Negligent Interference with Prospective Economic Advantage Law Definition Elements Defense Lawyer

Definition. A cause of action exists for negligent interference with another’s prospective business advantage if the defendant acts unreasonably and wrongfully, albeit not intentionally, so as to foreseeably disrupt a business advantage of another with whom the defendant has a special relationship. (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1141.)


“The difference between intentional interference and negligent interference with prospective economic advantage relates to the defendant’s intent.” (Crown Imports, LLC v. Superior Court (2014) 223 Cal.App.4th 1395, 1404 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. “The elements of negligent interference with prospective economic advantage are (1) the existence of an economic relationship between the plaintiff and a third party containing the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) the defendant’s knowledge (actual or construed) that the relationship would be disrupted if the defendant failed to act with reasonable care; (4) the defendant’s failure to act with reasonable care; (5) actual disruption of the relationship; (6) and economic harm proximately caused by the defendant’s negligence.” (Redfearn v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 1005.)


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CACI No. 2204 Elements

Paula claims that Daniel negligently interfered with a 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 a future economic benefit to Paula;
  2. That Daniel knew or should have known of this relationship;
  3. That Daniel knew or should have known that this relationship would be disrupted if he failed to act with reasonable care;
  4. That Daniel failed to act with reasonable care;
  5. That Daniel engaged in wrongful conduct through breach of contract with another, misrepresentation, fraud, or violation of another statute;
  6. That the relationship was disrupted and Paula was harmed, and Daniel’s wrongful conduct was a substantial factor in causing Paula’s harm.

Independently Wrongful Act

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 or Prospective Business Relationship

The plaintiff must allege the existence of either a contractual relationship or a prospective business relationship advantageous to the plaintiff. (Baldwin v. Marina City Props., Inc. (1978) 79 Cal.App.3d 393, 407.)


A restaurant could have a prospective advantageous business relationship with potential restaurant clients. (See, e.g., J’Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 808.)


The plaintiff could not prevail in his action for negligent interference with a prospective business advantage because the plaintiff did not allege a continuing relationship. (Baldwin v. Marina City Props., Inc. (1978) 79 Cal.App.3d 393, 407.)

Element 2 & 3: Defendant’s Knowledge

 The defendant must have knowledge of the business relationship and knowledge (actual or construed) that the relationship would be disrupted if the defendant failed to act with reasonable care. (Redfearn v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 1005.)

Element 4: Duty of Care/Special Relationship and Failure to Act with  Reasonable Care

The defendant must owe a duty of care to the plaintiff. (Lange v. TIG Ins. Co. (1998) 68 Cal. App. 4th 1179, 1187 (citing LiMandri v. Judkins, 52 Cal. App. 4th 326, 348). The existence of a duty of care is a question of law for the court. (Ott v. Alfa-Laval Agric., Inc. (1995) 31 Cal.App.4th 1439, 1448, 1449.) Notably, one of “[t]he criteria for establishing [the existence of] a duty of care is the ‘blameworthiness’ of the defendant’s conduct.” (Lange v. TIG Ins. Co. (1998) 68 Cal.App.4th 1179, 1187.)


“Where a special relationship exists between the parties, a plaintiff may recover for loss of expected economic advantage through the negligent performance of a contract although the parties were not in contractual privity.” (J’Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 804.) A duty of care exists if there is a special relationship between plaintiff and the defendant. (Id. at p. 808.)


A special relationship between plaintiff and defendant can be established by weighing the following factors:

  • The defendant’s conduct could not be performed without a direct effect on plaintiff’s business;
  • The adverse effect on plaintiff’s business was clearly foreseeable;
  • The plaintiff’s business suffered injury from defendant’s actions;
  • The defendant’s acts were closely connected with plaintiff’s business injury, i.e., the direct cause;
  • Defendant’s conduct was particularly blameworthy, e.g., defendant acted after the probability of damage was known or should have been known;
  • Public policy supports a duty of care.

(J’Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 808.)

Examples

No “special relationship” existed between the manufacturer of a component in defective pipes and the homeowners who purchased pipes made with that component because manufacturer’s actions were intended to affect the plaintiff homeowners in the same manner as it intended to affect all homeowners with such pipes. (Zamora v. Shell Oil Co. (1997) 55 Cal.App.4th 204, 212.)


No “special relationship” existed between the manufacturer of a milking system and a farmer who owned the system because it was determined that the milking system was intended to affect the plaintiffs in the same way as all retail buyers. (Ott v. Alfa-Laval Agric., Inc. (1995) 31 Cal.App.4th 1439, 1455, 1456.)


Under the six-part J’Aire duty test, dairy farm owners could not recover economic damages allegedly caused by a milking machine manufacturer when they failed to show a special relationship with the manufacturer or that their injury (decline in milk production due to the machines) was reasonably foreseeable. (Ott v. Alfa-Laval Agric., Inc. (1995) 31 Cal.App.4th 1439, 1455, 1456.)


A special relationship existed between a chemical company and the packager and shipper of its products. (North Am. Chem. Co. v. Superior Court (1997) 59 Cal.App.4th 764, 781-87 [company recovered economic damages that it had paid to settle a customer’s claim that arose from contaminated products].)

 

Element 5: Wrongful Interference/Disruption

 The plaintiff must allege that the defendant wrongfully interfered with the relationship. (Baldwin v. Marina City Props., Inc. (1978) 79 Cal.App.3d 393, 407.)


The wrongful conduct must be independent of the interference itself. (Lange v. TIG Ins. Co. (1998) 68 Cal. App. 4th 1179, 1189 citing Della Penna v. Toyota Motor Sales, U.S.A. Inc. (1995) 11 Cal. 4th 376.)


A cause of action for negligent interference with prospective business advantage requires the plaintiff to show that the defendant acted unreasonably and wrongfully, even if not intentionally, so as to foreseeably disrupt the plaintiff’s business advantage. (J’Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 808 [defendant contractor wrongfully interfered with plaintiff’s restaurant business by negligently failing to complete renovation contract in reasonable amount of time].)

Element 6: Causation and Damage

 The defendant must have “proximately caused plaintiff’s injury and damage by interfering with the relationship, causing a business loss.” (Baldwin v. Marina City Props., Inc. (1978) 79 Cal.App.3d 393, 407.)


There is no recovery where damages are wholly speculative, nor where the injury is part of plaintiff’s ordinary business risk. (J’Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 808.)


Economic damages are recoverable, despite the absence of physical injury or property damage, if there exists a special relationship between the parties. (Fieldstone Co. v. Briggs Plumbing Prods., Inc. (1997) 54 Cal.App.4th 357, 367 citing J’Aire Corp. v. Gregory (1997) 24 Cal.3d 799, 806, 808.)

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

 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.) “Under the privilege of free competition, a competitor is free to divert business to himself as long as he uses fair and reasonable means. Thus, the plaintiff must present facts indicating the defendant’s interference is somehow wrongful – i.e., based on facts that take the defendant’s actions out of the realm of legitimate business transactions.” (Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg (1989) 216 Cal.App.3d 1139, 1153-1154.) The defendant’s conduct must “fall outside the boundaries of fair competition …, but negligent misconduct of the violation of a statutory obligation suffice.” (Venhaus v. Shultz (2007) 155 Cal.App.4th 1072, 1080.)

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.)