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Lithuanian Commerce Corporation, Ltd. v. Sara Lee Hosiery

214 F. Supp.2d 453 (D. N.J. 2002)

FRAUD— Legal fraud must be proven by clear and convincing evidence.

A pantyhose distributor brought suit against the manufacturer. One of its claims was based on legal fraud. As a result, the Court was required to answer a question that it described as “elegant in its deceptive simplicity: What is the standard of proof that governs an action for legal fraud in New Jersey, that is, must legal fraud be proven by ‘preponderance of evidence,’ or by ‘clear and convincing evidence?” The Court discovered two distinct lines of cases, with contradictory holdings. One line of cases, largely citing to a Third Circuit Opinion, conclude “that while the clear and convincing standard of proof applies to claims of equitable fraud, the preponderance of the evidence standard applies to claims of legal fraud.” The other line of cases largely citing a New Jersey Superior Court Appellate Division that held “that claims of legal fraud must be proven by ‘clear and convincing evidence.’” After considering cases in both lines of reasoning, the Court concluded that “[t]he weight of authority supports the conclusion that claims of legal fraud in New Jersey must be proven by clear and convincing evidence.” In effect, the Court held that the line of cases following the Third Circuit’s view had “been undermined by several lines of authority which [had] developed since the filing” of the seminal opinion at the core of that line of cases. Consequently, by looking at the currentness of the various cases and the trend of the opinions, the Court reached its conclusion that the appropriate standard was “clear and convincing evidence.”

Another issue raised was whether a statement about the value of merchandise can create an express warranty under the Uniform Commercial Code. A relevant section of the UCC provides, in pertinent part: “[I]t is not necessary to the creation of an express warranty that the seller use formal words such as ‘warrant’ or ‘guarantee’ or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.” Thus, “in contracts for the sale of goods governed by New Jersey’s U.C.C., a seller’s statement about the value of goods cannot create a warranty.”


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