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Can People Conspire to Commit Constructive Fraud?

By: David H. Jones

It is well-known that conspiracy is not an independent tort; it is simply a way to extend liability beyond the primary actor to others who agreed to act toward a common goal.  Carroll v. Timmers Chevrolet, Inc., 592 S.W.2d 922, 925-26 (Tex. 1979); see Akin v. Dahl, 661 S.W.2d 917, 921 (Tex. 1983).  Proof of a conspiracy by itself does not create liability.  See Schlumberger Well Surv. Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 856-57 (Tex. 1968). 

Instead, liability for conspiracy comes from the act done to further the conspiracy, not the conspiracy itself.  Carroll at 925.  Thus, conspiracy must be based on an underlying tort.  Often, that underlying tort will be fraud.  But, can there be a conspiracy to commit constructive fraud?

There appears to be no case directly on point that answers this question.  So, to determine the answer, one must look first at what type of underlying tort will support a claim for conspiracy.

The underlying tort that will support a claim of conspiracy must be an intentional tort because conspiracy requires intent.  Firestone Steel Prods. v. Barajas, 927 S.W.2d 608, 617 (Tex. 1996).  This is why conspiracy cannot be premised on negligence; negligence by definition is not an intentional wrong, so parties cannot conspire to be negligent.  Chon Tri v. J.T.T., 162 S.W.3d 552, 557 (Tex. 2005); Firestone Steel, 927 S.W.2d at 614.

Next, we want to distinguish between actual fraud and constructive fraud.  Actual fraud involves dishonesty of purpose or intent to deceive.  Archer v. Griffith, 390 S.W.2d 735, 740 (Tex. 1964).  Constructive fraud, on the other hand, does not require intent.  In constructive fraud, the actor’s intent is irrelevant.  Vela v. Marywood, 17 S.W.3d 750, 761 (Tex. App.—Austin 2000), pet. denied, 53 S.W.3d 684 (Tex. 2001). 

Constructive fraud is a breach of a legal or equitable duty that the law declares fraudulent, irrespective of moral guilt, because it tends to deceive others, violate confidences, or injure public interests.  Archer, 390 S.W.2d at 740.  Thus, constructive fraud does not require intentional conduct; it is not an intentional tort.  Conspiracy must be based on an intentional tort.  Firestone Steel, 927 S.W.2d at 614.  So, this is one reason why conspiracy cannot be based on constructive fraud.

A second reason constructive fraud cannot form the basis for conspiracy is because conspiracy requires an overt act.  An “overt act” is an outward act done in furtherance of a conspiracy.  Black’s Law Dictionary 1279 (10th ed. 2014); see Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex. 1983) (overt act must be in furtherance of conspiracy).  The overt act must go beyond the agreement; it must be something apart from the conspiracy itself.  See 15A CJS Conspiracy §6 (2012 & Westlaw 2018).  Speech is an overt act, but thought is not.  Golden Eagle Archery, Inc. v. Jackson, 24 S.W.3d 362, 368 (Tex. 2000).  Without evidence of an overt act, there can be no conspiracy.  See Wavell v. Roberts, 818 S.W.2d 462, 465 (Tex. App.—Corpus Christi 1991, writ denied).

Constructive fraud, by its very definition, does not include an overt act.  What distinguishes constructive fraud from actual fraud is that actual fraud is perpetrated by an overt act—by a false representation of a material fact.  Italian Cowboy Partners v. Prudential Ins., 341 S.W.3d 323, 337 (Tex. 2011).  But constructive fraud occurs if a defendant is silent when the defendant has a duty to speak.  Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001).  Thus, constructive fraud does not require an overt act; indeed, inherent in the definition of constructive fraud is the lack of an overt act.

Accordingly, it appears that constructive fraud cannot form the basis of a conspiracy under Texas law.  Constructive fraud is not an intentional tort, and conspiracy must be based on an intentional tort.  Furthermore, constructive fraud does not require an overt act, but conspiracy does.

So, the next time your opponent seeks to hold your client liable for a conspiracy to commit constructive fraud, you should seek a summary judgment or a directed verdict on that claim.  You should also object to any jury charge which premises a finding of conspiracy on the underlying tort of constructive fraud, given that constructive fraud cannot support the tort of conspiracy.

 


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