Generally, businesses, (other than breach of contracts), redress wrongs committed in commercial competition. These cases more or less establish the boundary between fair and unfair business competition.
Business torts comprise several torts that arise in the context of commercial transactions, broadly viewed. These kinds of cases generally include unfair competition as a core concept, but often also include interference with contract, interference with prospective advantage, trade libel, (i.e., trade disparagement), false advertising, fraud, or similar claims. Furthermore, claims for misappropriation or theft of trade secret(s) also are viewed in the broad category of business torts.
Intentional Interference With a Contract
To prevail on a claim for intentional interference in a contractual relationship, the injured party, (i.e., the plaintiff), must plead and prove the following:
- The existence of a valid contract between the plaintiff and a third party;
- The defendant had knowledge of that contract;
- The defendant’s intentional acts were designed to induce a breach or disruption of the contractual relationship;
- Actual breach or disruption of the contractual relationship, and;
- Resulting damage.
Interference With Economic Advantage
Similarly, the elements of a cause of action for the tort of intentional interference with prospective economic advantage are:
- An economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff;
- The defendant’s knowledge of the existence of the relationship;
- The defendant’s intentional acts designed to disrupt the relationship;
- Actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the defendant’s acts.
In addition, the plaintiff must also plead and prove that the defendant engaged in conduct that was wrongful by some legal measure other than the fact of the interference itself. Therefore, a claim for intentional interference with prospective economic advantage includes the same elements as a claim for interference with contractual relationship, but further includes an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff, and the additional element that the defendant’s action must have been wrongful apart from the interference itself.
Unfair Competition Laws
California’s Unfair Competition Laws are contained within California Business and Professions Code Section 17200, and includes five definitions of unfair competition, which are: an unlawful business act or practice; an unfair business act or practice; a fraudulent business act or practice; unfair, deceptive, untrue or misleading advertising; or any act prohibited by other relevant sections of the Business and Professions Code. Claims under California’s Unfair Competition Laws are valid, depending on the nature of the claim, for three or four years. These Unfair Competition laws are used widely in California and are considered some of the most inclusive laws for challenging business practices anywhere.
Previously, anyone, regardless of whether he or she was a victim of unfair competition, could sue another person or business for a violation of Section 17200. However, after 2004, only injured individuals can begin unfair competition litigation. Therefore, it is not enough that a person sees an advertisement that is misleading, he or she, in order to litigate the case, must have been harmed by the false or deceptive advertising (to determine if an ad is misleading, judges consider all parts of the advertisement; the video, the audio and packaging) or some other type of business practice. Individual consumers may file a claim using these statutes if actual harm has occurred, as may businesses who have been harmed or targeted by other businesses unfairly.
The nature of what is “unfair” is also a point of disagreement within California’s courts. Some courts require a violation that is in some way connected to some type of statutory provision or other rule that prohibits the behavior in question. Other courts have decided that a violation of the Unfair Business Practices rules requires conduct that would “likely” deceive the public, using a balancing test that, “weighs the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.”
In addition to the now-limited ability of individuals to sue claiming unfair competition, section 17200 allows local prosecutors and state prosecutors to file actions on behalf of injured individuals. Further, these unfair competition statutes can be used for permanent relief but injunctive relief is also available if harm is ongoing and a temporary order is needed to end harmful behavior. Courts have the ability to assess penalties of up to $6,000 for failure to comply with temporary orders and $2,500 per violation in civil penalties for failures to comply with orders.
While the recovery of any property or funds acquired due to unfair competition are allowed (restitution), punitive damages are not permitted in connection with California’s unfair business practices laws. As with almost all other types of litigation matters handled in California, attorneys’ fees are also not recoverable under the Unfair Competition Law. Finally, unlike other types of claims typically filed in California, such as a traditional breach of contract claim, compensatory damages are not allowed in Unfair Competition Laws matters: the only damages that are allowed are those discussed, above (injunctive relief, civil penalties, and restitution).
Damages in Litigation
A common misconception in litigation is the need for actual, and not speculative damages. While difficulties in determining what the correct approach to damages in a given case are can be less common in breach of contract matters, ambiguity related to what damages are appropriate regularly arise in all types of business disputes. In all cases, if damages are too speculative, they cannot be awarded. Speculative damages are damages that have not occurred but will occur in the future. Further, speculative damages are damages that are improbable and / or are not directly connected with the allegedly wrongful act. For example, a breach of contract claim regarding the failed delivery of goods to a retail establishment cannot include a damages claim for an entire business’s failure and corresponding damages unless a direct connection can be established. Damages in connection with a failed delivery cannot extend beyond the reasonable profits from the undelivered goods, minus all costs.
A common way of avoiding damages issues when the possibility for problems are known to either party in advance is the implementation of liquidated damages clauses in contracts. Liquidated damages are damages that are agreed to by both parties to a contract in the event of a breach by one or more parties. The parties to the contract agree in advance that if a certain breach occurs, a fixed amount or otherwise agreed-upon amount of damages will be owed. When an enforceable liquidated damages clause is present and applicable, it can be valuable in assisting one or more parties avoid litigating the issue or amount of damages. Instead, that party can contain the litigation to the issue of liability and whether the liquidated damages clause is enforceable.
A common issue in connection with damages in civil litigation is the collection of those damages and what funds can be recovered as damages after litigation. A debtor cannot transfer funds for the purpose of avoiding a legitimate debt. Whether a lawsuit has been filed or a judgement has been entered is not as important as other factors to determine whether a transfer of funds or property was made for the purpose of avoiding collection (and was therefore a fraudulent transfer).
The first instance where a transfer is fraudulent is when there is actual intent present to avoid the legitimate collection of a valid debt. The second situation a transfer can be proved to have been fraudulent is when the transfer in question was made without the transferee receiving reasonably equivalent value for whatever he or she transferred or where the transferee was engaged or about to engage in a business or transaction with an unreasonably small amount of remaining assets in relation to the business or the transaction. The third instance where a transfer can be identified as fraudulent exists when a transfer is made without the debtor receiving reasonably equivalent value where the debtor incurred debts beyond his or her ability to repay. The final situation where a transfer can be seen as fraudulent is when a transfer made or obligation incurred without receiving reasonably equivalent value where the debtor was insolvent at the time of making the transfer or incurring the obligation or became insolvent as a result of the transfer or obligation.
Premises liability derives from the law of negligence and constitutes the body of law that sets forth the guidelines involving duties owed by an owner or occupier of real estate to protect entrants from injury. That said, mere ownership or occupation of land or property does not provide a basis for liability for injuries sustained thereon. Rather, there must be some negligence on the part of the owner for there to be liability.
Requirements for a Premises Liability Action – Negligence consists of the failure to do something a reasonable person would not do under the same or similar circumstances or the doing of something a reasonable person would not do under like circumstances. As such, a landowner is not liable if he or she has been negligent, even if the premises were not in a reasonably safe condition when the injury occurred. Furthermore, the mere occurrence of an accident or injury cannot, without more, give rise to a finding of negligence.
In other words, an accident or injury is not sufficient in itself to prove that a dangerous condition existed at the time of accident. While most people understand that premises liability applies to business owners and managers of public property, it is also important to note that residential homeowners are not exempt from such liability. Thus, premises liability actions can stem from a wide array of incidents.
The specific requirements of a premises liability action are:
- The defendant owner/occupant had actual or constructive knowledge of some condition of the premises;
- The condition posed an “unreasonable” risk of harm;
- The owner/occupant did not exercise reasonable care to reduce or eliminate the risk of harm; and
- The owner/occupant’s failure to use such reasonable care proximately caused the plaintiff’s injuries.
The California law states that the owner/occupant of a property has a duty to exercise ordinary care in the use or maintenance of such premises in order to avoid an unreasonable risk of harm.
This duty exists whether the risk posed is caused by a natural condition or an artificial condition on the premises. As mentioned before, a failure to carry out this duty to exercise care constitutes negligence. If the injury or harm that ultimately results is foreseeable by a reasonable person who should be aware of the risk (whether actually or constructively aware), then the defendant will be held liable.
Ordinary Standard of Care – Where the owner/occupier of the premise does not have actual knowledge of the dangerous condition, the law may still impose constructive knowledge on the owner/occupier by reason of a failure to adequately inspect the premises as mandated by the nature of the activity on the land. In determining whether or not ordinary care has been exercised, the standard imposed is that care which a reasonable person of ordinary prudence would use in order to avoid injury to themselves or others under similar circumstances.
Moreover, this duty of care is only owed to individuals who a reasonable person of ordinary prudence under similar circumstances should have foreseen would be exposed to the risk of harm. That said, in some states and some cases, courts have gone so far as to hold that even trespassers (and not just licensees and invitees) may be protected under this standard.
Thus, the law delegates to the owner/occupier of a premises a duty to inspect, maintain, and if necessary, warn all foreseeable users of the premises (i.e., licensees, invitees, and in certain cases, even trespassers). That said, there are defenses against premises liability available to the owner/occupier.
Managers of business property may wish to install an inspection and maintenance program to mitigate any dangerous condition that could result in a foreseeable risk of harm. In addition to the process of inspection and mitigation, keeping records of such a process (i.e., program) is essential to demonstrate that duty of care being exercised was what a reasonable person would have done.
If a hazard or danger develops on the premises about which the owner/occupier is not aware notwithstanding the reasonable process, then an available defense is that the owner/occupier’s duty of care was satisfied. As such, there would be no negligence involved despite the injury or harm suffered. The foregoing information is not to say that the plaintiff who might be harmed by the risk has no obligation to be aware of dangerous conditions.
Generally, the premise owner/occupier will not be liable for injuries that resulted from a danger that was “open and obvious.” With that said, however, good inspection and management practices should nevertheless be employed to eliminate dangerous conditions so that injuries do not occur on the premises.
Defamation – Libel & Slander
Trade libel is defined as the intentional disparagement of the quality of the property, which results in pecuniary damage to the plaintiff. Injurious falsehood, or disparagement, may consist of the publication of matter (in speech or writing) derogatory to the plaintiff’s title to his property, or its quality, or to plaintiff’s business in general.
The plaintiff must demonstrate in all cases that the publication of falsehoods has played a material and substantial part inducing third parties not to deal with plaintiff and as a result, he or she has suffered damage(s). Generally, the damages claimed consist of loss of prospective business or contracts with the plaintiff’s customers and potential customers.
Businesses often find themselves subject to allegations of false or misleading advertising. Advertising need not be entirely false to be actionable under the law of unfair competition, so long as it is sufficiently inaccurate to mislead or deceive consumers in a manner that inflicts injury on a competitor. A claim for false advertising typically requires the plaintiff to plead and prove the following elements:
- The defendant made misleading or false factual representations of the quality or nature of defendant’s goods or services;
- The defendant made the false or misleading statement in a “commercial advertising or publication” to promote the good or service or otherwise further his own business interests;
- The false statement must actually deceive or have a tendency to deceive a large portion of its audience;
- The deception must be materially likely to influence a consumer’s (i.e., the plaintiff’s) purchasing decision and;
- The plaintiff must be able to prove pecuniary injury/damage.
Unfair competition may consist of the wrongful appropriation of a trade secret, and generally, the law of unfair competition prohibits former employees from disclosing or misusing an employer’s trade secrets and/or other confidential information, (even in the absence of contractual restrictions).
A trade secret is typically defined as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
Thus, the test for trade secrets is whether the matter, (i.e., formula, compilation, etc.), sought to be protected is information that derives its value from being unknown to others, and that which the owner has attempted to keep secret. As such, a trade secret loses its protected status if the owner does not undertake reasonable efforts to maintain its secrecy.
Misappropriation is generally defined as the:
- Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;
- Disclosure or use of a trade secret of another without express or implied consent” of the trade secret’s lawful owner.
Improper means includes theft, bribery, misrepresentation, breach, or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means. However, reverse engineering or independent derivation alone is not to be considered improper means. Moreover, misappropriation is not limited solely to the initial act of improperly acquiring trade secrets. Rather, the use and continuing use of the trade secrets is also misappropriation. Use is defined as the employment of confidential information in manufacturing, production, research, development, or marketing goods that embody the trade secret or soliciting customers through the use of trade secret information.