially the same as the common law, such as the provisions that codify common law torts, must be construed as continuations thereof, and not as new enactments. (Civ. Code, ง 5.) Civil Code sections 1709 and 1710 have been recognized as continuations of the common law. ( Lacher v. Superior Court (1991) 230 Cal. App.3d 1038, 1043, fn. 1 [281 Cal. Rptr. 640].) Thus, it is entirely consistent with those statutes that California courts have always required plaintiffs in actions for deceit to plead and prove the common law element of actual reliance. (E.g., Molko v. Holy Spirit Assn., supra, 46 Cal.3d at p. 1108; Seeger v. Odell, supra, 18 Cal.2d at p. 414; Spinks v. Clark, supra, 147 Cal. at p. 444; Colton v. Stanford, supra, 82 Cal. at p. 383; Nounnan v. Sutter County Land Co., supra, 81 Cal. at pp. 6-7; Estep v. Armstrong, supra, 69 Cal. at p. 538; Snow v. Halstead, supra, 1 Cal. at p. 361.) It may be true, as plaintiffs assert, that reliance can be thought of as the mechanism of causation in an action for deceit. (Cf. Garcia v. Superior Court, supra, 50 Cal.3d at p. 737.) But to accept that characterization does not excuse plaintiffs from the requirement of pleading reliance, since specific pleading is necessary to establish a complete causal relationship between the alleged misrepresentations and the harm claimed to have resulted therefrom. ( Ibid. ) Nor does Civil Code section 1711, on which plaintiffs also rely, obviate the need to plead or prove reliance. The section provides that [o]ne who practices a deceit with intent to defraud the public, or a particular class of persons, is deemed to have intended to defraud every individual in that class, who is actually misled by the deceit. To the extent it may be relevant here, the statute simply points out that one who makes false representations with fraudulent intent need not have any particular victim in mind. Litigants who rely on section 1711 must still plead and prove actual reliance. (See Slakey Brothers Sacramento, Inc. v. Parker (1968) 265 Cal. App.2d 204, 207-210 [71 Cal. Rptr. 269] [pleading of reliance insufficient]; cf. Wennerholm v. Stanford University Sch. of Med. (1942) 20 Cal.2d 713, 716-717 [128 P.2d 522, 141 A.L.R. 1358] [pleading sufficient]; Block v. Tobin (1975) 45 Cal. App.3d 214, 219 [119 Cal. Rptr. 288] [same]; see also Schell v. Schmidt (1954) 126 Cal. App.2d 279, 287-289 [272 P.2d 82] [proof of reliance insufficient]; cf. Nathanson v. Murphy (1955) 132 Cal. App.2d 363, 369-370 [282 P.2d 174] [proof sufficient].) Plaintiffs argue that to require the pleading and proof of actual reliance would render another provision of the Civil Code meaningless. The provision in question, section 3343, defines the measure of damages for [o]ne defrauded in the purchase, sale or exchange of property.... The ordinary measure of damages in such cases is the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction.... (Civ. Code, ง 3343, subd. (a).) However, lost profits are also available when [t]he defrauded party reasonably relied on the fraud in entering into the transaction and in anticipating profits from the subsequent use or sale of the property. ( Id., ง 3343, subd. (a)(4)(ii).) Plaintiffs argue that the statute's reliance requirement for additional damages would be meaningless if ... actual subjective reliance were required in all fraud cases. The argument might have merit if the statute said only that the defrauded party must have reasonably relied on the fraud in entering into the transaction. However, that is only one of the statutory prerequisites for recovery of lost profits; read in full, the statute provides that lost profits are available only when the defrauded party reasonably relied on the fraud in entering into the transaction and in anticipating profits from the subsequent use or sale of the property.  (Civ. Code, ง 3343, subd. (a)(4)(ii), italics added.) Obviously, one can purchase property in a fraudulent transaction without anticipating profit from the property's use or resale. Therefore, the statute cannot plausibly be read as eliminating the element of reliance from the tort of deceit. (5) Finally on this point, plaintiffs argue that actual reliance cannot logically be an element of a cause of action for deceit based on an omission because it is impossible to demonstrate reliance on something that one was not told. In support of the argument, plaintiffs cite Affiliated Ute Citizens v. United States, supra, 406 U.S. 128 ( Ute ), in which the officers of a bank, which served as the transfer agent for a Native American corporation holding tribal assets, purchased shares from individual members of the tribe in face-to-face transactions without conveying cautionary information their duties required them to convey and without informing the sellers that they, the buyers, were profiting. ( Id. at pp. 150-154 [31 L.Ed.2d at pp. 759-762].) Interpreting Rule 10b-5, the high court held that positive proof of reliance is not a prerequisite to recovery in a case involving primarily a failure to disclose.... (406 U.S. at p. 153 [31 L.Ed.2d at p. 761].) We see no reason to adopt the Ute presumption as California law. Contrary to plaintiffs' assertion, it is not logically impossible to prove reliance on an omission. One need only prove that, had the omitted information been disclosed, one would have been aware of it and behaved differently. Moreover, as we shall explain below, the body of law that has developed under Rule 10b-5 is not sufficiently analogous to the law of fraud to justify its importation into the latter. [4]