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The Eighth Circuit Court of Appeals has affirmed a jury verdict finding that a developer and its founder defrauded a contractor by misrepresenting the availability of construction funding. See Selective Ins. Co. of Am. v. Heritage Const. Cos. et al, Case No. 24-2333, 2026 WL 263591 (D. Minn. Feb. 2, 2026). The case involves construction of a new osteopathic medical school in Minnesota to be funded by the developer's issuance of bonds. The developer told the contractor that all funding necessary for the project, i.e. $7M, would be available immediately upon closing of the bonds. In reality, only about $1.2M was immediately available with the remainder contingent on the medical school obtaining accreditation. Shortly after construction began, the developer ran out of money, its accreditation application was denied, and it defaulted on its payment obligations to the contractor. The contractor sued the developer and its founder for breach of contract and fraud. Prior to trial the defendants admitted liability for breach of contract damages totaling approximately $6M. The case proceeded to a jury trial on the fraud claims.
The jury returned a verdict for the contractor finding that the developer and its founder committed fraud by negligently misrepresenting the availability of construction funding. On appeal, the defendants argued that the representations regarding funding were merely predictions about a future act or event and as such could not constitute fraud. Under Minnesota law, and the law of most states, fraud requires proof of a false representation of a past or existing material fact that is susceptible of knowledge. The Eighth Circuit held that the while the false representations were tied to a future event, they related to the present existence of committed financing that did not depend on future discretionary acts. As such the developer's statements regarding committed funding were actionable as fraud. The court also rejected the developer's defense that it honestly believed its representations to be true. According to the court an honest belief may defeat claims for intentional fraud, it is no defense to negligent misrepresentation claims, which are evaluated using an objective standard rather than a subjective one.
The Eighth Circuit went on to reject the developer's other arguments in a 13-page opinion that is available here.
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