This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2002).






Frank Zacharias, et al.,





Douglas M. Polinsky,



Mark A. Sorensen,



International Gaming Management, Inc.,

a Delaware corporation,



Filed July 22, 2003

Forsberg, Judge


Hennepin County District Court

File No. MC00004893


Mark J. Kallenbach, 2260 Ridge Drive, Suite 13, Minneapolis, MN  55416 (for appellants)


Henry M. Helgen, III, Kathleen M. Brennan, McGrann Shea Anderson Carnival Straughn & Lamb, Chartered, Suite 2600, 800 Nicollet Mall, Minneapolis, MN  55402-7035 (for respondent Polinsky)


Thomas M. Kelly, Kelly & Jacobson, 200 South Sixth Street, Suite 215, Minneapolis, MN  55402 (for respondent Sorensen)


            Considered and decided by Hudson, Presiding Judge, Anderson, Judge, and Forsberg, Judge.

U N P U B L I S H E D   O P I N I O N


            Appellants Frank Zacharias and Nancy Zacharias challenge the district court’s grant of summary judgment to respondents Douglas Polinsky and Mark Sorensen, arguing that the district court erred in its application of the law of fraud.  Because appellants failed to produce evidence that the misrepresentations alleged as a basis for their fraud claim caused their loss, we affirm.


            This court reviews a summary judgment to determine whether there are any genuine issues of material fact and whether the district court erred in its application of the law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  The reviewing court must view the evidence in a light most favorable to the party against whom judgment has been granted.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  No genuine issue of material fact exists “[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party.”  DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (quotation omitted).  Here, neither party alleges that issues of material fact remain.  Causation, generally a fact issue for the jury, becomes a question of law only “where different minds can reasonably arrive at only one result.”  Paidar v. Hughes, 615 N.W.2d 276, 281 (Minn. 2000) (quotation omitted).

              A cause of action in fraud consists of five elements:

(1) * * * a false representation by a party of a past or existing material fact susceptible of knowledge; (2) made with knowledge of the falsity of the representation * * *; (3) with the intention to induce another to act in reliance thereon; (4) that the representation caused the other party to act in reliance thereon; and (5) that the party suffer pecuniary damage as a result of the reliance.


Specialized Tours, Inc. v. Hagen, 392 N.W.2d 520, 532 (Minn. 1986) (citations omitted).  Rather than an affirmative false representation, a “suppression of facts which one party is under a legal or equitable obligation to communicate to the other, and which the other party is entitled to have communicated to him” can be the basis for a fraud claim.  Richfield Bank & Trust Co. v. Sjogren, 309 Minn. 362, 365, 244 N.W.2d 648, 650 (1976).

            In an action in fraud, the aggrieved party must show not only detrimental reliance on the false representation or omission, but also that the false representation or omission caused the economic harm.  Specialized Tours, 392 N.W.2d at 538.  In Specialized Tours, the court stated:

In general * * * courts have restricted recovery to those losses which might be expected to follow from the fraud and from events that are reasonably foreseeable. * * * [I]f false statements are made in connection with the sale of corporate stock, losses due to a subsequent decline in the market * * * or other factors in no way relate[d] to the representations will not afford any basis for recovery.


392 N.W.2d at 537 (quoting W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and Keeton on the Law of Torts § 110, at 767 (5th ed. 1984)).  The Specialized Tours court went on to distinguish loss causation and transaction causation:

[L]oss causation—that the misrepresentation or omission caused the economic harm—as distinguished from the transaction causation—that the violation caused the plaintiff to engage in the transaction in question[.]


392 N.W.2d at 538 (emphasis in original); see also Bennett v. United States Trust Co., 770 F.2d 308, 314, 316 (2nd Cir. 1985) (concluding that despite trust company’s knowing or reckless misrepresentation, appellants failed to show that their loss was a direct result of the misrepresentation, independent of other causes, including their own “unwise investment decisions.”)

            Appellants invested in International Gaming Management, Inc. (IGM), a publicly traded company in the business of managing various types of gaming establishments, after a presentation made by respondent Polinsky, president and CEO of IGM, and respondent Sorensen, its CFO.  Appellants were provided with IGM’s federal 10-K disclosure and a subscription agreement, which they agree were not false or misleading, but argue that had respondents disclosed certain facts, they would not have invested in IGM.  These facts include:

            (1)       Respondent Polinsky’s father, Jerrold Polinsky, an 11% shareholder in IGM, was under investigation for various fraudulent activities;

            (2)       Respondent Polinsky had signed an affidavit stating that certain gambling machines were sent to Duluth, Minnesota, a legal destination, when in fact the machines were illegally shipped to Michigan;

            (3)       The Minnesota Department of Public Safety – Gambling Enforcement Division had subpoenaed records from IGM, either as a routine licensing investigation or in order to investigate Jerrold Polinsky;

            (4)       The Mississippi Gaming Commission was questioning IGM’s acquisition of property for casinos from Jerrold Polinsky, which potentially would impact IGM’s licensing application; and

            (5)       IGM had sold shares in previous private placements or on the open market that were unrestricted, while appellants’ shares were restricted, thus depressing the value.


            The district court concluded that the omitted facts themselves did not harm IGM’s share price.  Appellants’ loss occurred only when a combined state and federal task force executed a search warrant at IGM’s headquarters in order to investigate the activities of Jerrold Polinsky and his other son, Gary Polinsky.  After the public announcement of this action, IGM’s share price dropped so sharply that the stock was delisted and the company eventually failed.

            The superseding cause of appellants’ loss was the investigation of Jerrold Polinsky and Gary Polinsky, which precipitated the fall of IGM’s share price.  It may very well be that IGM would have been unsuccessful even without the investigation; IGM could have had trouble qualifying for licensure or defending some of its business decisions.  But fraud must be based on a past or existing material fact, not speculation about a future event.  Specialized Tours, 392 N.W.2d at 532; see also Schoenhals v. Mains, 504 N.W.2d 233, 236 (Minn. App. 1993) (“An allegation of fraud must relate to a past or existing fact and may not be predicated upon future contingencies or predictions.”)  Although appellants argue that had they been aware of the omitted facts they would not have invested in IGM, this is transaction causation, not loss causation, the essential element in a fraud claim.  See Specialized Tours, 392 N.W.2d at 538 (distinguishing loss and transaction causation).  The district court did not err in determining that the omitted facts were not the proximate cause of appellants’ loss.


* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.