Internet Fraud and Class Action Lawsuits

The term “fraud” invokes the same general meaning whether applied to acts on the Internet or in more traditional forms. The difference with Internet fraud is that it occurs on the web and the number of people who may fall victim to the same violation. This situation lends itself to class action lawsuits due to large numbers of consumers alleging the same harm against the same defendant.

What is Internet fraud?

The term “Internet fraud” includes a wide range of actions.  In general, “fraud” is defined in Black’s Law Dictionary as “[a] knowing misrepresentation or knowing concealment of a material fact made to induce another to act to his or her detriment.” Therefore, incidents such as emails promising money or misrepresentations in website’s terms of use are considered fraud. Under California law, a plaintiff must show that: (1) a misrepresentation occurred; (2) defendant knew the information was false; (3) defendant had the intent to induce reliance; (4) plaintiff relied on the false information; and (5) reliance was the cause of damages to plaintiff.

The fraud referred to under the Computer Fraud and Abuse Act mostly involves unauthorized access to a computer. According to the FBI, the list includes: internet auction fraud, non-delivery of merchandise purchased online, investment fraud, business fraud, email scams and identity theft. In order to prevent falling victim to online fraud, the FBI recommends that consumers only use credit cards on reputable websites and understand their terms and conditions. The FBI wants consumers to be cautious and not believe any website or email promising large sums of money or believe that a website is credible simply because it looks professional. For example, the terms and conditions of online auctions or websites requiring a registration process frequently define the consumer’s obligations.

How do class actions relate to Internet fraud?

Those who commit Internet fraud can be prosecuted both criminally and civilly. However, class actions can only be used for civil lawsuits. Class actions are becoming more frequent as the number of large-scale crimes are increasing. The elements of numerosity, commonality, typicality, and adequacy of representation needed to qualify for class action certification are easily met when large groups of consumers are negatively affected in the same way. A recent case, that has been cited in three large class action decisions against Target, Zappos and JP Morgan Chase bank, is In re Sony Gaming Networks and Customer Data Security Breach Litigation. The plaintiffs were successful in alleging fraud based on Federal Rule of Civil Procedure 9(b).  More significantly, the ruling allowed plaintiffs to recover damages based on the credible threat of impending harm from identity theft, even though no measurable harm had yet been enacted.  The ability to recover damages in a high-tech/cyberspace case is limited due to the frequent inability to show actual damages or the likelihood of future damages.

At our law firm, we assist clients with legal issues related to internet fraud and class actions. You may contact us to set up an initial consultation.