Intentional Interference with Prospective Economic Advantage

Definition

A cause of action exists for intentional interference with another’s prospective business advantage if the defendant disrupts or diverts the business relationship of another by improper methods which fall outside the boundaries of fair competition. (Crown Imports, LLC v. Superior Court (2014) 223 Cal.App.4th 1395, 1404.) “The difference between intentional interference and negligent interference with prospective economic advantage relates to the defendant’s intent.” (Id. at n. 10.)

“The tort of intentional or negligent interference with prospective economic advantage imposes liability for improper methods of disrupting or diverting the business relationship of another which fall outside the boundaries of fair competition.” (Settimo Associates v. Environ Systems, Inc. (1993) 14 Cal.App.4th 842, 845.)

Elements.  Intentional interference with prospective economic advantage has five main elements: “(1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant’s action.” (Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512.)

CACI No. 2202 Elements

Paula claims that Daniel intentionally interfered with an economic relationship between her and Joe’s Pizza Place that probably would have resulted in an economic benefit to Paula. To establish this claim, Paula must prove:

1. That Paula and Joe’s Pizza Place were in an economic relationship that probably would have resulted in an economic benefit to Paula;
2. That Daniel knew of the relationship and engaged in wrongful conduct;
3. That be engaging in this conduct, Daniel intended to disrupt Paula and Joe’s Pizza Place’s relationship or knew that disruption of the relationship was certain or substantially certain to occur;
4. That the relationship was disrupted;
5. That Paula was harmed and that Daniel’s conduct was a substantial factor in causing Paula’s harm.
   
   

Independently Wrongful Act Required

To state a cause of action for intentional interference with prospective economic advantage, “the plaintiff must allege that the defendant engaged in an independently wrongful act.” (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1148 disapproving of Redfearn v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 1006.)

The acts by which a defendant interfered must be independently wrongful. (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1152; see also San Jose Const., Inc. v. S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528, 1544-1545 [an act must be wrongful by some legal measure, not merely the product of improper but lawful purpose or motive].)

Element 1: Existing Prospective Business Relationship

To state a cause of action for interference with prospective business advantage, the plaintiff must show an existing business relationship or the existence of a prospective business relationship. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1164.)

“The tort’s requirements ‘presuppose the relationship existed at the time of the defendant’s allegedly tortious acts lest liability be imposed for actually and intentionally disrupting a relationship which has yet to arise.’ ” (Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 518.)

In attempting to prove a prospective business relationship, the “interference with the market” theory is speculative and insufficient as a matter of law. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1164 quoting Westside Ctr. Assocs. v. Safeway Stores (1996) 23, Inc., 42 Cal. App. 4th 507, 523 [finding plaintiff attempted to argue that Safeway interfered in its relationship with the class of all potential buyers].)

A podiatrist failed to allege an existing business relationship and, thus, stated no cause of action against the operator of a medical building who induced others not to lease space to the podiatrist. (Roth v. Rhodes (1994) 25 Cal. App. 4th 530, 546.)

An expectancy in obtaining a government license to do business was not sufficient because it was not a commercial dealing. (Blank v. Kirwan (1985) 39 Cal.3d 311, 330-31 [holding plaintiff, who attempted to establish business relationship with city in connection with gaming license for which plaintiff applied, did not establish this element].)

Element 2: Prospective Business Advantage

 There must have been a “probability of future economic benefit” from a business relationship, which means more than a mere “hope” or “desire.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1164 .)

A plaintiff must show a “reasonable expectation of economic advantage which would otherwise have accrued to him.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1164.

It must have been “reasonably probable” that the economic advantage would have been realized but for the interference. (Youst v. Longo (1987) 43 Cal. 3d 64, 74-79 [outcome of sporting event was too uncertain to support cause of action].)

If a compelling public policy is at stake, the court may permit a greater degree of speculative advantage. (See Youst v. Longo (1987) 43 Cal. 3d 64, 73-74.)

Element 3: Injurious Interference and Wrongful Conduct

There must be some showing that injurious interference did, in fact, occur. (Visto Corp. v. Sproqit Technologies, Inc. (N.D. Cal. 2005) 360 F.Supp.2d 1064.)

“With respect to the third element, a plaintiff must show that the defendant engaged in an independently wrongful act. It is not necessary to prove that the defendant acted with the specific intent, or purpose, of disrupting the plaintiff’s prospective economic advantage. Instead, ‘it is sufficient for the plaintiff to plead that the defendant “[knew] that the interference is certain or substantially certain to occur as a result of his action.” ’ ‘[A]n act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.’ ‘[A]n act must be wrongful by some legal measure, rather than merely a product of an improper, but lawful, purpose or motive.’ ” (San Jose Construction, Inc. v. S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528, 1544-1545.)

Injurious interference occurs through an intentional disruption or diversion of the business relationship of another. (Baldwin v. Marina City Props., Inc. (1978) 79 Cal.App.3d 393, 406 [no interference with plaintiffs who sold partnership interests to defendant in exchange for promissory notes and security agreements].)

The loss of potential future referrals and contacts was not sufficient to constitute injurious interference. (Roth v. Rhodes (1994) 25 Cal. App. 4th 530, 546 [podiatrist’s allegations of loss of “future patients” was speculative].)

As a safeguard against intruding on lawful competition, the act or conduct must be wrongful by some measure beyond the fact of the interference itself. (Della Penna v. Toyota Motor Sales, U.S.A. Inc. (1995) 11 Cal.4th 376, 390-91, 393.)

The conduct must “violate a statute or other regulation or a recognized rule of common law or an established standard of a trade or profession.” (Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464, 477.)

The plaintiff has the burden of pleading and proving that the defendant’s conduct was independently wrongful and not privileged; the defendant no longer has the burden of proving in an affirmative defense that his conduct was privileged. (Bed, Bath & Beyond of La Jolla, Inc. v. La Jolla Village Square Venture Partners (1997) 52 Cal.App.4th 867, 881.)

A consumer boycott for political purposes is not wrongful conduct. Environmental Planning & Info. Council, Inc. v. Superior Court (1984) 36 Cal.3d 188, 194-96.)

Offering a landlord a more lucrative lease than a competitor’s was fair competition and not wrongful. (Bed, Bath & Beyond of La Jolla, Inc. v. La Jolla Village Square Venture Partners (1997) 52 Cal.App.4th 867, 881.)

Wrongful conduct may be the use of unlawful means or means otherwise lawful but without justification. (Mateo-Woodburn v. Fresno Community Hosp. & Med. Ctr. (1990) 221 Cal.App.3d 1169, 1184.)

Element 4: Knowledge and Intent

“The question is whether a plaintiff must plead and prove that the defendant engaged in wrongful acts with the specific intent of interfering with the plaintiff’s business expectancy. We conclude that specific intent is not a required element of the tort of interference with prospective economic advantage. While a plaintiff may satisfy the intent requirement by pleading specific intent, i.e., that the defendant desired to interfere with the plaintiff’s prospective economic advantage, a plaintiff may alternately plead that the defendant knew that the interference was certain or substantially certain to occur as a result of its action.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1154.)

The defendant must have known of and intended to interfere with another’s prospective business advantage. (Ramona Manor Convalescent Hosp. v. Care Enters. (1986) 177 Cal.App.3d 1120, 1130-31.)

The defendant’s actions must have been designed to disrupt the business relationship. (Ramona Manor Convalescent Hosp. v. Care Enters. (1986) 177 Cal.App.3d 1120, 1130-31 [plaintiff must show defendant’s specific intent to interfere with business relationship].) Knowledge after the interfering action is insufficient. (Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 995.)

The court may infer the intent to interfere from a defendant’s intentional performance of an act substantially certain to result in interference. (Savage v. Pacific Gas & Elec. Co. (1993) 21 Cal.App.4th 434, 449.)

Element 5: Causation and Damage

In the absence of other evidence, “timing alone may be sufficient to prove causation …. Thus, … the real issue is whether in the circumstances of the case, the proximity of the alleged cause and effect ends to demonstrate some relevant connection. If it does, then the issue is one for the fact finder to decide.” (Overhill Farms, Inc. v. Lopez (2010) 190 Cal.App.4th 1248, 1267.)

“It must be reasonably probable that the prospective economic advantage would have been realized but for the defendant’s interference.” (See Youst v. Longo (1987) 43 Cal. 3d 64, 71.)

Causation and damages are particularly important because of the absence of a contractual relationship. (Eltolad Music, Inc. v. April Music, Inc. (1983) 139 Cal.App.3d 697, 703.)

Damages must not be speculative; there must be a foreseeable harm to the plaintiff caused or to be caused by the interference. (Colome v. State Athletic Comm’n (1996) 47 Cal.App.4th 1444, 1459 [physician hired by state athletic commission to examine boxer did not cause damage to boxer’s manager when boxer failed examination; physician’s purpose and intent was to protect boxer’s health and any alleged harm to manager was speculative and doubtful].)

Remedies

• Economic Loss: Economic loss is usually measured through lost profits. (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747; Meister v. Mensinger (2014) 230 Cal.App.4th 381.)
• Punitive Damages: California Civil Code section 3294, subdivision (b) does not authorize an award of punitive damages against an employer for the employee’s wrongful conduct. It authorizes an award of punitive damages against an employer for the employer’s own wrongful conduct. (Weeks v. Baker & McKenzie (1998) 63 Cal.App.4th 1128, 1154.)
• Injunctive Relief: Injunctive relief is available to restrain the threat of future interference with economic relations. (Cal. Civ. Proc. Code, § 526; Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342.)

Statute of Limitations

 The statute of limitations is two years. (Cal. Civ. Proc. Code, § 339, subd. (1).)

Affirmative Defenses

• Justification (Privilege to Protect Own Financial Interest): “In harmony with the general guidelines of the test for justification is the narrow protection afforded to a party where (1) he has a legally protected interest, (2) in good faith threatens to protect it, and (3) the threat is to protect it by appropriate means.” (Richardson v. La Rancherita (1979) 98 Cal.App.3d 73, 81.) Justification for the interference is an affirmative defense and not an element of the plaintiff’s cause of action. (Id. at p. 80.)

Elements of Justification Affirmative Defense (Privilege to Protect Own Financial Interest); CACI No. 2210

Daniel claims that there was no intentional interference with contractual relations because he acted only to protect his legitimate financial interests. To succeed, Daniel must prove: (1) that he had a legitimate financial interest in the contractual relations; (2) that he acted only to protect his own financial interest; (3) that he acted reasonably and in good faith to protect it; and (4) that he used appropriate means to protect it.

• Competition Privilege: A competitor is free to diversity business to himself “as long as he uses fair a reasonable means.” (I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) Cal.App.4th 257, 292-293.)
• Manager’s Privilege: The manager’s privilege is an affirmative defense, i.e., a manager of plaintiff’s employer cannot be held liable for intentional interference with the plaintiff’s employment contract by inducing the plaintiff’s termination. “There are three formulation’s of the manager’s privilege: (1) absolute, (2) mixed motive, and (3) predominant motive.” (Halvorsen v. Aramark Uniform Servs. Inc. (1998) 65 Cal.App.4th 1383, 1391.)
• Party to or Financial Interest in Business Relationship or Advantage: Generally, corporate offices acting on behalf of corporation cannot be liable for interfering with the employer’s contractual relationships. (Exxon Corp. v. Superior Court (1997) 51 Cal.App.4th 1672, 1688.)