I had a dilemma. I believed my clients had a favorable fraud case. Fraud is always difficult to prove clearly and convincingly, so it is necessary to find fall-back claims or additional claims to prevent a spectacular crash and burn if the facts do not present as hoped. Halfway through the case, several other fraud became apparent. But amending to add the claims might cause havoc to the proceeding. I needed to involve the client in this litigation decision.

Paraphrasing Mr. Justice Frankfurter, legal decisions would be easy if there were not competing interests. Here the competing interest was in efficiently presenting the case. The original fraud claim was simple rescission that required no expert testimony. In fact, the deadline for expert reports had expired. If the new fraud claims were asserted, then the case would be delayed, the defendant would rightfully want an expert to testify, the case was expensive enough without having to spring for experts, and possibly multiple experts to bring the new claims home.

Whether to amend is in part a business decision that should be decided by the client. The client needs to understand the risks of not formally amending and the lawyer needs to explain it. So here are the risks and options.

Can the Tribunal consider the new facts constituting fraud absent it being pleaded?

We could argue that the new facts constituting fraud allegations are inextricably interwoven with the pleaded fraud violations, then the facts “complete the picture” of the fraudulent inducement and are admissible as part of the res gestae. If this is the case, then the new facts do not even trigger the limitations of Federal Rule of Evidence 404 and its state counterparts which control the introduction of “other bad acts” into evidence. But even under Fed. R. of Evid. 404(b), even if the allegations are considered other “bad acts,” they can be properly admitted for “other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident.” In this case, we would argue that defendant had planned and prepared to commit fraud, and the facts that support other acts of fraud also support knowing planning. This shows defendant’s conduct that the violations and misleading statements were no accident or mistake, but rather reckless or intentional.

The client reasoned that the facts were so damaging that if considered, they would help decide the case, so the client authorized going forward without amending the claim to plead the new facts with particularity.

Can the Tribunal decide the case as if the damaging new facts were pleaded?

The pretrial brief referenced the new facts. The defendant did not file a motion in limine and the witnesses testified as to the new facts over the objection of defense counsel during the bench trial. At closing argument, we argued that the Tribunal was entitled to decide the case on the new facts developed, even over the objection. Neither Fed. R. Civ. 9(b), nor any other rule, limits the trial of a fraud case only to the 9(b) pleading if it is otherwise fair to include other acts of fraud, or if the pleading conforms to the evidence under Fed. R. 15(b). The absence of such an exclusionary rule reflects the reality that fraud is often ferreted out in discovery. Fed. Rule 15(b) provides for amendments during and after trial. Rule 15(b) applies “if, at trial, a party objects that evidence is not within the issues raised in the pleadings, the court may permit the pleadings to be amended.” The defendant knew these issues were raised in briefing because they took discovery on the issues. However, if the scope of the pleadings do not include such allegations, then Rule 15(b) and the state equivalents, support amendment to include such issues.

At closing we also argued that the Tribunal may also conclude that the issues not raised by the pleadings were tried by the parties express or implied consent. No motion in limine was filed. The first time they objected to such evidence was not in the opening but later in the case. By this time, the case was already briefed and these issues were part of the fabric of the plaintiffs’ presentation. It would have been unfair to the plaintiffs at that time to prevent introduction of that evidence as the defendant had remained silent until well into the hearing.

Rule 15 (b)(2) provides “When an issue not raised by the pleadings is tried by the parties express or implied consent, it must be treated in all respects as if raised in the pleadings.” We argued that consent was implied by the defendant’s failure to object to all of the issues based on surprise before examination of their witnesses, and then only to object solely because it was not raised in the demand, even though it was addressed in the briefing and discovery. Rule 15(b)(2) further provides “A party may move-at any time, even after judgment-to amend the pleadings to conform them to the evidence and to raise an unpleaded issue. But failure to amend does not affect the result of the trial of that issue.”

Did the Tribunal accept the arguments?

The Tribunal found for the plaintiffs and concluded that they had shown they were defrauded on the pleaded claims through clear and convincing evidence. The Tribunal carefully issued findings of fact and conclusions of law that specifically rejected the unpleaded facts supporting the new claims of fraud and premarked documents that supported the new claims of fraud. The Tribunal issued credibility findings against the defendant’s chief witness. All in all, the Tribunal took extra steps to insure that its opinion would withstand review.

Lessons Learned

Trying cases with unpleaded claims is risky business. Because amendment is liberally granted, you should have a very good reason not to seek leave to amend when a viable claim is discovered during the case. Nevertheless, there are cases that allow unpleaded claims to be dispositive. In this case, the Tribunal stated that it did not consider those claims, but I will always wonder if it actually did and what effect arguing the claims had on the outcome.

Reprinted with permission from the April 21, 2023 issue of The Legal Intelligencer© 2023 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.