Business Torts

This is when the defendant disrupts or diverts the business relationship of another by improper methods which fall outside the boundaries of fair competition.  The plaintiff must show the following:

1. An existing business relationship or the existence of a “prospective business relationship”;
2. There must have been a “probability of future economic benefit” from a business relationship , which means more than a mere “hope” or “desire”;
3. There must be some showing that injurious interference did, in fact, occur;
4. The defendant must have engaged in wrongful conduct, separate from the interference itself, that falls outside the boundary of fair competition;
5. The defendant must have known of an intended to interfere with another’s prospective business advantage;
6. Causation and damages.

Example: Bill’s Burgers places a monthly food supply order from Pete’s food supply company. Bill does not have a contract with Pete. But because Bill has regularly placed orders with Pete in the past, Pete has an existing business relationship with Bill as well as a reasonable expectation of future economic profit. Unfortunately, Denny, knowing that Bill buys from Pete, actively discourages Bill from continuing to purchase his food supplies from Bill.  Pete could hold Denny liable for his lost profits from Bill’s Burgers. Pete could possibly get punitive damages from Denny if Denny intended not just to disrupt the Pete’s business relationship but to injure it as well.  Meaning, Civil Code § 3294 would allow Pete to recover punitive damages if Pete could show with clear and convincing evidence that Denny acted out of oppression, fraud, or malice towards Pete.

One who, without privilege or justification, intentionally induces a party to a contract to not perform contract is liable in tort to such party. Plaintiff must show the following:

1. A valid existing contract between plaintiff and a third party;
2. That the defendant knew of the existence of the contract at the time of the interference;
3. That the defendant intended to induce a breach of the contract;
4. The defendant’s interference has caused or will cause a breach of contract or a disruption of the contractual relationship;
5. The defendant’s unjustified conduct must be the moving or procuring cause of the breach of plaintiff’s contract;
6. Defendant’s conduct must result in damages to the plaintiff.

Example: Let’s say Pete’s Pizzeria has a contract to sell 100 pizzas to Bill’s Fun Foods. But Bill’s Fun Foods has many lucrative contracts with Don’s Farming Company. Don’s Farming Company is considering branching out into pizza manufacturing and wants to eliminate the competition. So Don’s Farming Company threatens to stop doing business with Bill’s Fun Foods unless Bill’s Fun Foods breaches its contract with Pete’s Pizzeria. Pete’s Pizzeria may have a claim against Don’s Farming Company for intentional interference with contract as well as a claim for punitive damages if Don’s Farming Company acted out of oppression, fraud or malice. See, Civil Code § 3294 

Business and Professions Code § 17200 prohibits any “unlawful, unfair or fraudulent business act or practice” and any “unfair, deceptive, untrue or misleading advertising.”

1. A single business act is actionable;
2. Applies to any unlawful or unfair or fraudulent business act or practice, and each provides an independent basis for relief;
   1. Unlawful: anything that can be called a business practice and that at the same time is forbidden by law;
   2. Unfair: An unfair practice occurs when it offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers;
   3. Fraudulent: The test is whether the public is likely to be deceived.
3. Remedies: Injunction; Restoration of Money or Property Acquired by Unfair Competition.

Example: A company may be accused of unfair competition if it practices bait-and-switch marketing, manipulates prices, infringes on intellectual property, or performs another deceptive action against competitors that is prohibited under the law.

Tortious fraud or deceit occurs when one willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers

1. Misrepresentation – The defendant must have made a misrepresentation consisting of either (1) an affirmative misrepresentation; (2) a concealment or half-truth; or (3) a false promise.
2. Material Fact – The misrepresentation must be of a material fact;
3. Knowledge of Falsity – The misrepresentation must be made with a knowledge of falsity or a knowledge of the effect of concealment of a material fact;
4. Intent to Induce Reliance – The defendant must intend to induce the plaintiff to alter his position to his injury or risk;
5. Justifiable Reliance – Plaintiff must prove he actually relied on the defendant’s misrepresentation;
6. Causation and Damage – Reliance on the misrepresentation must cause damage to the plaintiff.

Examples:

1. Misrepresentation: Making a false claim for a product or service to the harm of the consumer; also, misrepresenting revenues or assets before investors;
2. Embezzlement: Using company funds for one’s own benefit and hiding the action;
3. Falsifying financial records: Making a company seem more profitable than it is to increase share or investment value;
4. Falsely diverting loans: Obtaining business loans for personal gain, diverting the funds to personal use;
5. Insurance fraud: Making false claims to insurance companies;
6. Advertising fraud: Making false claims in advertising and violating the Federal Trade Commission Act;
7. False invoicing: Overbilling customers or others and diverting the excess payments for personal gain;
8. Payroll fraud: Employees can lie about hours worked, and employers can underpay by ignoring overtime or hours worked.

Due to the complexities associated to business torts, it is in you best interest to consult with the Law Office of Eric J. Rechsteiner to determine which causes of action effect your rights in this area.  Delaying pursuit of any of these causes of action could have devastating effects on you or your business.