Making and Breaking Cases for Commercial Fraud in New York—The Deposition

Practical insights from powerhouse attorney, author and speaker Bradley Bailyn.

Have you ever heard the expression, “You have the right to remain silent. Anything you say can and will be used against you in a court of law?” And have you heard the expression, “The road to hell is paved with good intentions?” Nowhere are these things more true than in a deposition where a fraud claim is involved. Your honest, well-intentioned words will be picked apart by your adversary and selectively presented to the court and to the jury in a way that makes you look like a depraved heart beast whose every breath stinks of lies, fraud and deceit.

Most people understand what I just said by the time they get into the hot seat because their attorney makes that clear. But nonetheless, human nature being what it is, people feel a duty to set the record straight and educate their adversary on the facts. Pay attention because I’m only going to say this once. DON’T! Discovery has been going on for months already. The other lawyer probably knows the facts from the fiction better than you do. They have already had one-sided interviews with your disgruntled former customers and employees and other people you have beef with, and possibly a few of your friends just for context. They’ve stoked everyone’s anger until people you’ve once met once for 5 minutes at a cocktail party are screaming “FRAUD!” and everyone is spilling their guts to try and bring you to justice.

They’ve got a folder of emails taken out of context, social media posts you wish you never made, and assorted other nastiness from your past to use against you and motivate people to testify to your fraudulent nature. If you think they’re not that motivated, trust me, they probably are. Today they are going to play good cop, bad cop, stupid cop, try to aggravate you, embarrass you, surprise you and do anything else they can to get you upset and blurt something out that allegedly shows your lying, devious, fraudulent nature in your own words.

Protecting a client is very doable, just as attacking their credibility is. Everything comes down to the viewpoint in which you see a person’s actions. If you think of them as a devil, you can find an evil motive for everything they do and supporting evidence. If you think of someone as an angel, you can find a good motive for everything they do and supporting evidence. So when you are being deposed, it is your job not to allow the lawyer wearing his or her cynic shades to paint you the way they need to paint you.

Unlike the Miranda warning, you do need to talk during a fraud deposition. But you don’t need to blabber. Your job today is simply to avoid reversing all of your attorney’s hard work and validating all of the opposing attorney’s hard work by going under oath and adding to the pile of lies, half-truths and misrepresentations that are already in your opponent’s quiver. Deposition testimony in commercial fraud lawsuits is crucial, and often serves as the primary reason for which a party prevails or loses. Indeed, the difference between success and failure may turn on one or two specific facts, or even the way these facts are stated.

By way of example, I once watched a trial where the attorney was cross-examining the chief engineer for a chainsaw company. He held the chainsaw in a ridiculous way and said, “So you designed the chainsaw to be held like this, right?”And the engineer starts turning red and says, “Of course not.” And the attorney holds it in an even more ridiculous way and says, “OK so this is how you intended it, right?” And the engineer raises his voice and says, “OF COURSE NOT.” And so the lawyer puts one hand on the blade and says, “Like this?” And the now-furious engineer yells, “NO. THAT IS NOT HOW YOU HOLD A CHAINSAW!”

And so the lawyer holds it the way the * Plaintiff was holding the chainsaw when he cut his hand off * and says, “OK thank you sir. I think I understand now. Is this better?” And the engineer calms down and says, “That’s not perfect but it’s a lot better, yes.” The lawyer says, “Do you expect everybody to be perfect” The engineer says, “No.” The lawyer says, “I rest my case. Thank you.” You see how an educated person just potentially bankrupted the company he works for by trying to help a stupid lawyer understand how to hold a chainsaw?

“In order to sustain an action for actual fraud the plaintiff must prove: (1) that the defendant made a representation, (2) as to a material fact, (3) which was false, (4) and known to be false by the defendant, (5) that the representation was made for the purpose of inducing the other party to rely upon it, (6) that the other party rightfully did so rely, (7) in ignorance of its falsity (8) to his injury.” See, 24 N.Y. Jur., Fraud and Deceit, §14; 37 C.J.S. Fraud § 3; Brown v. Lockwood, 76 A.D.2d 721, 730 (2d Dept. 1980).

To be clear, there are up to eight different elements a plaintiff must prove to win his case against a defendant. Prevent the plaintiff from establishing any one of these elements and, in theory, he does not win.

From a practical perspective, however, there are actually four or five elements a plaintiff must prove, as some of the above are often joined together.

First, that a defendant made a material misrepresentation of fact. This does not mean some extraneous comment, but rather a specific statement related to the substance of the case. For example, John tells David that John owns a set of condominiums and, in exchange for a $100,000.00 investment, David will obtain a 5% ownership interest. However, John does not actually own any condominiums. This is a material misrepresentation of fact.

Second, that the statement was known to be false by the defendant (i.e. John knew he did not own any condominiums). If John believed he owned these condominiums (perhaps John was defrauded by another person), this element is not likely satisfied.

Third, that the statement was made for the purpose of inducing the plaintiff to rely on it. If John perpetrated the act above with the intent to procure David’s money, this element is likely satisfied. If John simply told David that he owned condominiums and never asked for—or intended to procure—David’s money, this element is not likely satisfied.

Fourth, that the plaintiff reasonably relied on the misrepresentation in acting. If David reasonably believed that the condominiums were a good investment opportunity, this element is likely satisfied. If John told David that the condominiums were in Hawaii but showed him photographs of huts in Hawaii, such reliance by David is not reasonable and, as such, this element is not likely satisfied.

Finally, that the defendant was actually damaged by the misrepresentation. In our fact pattern, did David lose his $100,000.00 as a result of John’s misrepresentation? If so, this element is likely satisfied. If David lost his $100,000.00 because a tornado ravaged the condominiums, then this element is not likely satisfied.

As you can see, the plaintiff has a lot to prove in a lawsuit based upon fraud and/or misrepresentation. Effective deposition testimony is vital to establishing the facts needed to prevail.

In theory, the defendant has nothing to prove. However, no matter the actual facts surrounding the case, an inadequate deposition by the defendant can result in victory for the plaintiff.

In my experience, there are two critical elements to doing well in a deposition - answer only the question asked and do so truthfully. Attorneys at trial consistently use deposition transcripts to impeach witnesses. That is, if a witness testifies to a fact during the deposition and the questioning attorney proves it to be a false statement in front of the judge or jury, the resulting lack of credibility is likely to torpedo that party’s entire case, no matter how strong the rest of the claims or defenses are.

Almost equally as important is to keep answers simple. Only answer the questions asked, and do it in as few words as possible. “I don’t recall right now” is a perfectly acceptable answer. If the other side asks whether there are documents or people that could help you recall, “yes” is a perfectly acceptable answer. If the attorney for the other side asks what exactly would help you recall, “I’m not sure” is a perfectly acceptable answer, assuming that’s the truth. Again, providing an answer that may be proven incorrect in front of a judge or jury, even if provided innocently, might mean the difference between a judgment for or against you.

Next, I have found that the most competent witnesses listen to their attorney. For various procedural or other legal reasons, I might raise objections to the question asked by the questioning attorney. In such a situation I might also follow the word “objection” with other instructions—either “you may answer” or “don’t respond” or whatever makes sense to me in that situation. Anything said by the witness will be “on the record” (or made part of the deposition transcript) and, as such, it is important to let the attorney (me) protect the witness (you) from answering improper or inappropriate questions.

Finally, the party’s attorney will provide a copy of transcripts to his client for review. It’s often several huge books. It’s very intimidating lengthwise. But it is kind of fund to read because it can remind you of how strong your case or your defense is. But regardless, you must read it and correct the transcript as necessary. Too many clients skim the document and miss certain errors made, either by the witness or the stenographer who generated the transcript. It is vitally important that the transcript be error-free so that, when used as evidence at trial, the correct facts are presented to the Court.

While each case involves differing fact patterns, these are some of the essential issues common to depositions in most commercial fraud cases. Inadequate preparation and insufficient consideration of the above is likely to cause even the strongest cases to fail.

The Bailyn Law Firm, P.C., founded by Bradley Bailyn, is a very hard-working law firm that provides excellent representation to people who are plaintiffs or defendants in New York commercial fraud cases. If you would like to come in for a free consultation, please fill the form on our website or call 646-326-9971.

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