Unfair business practices and underhanded tactics disrupt fair competition in an open market and cause significant financial harm. Economic torts are a legal category that addresses these harmful actions, providing remedies for businesses and individuals who have suffered losses due to unlawful interference or fraudulent conduct. Here’s what you need to know.
What Are Economic Torts?
In the language of the law, a tort is an act (or an omission, a failure to act) that leads to injury, damages, or loss to another party. Courts recognize torts as civil wrongs and impose liability for them.
Economic torts, also known as business torts, are any tort arising from business agreements or transactions. When imposing liability for economic torts, courts acknowledge that businesses and individuals can suffer significant financial harm due to the actions of others, even when no physical damage or injury is involved.
The Different Types of Economic Torts
One common economic tort is interference with contractual relations. This occurs when a third party intentionally disrupts an existing contract between two other parties. The interference can take various forms, such as inducing one party to breach the contract, making it difficult or impossible for a party to fulfill their contractual obligations, or otherwise undermining the economic benefits of the contract.
Another standard economic tort is deceit or a fraudulent misrepresentation. This involves intentionally making false statements or concealing material facts with the intention of deceiving another party. The deceived party, relying on these false statements, may enter into detrimental agreements, make poor investment decisions, or suffer other financial losses.
Other economic torts include harmful practices such as conspiracy to injure, unfair competition, and misappropriation of trade secrets. These torts recognize that businesses and their customers have a right to operate in a fair, competitive marketplace free from unlawful interference and deceptive practices.
The Elements of Economic Tort Claims
To successfully pursue an economic tort claim, the plaintiff (the injured party) must meet specific criteria to establish the defendant’s liability. The elements may vary slightly depending on the particular tort but generally include the following:
Existence of a Valid Economic Interest
In cases of interference with contractual relations, the plaintiff must demonstrate that a valid contract existed between themselves and another party. In instances of deceit, the plaintiff must show a legitimate business relationship or expectation of economic benefit. This interest can include existing contracts, prospective business relationships, or other forms of financial advantage.
Intentional and Improper Conduct
The plaintiff must prove that the defendant acted intentionally and improperly. In interference claims, this involves demonstrating that the defendant knew about the contract and purposely interfered with it. In deceit claims, the plaintiff must show that the defendant made false statements knowingly or recklessly, intending to deceive.
Causation
The plaintiff must establish a direct link between the defendant’s wrongful conduct and the economic harm suffered. This means showing that the defendant’s actions were a substantial factor in causing the plaintiff’s financial losses.
Damages
The plaintiff must prove that they suffered economic losses due to the defendant’s actions. This can include lost profits, lost business opportunities, decreased business value, or other measurable financial harm. Damages must be reasonably quantifiable and directly attributable to the defendant’s conduct.
In some cases, additional elements, such as proving malice or a specific intent to harm, may be required. The burden of proof generally rests with the plaintiff establishing each element of their claim by a preponderance of the evidence, meaning that it is more likely than not that the defendant is liable.
What Are the Remedies for Victims of Economic Torts?
The remedies available to victims of economic torts can vary depending on the specific circumstances of the case and the jurisdiction. Some common remedies include:
- Injunctions: These are court orders requiring the defendant to stop the harmful conduct.
- Damages: Also known as “actual damages,” these are monetary amounts awarded by a jury for the economic losses suffered, which may include lost profits, lost business opportunities, and other financial harms.
- Punitive damages: In some cases where the defendant’s conduct was particularly egregious, the court may award punitive damages to punish the defendant and deter similar conduct in the future.
Notable Economic Tort Cases
There have been many notable economic tort cases over the years, but here are two that set precedents still recognized by courts today:
Pennzoil Co. v. Texaco, Inc.
The landmark case of Pennzoil Co. v. Texaco, Inc. arose from interference with a contract to acquire Getty Oil. Pennzoil had negotiated a deal to acquire the company, but Texaco interjected itself, offering a higher purchase price. Pennzoil and Getty’s deal fell apart, and Texaco ultimately acquired the company.
Pennzoil sued Texaco for tortious interference. In 1985, a jury awarded Pennzoil $7.53 billion in actual damages and $3 billion in punitive damages, for a total of $10.53 billion. The Supreme Court of the United States later upheld this verdict.
O’Hara v. Ahlgren, Blumenfeld and Kempster
In the 1979 case of O’Hara v. Ahlgren, Blumenfeld and Kempster, Maria P. O’Hara, the surviving spouse and sole beneficiary of the estate of deceased attorney Barratt O’Hara II, filed a breach of contract suit against her late husband’s law firm and its partners in Cook County, Illinois. Mrs. O’Hara alleged that Ahlgren, Blumenfeld, and Kempster traded on Mr. O’Hara’s name and reputation after his death and that she was entitled to compensation as the executor of his estate.
Mrs. O’Hara was awarded damages for lost income and other economic torts, a decision that the Supreme Court of Illinois upheld in 1989.
Economic Torts in Florida
The State of Florida has also seen its fair share of economic tort cases. A notable example is Ethan Allen v. Georgetown Manor, 647 So.2d 81. The court in this case clarified that in Florida, a party may bring a cause of action alleging tortious interference with present or prospective customers. However, the Supreme Court clearly drew the line that there is no cause of action for tortious interference with the community at large. The Court further explained to have tortious interference with a business relationship, the Plaintiff must be able to prove it had an actual and identifiable understanding or agreement with a client which in all probability would have been completed but for the interference by a third party. Finally, the Court also clarified that there is no tortious interference with a past customer unless there is an identifiable agreement that the customers would return in the future. The mere hope that some of its past customers may choose to buy again is not sufficient to support a tortious interference claim.
Over the years, plaintiffs in many Florida business tort cases received enormous damage and punitive damage awards. This led to House Bill 837, signed into law in March 2023. Known as the Florida Tort Reform Act 2023, the law aims to limit excessive damage awards. While business owners and insurance companies have praised the reform, advocates contend it limits victims’ rights in tort cases.
Protecting Your Business From Economic Tort Claims
To protect your business from economic torts, follow these guidelines:
- Maintain clear contracts: Ensure your contracts are well-drafted, clearly define the parties’ rights and obligations, and include provisions addressing potential interference.
- Conduct due diligence: Before entering business relationships, thoroughly investigate potential partners to assess their reputation and reliability.
- Document communications: Keep records of all communications and transactions, as this documentation can be crucial evidence in economic tort claims.
- Seek legal counsel: If you suspect you are a victim of an economic tort, consult with an attorney specializing in business litigation to protect your rights.
The Campbell Law Group helps Florida businesses recover from economic tort damage. Contact us today to speak to one of our experienced lawyers to tell us about your case and discuss your options.