Business Torts FAQ

Intentional interference with contractual relations is a business tort recognized under California common law that protects existing contractual relationships from third-party interference. To establish this claim, the plaintiff must prove five elements: the existence of a valid contract between the plaintiff and a third party, the defendant's knowledge of this contract, the defendant's intentional acts designed to induce breach or disruption of the contract, actual breach or disruption of the contract, and resulting damages.

The defendant's conduct must go beyond merely offering better terms in legitimate competition. California courts require that the defendant specifically intended to interfere with the contract, not merely knew interference might result. Justification is an affirmative defense; the defendant may escape liability by showing their conduct was privileged or justified by legitimate business interests. Examples of actionable interference include inducing a party to breach an exclusive supply agreement, convincing an employee under contract to leave for a competitor, or pressuring a business to terminate a dealership agreement.

Intentional interference with prospective economic advantage protects economic relationships that have not yet ripened into binding contracts. Under California law established in Della Penna v. Toyota Motor Sales (1995), the plaintiff must prove an economic relationship between the plaintiff and a third party with the probability of future economic benefit, the defendant's knowledge of this relationship, the defendant's intentionally wrongful conduct designed to interfere with the relationship, actual interference causing disruption, and economic harm resulting from the interference.

Critically, California requires that the defendant's conduct be independently wrongful beyond mere interference, meaning the conduct must violate some law, regulation, or recognized ethical standard. Legitimate competitive activity, even if it results in lost business opportunities for competitors, generally does not constitute actionable interference. Examples of independently wrongful conduct include fraud, threats, or other illegal acts used to divert business. The independently wrongful requirement distinguishes this tort from contractual interference, which does not require separate wrongfulness.

California Business and Professions Code Section 17200, known as the Unfair Competition Law (UCL), prohibits any unlawful, unfair, or fraudulent business act or practice. Under the unlawful prong, any conduct that violates another law, whether federal, state, or local, constitutes unfair competition, essentially borrowing violations from other statutes. Under the unfair prong, conduct may be actionable if it threatens an incipient violation of antitrust law, violates the policy or spirit of antitrust or other laws, or is otherwise significantly harmful and without adequate justification. The standard for unfairness varies by judicial district in California.

Under the fraudulent prong, conduct is actionable if it is likely to deceive members of the public, without requiring proof of actual deception or reliance. Private plaintiffs can seek injunctive relief and restitution under the UCL but cannot recover damages. Standing requires that plaintiffs lost money or property as a result of the unfair competition. The UCL has a four-year statute of limitations and is frequently used alongside other business tort claims.

Trade libel, also known as commercial disparagement, occurs when someone publishes false statements about a business's products, services, or commercial practices that cause economic harm. Under California law, the plaintiff must prove the defendant published a false statement specifically referring to the plaintiff's products or business, the statement was published to a third party, the defendant knew the statement was false or acted with reckless disregard for its truth, the statement played a substantial part in inducing third parties not to deal with the plaintiff, and the plaintiff suffered special damages (specific economic losses).

Unlike personal defamation, trade libel specifically targets statements about products or business quality rather than personal reputation. The plaintiff must prove special damages with specificity, identifying lost customers or transactions attributable to the false statements. Truth is an absolute defense. Statements of opinion rather than fact are generally protected, as are good faith complaints to government agencies. California's anti-SLAPP statute under Code of Civil Procedure Section 425.16 may apply to trade libel claims arising from protected speech.

California provides comprehensive remedies for business torts, though available relief varies by claim type. Compensatory damages restore the plaintiff to their position before the tort, including lost profits, diminished business value, and expenses incurred responding to the tortious conduct. Lost profits must be proven with reasonable certainty, typically through expert testimony, and must be caused by the defendant's conduct. Consequential damages may include harm to business reputation, loss of customer relationships, and costs of mitigation.

Punitive damages are available for intentional torts when the defendant acted with malice, oppression, or fraud under Civil Code Section 3294, requiring proof by clear and convincing evidence. Injunctive relief can prevent ongoing or threatened tortious conduct, requiring showing of irreparable harm and inadequacy of monetary relief. Restitution may be ordered to disgorge profits wrongfully obtained. Attorney fees are recoverable in certain statutory claims but generally not for common law torts absent contractual provision. The statute of limitations for most business torts is two years under Code of Civil Procedure Section 339, though this varies by specific claim.

California's strong public policy favoring employee mobility under Business and Professions Code Section 16600 significantly limits claims arising from employee recruitment. Unlike states that enforce non-compete agreements, California generally permits employees to leave for competitors and take their skills with them. However, certain conduct in employee recruitment may still give rise to business tort claims. Inducing employees to breach existing employment contracts can constitute tortious interference with contractual relations.

Using improper means such as fraud, bribery, or misappropriation of trade secrets to recruit employees may support claims for intentional interference with prospective economic advantage. Recruiting employees for the purpose of acquiring the former employer's trade secrets, rather than for legitimate employment, can give rise to trade secret misappropriation claims under Civil Code Section 3426. Mass solicitation of employees combined with misappropriation of confidential information may support claims. Courts distinguish between legitimate competition for talent, which is protected, and predatory practices designed to harm competitors rather than benefit the recruiting company.

The economic loss rule limits tort recovery when the plaintiff has suffered only economic losses without accompanying personal injury or property damage. Under California law, this rule generally requires parties to a contract to seek remedies in contract rather than tort for losses arising from the contractual relationship. However, California applies the rule with significant exceptions. Fraud claims are not barred by the economic loss rule; parties can recover tort damages for fraudulent inducement even when the fraud relates to a contract.

Professional malpractice claims against accountants, attorneys, and other professionals can proceed despite purely economic losses due to the special duty relationship. Negligent misrepresentation claims may proceed when there is a special relationship between the parties or when the defendant is in the business of providing information. Intentional torts such as interference with contractual relations generally are not barred because the wrongdoer is a third party to the contract. The rule primarily prevents commercial parties from converting ordinary breach of contract claims into tort claims to obtain enhanced remedies like punitive damages.

California's anti-SLAPP (Strategic Lawsuit Against Public Participation) statute under Code of Civil Procedure Section 425.16 provides a procedural mechanism to quickly dismiss claims arising from protected speech or petitioning activity. The statute applies to any act in furtherance of the right of petition or free speech in connection with a public issue. Business tort claims targeting speech activities, such as trade libel, false advertising claims, or interference claims based on statements, may be subject to anti-SLAPP motions.

The defendant files a special motion to strike early in litigation, arguing the claim arises from protected activity. The burden then shifts to the plaintiff to demonstrate a probability of prevailing on the merits. If the plaintiff cannot meet this burden, the claim is dismissed and the defendant recovers attorney fees. Courts have applied anti-SLAPP to business disputes involving complaints to government agencies, statements to industry groups, consumer reviews, and competitive advertising. The 2019 amendments narrowed the commercial speech exception, making anti-SLAPP more available in business contexts. Plaintiffs should carefully evaluate anti-SLAPP risk before filing business tort claims based on speech.

California statutes of limitations for business torts vary by claim type. Intentional interference with contractual relations and intentional interference with prospective economic advantage have a two-year limitations period under Code of Civil Procedure Section 339. Fraud claims have a three-year limitations period under Section 338(d), but the period does not begin until the plaintiff discovers, or reasonably should have discovered, the fraud. Trade libel claims are subject to a one-year limitations period under Section 340(c) for defamation actions.

UCL claims under Business and Professions Code Section 17200 have a four-year limitations period under Section 17208. Trade secret misappropriation claims have a three-year period under Civil Code Section 3426.6. The limitations period generally begins when the cause of action accrues, which is typically when the plaintiff suffers appreciable harm. The discovery rule may delay accrual when the plaintiff could not reasonably have discovered the injury or its cause. Continuing violations may extend the limitations period for ongoing tortious conduct. Fraudulent concealment by the defendant may toll the limitations period.

Proving damages in California business tort cases requires demonstrating both the fact of damage and the amount with reasonable certainty. Lost profits are a common measure of damages and must be proven through credible evidence, typically including financial records, expert testimony, and analysis of the plaintiff's business before and after the tortious conduct. Historical profits provide a baseline, but plaintiffs must show a causal connection between the defendant's conduct and the profit decline. New businesses face greater challenges proving lost profits due to lack of track record, but may use industry data, projections, or analogous businesses.

Expert witnesses, often forensic accountants or economists, are frequently necessary to quantify damages and explain them to juries. Damages must be traceable to the defendant's wrongful conduct, not other market factors or business conditions. Plaintiffs have a duty to mitigate damages and cannot recover losses that could have been reasonably avoided. Document preservation is critical; maintain financial records, customer communications, and evidence of lost opportunities. Speculative or uncertain damages will not be awarded, so focus on damages that can be proven with reasonable certainty.