Tortious Interference with Prospective Business Relations

THE SIGHTSEEING BUS COMPANY’S COUNTERCLAIMS ALLEGING CONCERTED ANTI-COMPETITIVE BEHAVIOR BY OTHER BUS COMPANIES IN VIOLATION OF THE DONNELLY ACT (GENERAL BUSINESS LAW 340) SHOULD NOT HAVE BEEN DISMSSED (CT APP).

The Court of Appeals, reversing the Appellate Division, determined the counterclaims by a tour bus company, Go New York, alleging anti-competitive behavior in violation of the Donnelly Act by other bus companies, called the Gray Line respondents, should not have been dismissed:

The Donnelly Act prohibits “[e]very contract, agreement, arrangement or combination” through which “a monopoly . . . is or may be established or maintained,” whereby “competition or the free exercise of any activity in the conduct of business . . . is or may be restrained,” or whereby trade or business is or may be restrained “[f]or the purpose of establishing or maintaining any such monopoly or unlawfully interfering with the free exercise of any activity in the conduct of any business, trade or commerce” (General Business Law § 340 [1]). As with a claim brought “under its essentially similar federal progenitor, section 1 of the Sherman Act (15 USC § 1 et seq),” a claim brought under the Donnelly Act, at a minimum, “must allege both concerted action by two or more entities and a consequent restraint of trade within an identified relevant product market” … . The Court has recognized that “the sweep of Donnelly may be broader than that of Sherman” insofar as the Donnelly Act proscribes “arrangements” in addition to contracts, combinations, and conspiracies … . …

Go New York alleges that the Gray Line respondents conspired with other counterclaim defendants (which Go New York refers to as “Big Bus/Leisure Pass”), to leverage their market share to “shut out” Go New York from the “hop-on, hop-off sightseeing tour bus market.” According to the facts asserted—which we must accept as true on this motion—representatives from various New York City attractions refused to do business with Go New York after Gray Line and Big Bus/Leisure Pass impugned Go New York’s reputation and threatened to end their business with those attractions if they did business with Go New York. Go New York also alleged that, although certain attractions referenced exclusive relationships with either Gray Line or Big Bus/Leisure Pass as a basis not to partner with Go New York, the attractions in fact partnered with both. Thus, it can be inferred that the claimed exclusive relationships were a pretext to cover for anticompetitive efforts to exclude Go New York. Although sparse, these factual assertions and all the possible inferences to be drawn therefrom are sufficient to allege concerted action between two or more entities and support a cognizable Donnelly Act counterclaim under our liberal notice pleading standards … . Taxi Tours Inc. v Go N.Y. Tours, Inc., 2024 NY Slip Op 01333, CtApp 3-14-24

Practice Point: The allegations here were deemed sufficient to state a cause of action for a violation of the Donnelly Act, which prohibits concerted anti-competitive behavior by businesses designed to exclude a competing business from the market.

March 14, 2024

Contract Law, Employment Law, Tortious Interference with Prospective Business Relations

PLAINTIFF’S EMPLOYER, VERIZON, THREATENED LEGAL ACTION BASED UPON A NON-COMPETE AGREEMENT SIGNED BY PLAINTIFF IF PLAINTIFF RESIGNED TO WORK FOR WARNERMEDIA; PLAINTIFF’S TORTIOUS-INTERFERENCE-WITH-PROSPECTIVE-BUSINESS-RELATIONS CAUSE OF ACTION SHOULD HAVE BEEN DISMISSED (FIRST DEPT).

The First Department, reversing Supreme Court, determined defendant-employer (Verizon) was entitled to summary judgment dismissing the tortious-interference-with-prospective-business-relations cause of action. Plaintiff signed a non-compete agreement. When Verizon learned of plaintiff’s plan to resign and work for WarnerMedia Verizon warned plaintiff that resigning would lead to legal action:

Although plaintiff contends that Verizon wrongfully threatened litigation against him to enforce the noncompete provision, the “wrongful means” element of the cause of action is satisfied only where the threatened lawsuit is frivolous … . In light of the above facts, and considering that Verizon has successfully enforced a similar noncompete provision in the past … , there was an objectively reasonable basis to believe that the provision in its agreement with plaintiff was enforceable. …

Furthermore, the record does not support plaintiff’s argument that Verizon took its legal position solely out of a personal dislike for plaintiff, or solely by a desire to harm him … . On the contrary, the record shows that Verizon’s actions were motivated by economic self-interest … . Lucas v Verizon Communications, Inc., 2023 NY Slip Op 05190, First Dept 10-12-23

Practice Point: In order to support a tortious-interference-with-prospective-business-relations cause of action plaintiff must prove the employer’s threatened action was “wrongful” and was motivated solely by a desire to harm plaintiff. Here the employer threatened only to take legal action to enforce a non-compete agreement. The tortious-interference cause of action should have been dismissed.

October 12, 2023

Tortious Interference with Contract, Tortious Interference with Prospective Business Relations, Unfair Competition

DEFENDANT TORTIOUSLY INTERFERED WITH PLAINTIFF’S CONTRACT BUT DID NOT TORTIOUSLY INTERFERE WITH PLAINTIFF’S BUSINESS RELATIONS OR ENGAGE IN UNFAIR COMPETITION; THE ELEMENTS OF THE THREE CAUSES OF ACTION EXPLAINED (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined defendant was properly found to have tortiously interfered with plaintiff’s contract but should not have been found to have tortiously interfered with plaintiff’s business relations or to have engaged in unfair competition. The elements of each cause of action are clearly explained in the decision. With respect to tortious interference with business relations, the court wrote:

“While a cause of action for interference with prospective contract or business relationship is closely akin to one for tortious interference with contract, the former requires proof of more culpable conduct on the part of defendant” … . “This standard is met where the interference with prospective business relations was accomplished by wrongful means or where the offending party acted for the sole purpose of harming the other party” … . “Wrongful means” has been defined to include “physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure” … . “[A]s a general rule, the defendant’s conduct must amount to a crime or an independent tort. Conduct that is not criminal or tortious will generally be ‘lawful’ and thus insufficiently ‘culpable’ to create liability for interference with prospective contracts or other nonbinding economic relations” … . In addition, conduct which is motivated by economic self-interest cannot be characterized as solely malicious … . Stuart’s, LLC v Edelman, 2021 NY Slip Op 04569, Second Dept 7-29-21

July 28, 2021

Contract Law, Tortious Interference with Prospective Business Relations

ONE DEFENDANT BREACHED A CONTRACT; THE OTHER DEFENDANT TORTIOUSLY INTERFERED WITH PLAINTIFF’S PROSPECTIVE BUSINESS RELATIONS; THE JURY AWARDED SEPARATE DAMAGE-AMOUNTS FOR EACH DEFENDANT; SUPREME COURT SHOULD NOT HAVE HELD BOTH DEFENDANTS JOINTLY AND SEVERALLY LIABLE FOR THE COMBINED AMOUNT OF DAMAGES (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Cohen, reversing Supreme Court, determined the defendants, one of which was found by the jury to have breached a contract, and the other which was found to have tortiously interfered with plaintiff’s prospective business relations, should not have been deemed jointly and severally liable. Each was separately liable for the separate damage-amounts assigned by the jury:

The jury determined that the plaintiff sustained damages in the amount of $60,000 resulting from [defendant] DIG’s interference with the plaintiff’s prospective business relationship with [defendant] B1 Advanced, and that the plaintiff sustained damages in the amount of $657,000 resulting from B1 Advanced’s breach of contract. Contrary to the Supreme Court’s determination, the damages arising out of DIG’s tortious interference could, in fact, differ from the damages arising out of B1 Advanced’s breach of contract. The jury assessed the amount of damages against DIG based on the plaintiff’s loss of prospective profits resulting from DIG’s tortious interference with the plaintiff’s ongoing business relationship with B1 Advanced … . Conversely, “[d]amages for breach of contract include general (or direct) damages, which compensate for the value of the promised performance, and consequential damages, which are indirect and compensate for additional losses incurred as a result of the breach, such as lost profits” … . The jury’s apportionment of damages reflects its finding that DIG was not responsible for all of the damages caused by B1 Advanced’s breach of contract. Achieve It Solutions, LLC v Lewis, 2020 NY Slip Op 04137, Second Dept 7-22-20

July 22, 2020

Appeals, Tortious Interference with Prospective Business Relations

TORTIOUS INTERFERENCE WITH BUSINESS RELATIONS CAUSE OF ACTION PROPERLY SURVIVED A MOTION TO DISMISS, LAW OF THE CASE DOCTRINE APPLIES ONLY TO COURTS OF COORDINATE JURISDICTION.

The First Department determined plaintiff had stated a cause of action for tortious interference with business relations. Plaintiff, a Broadway musical producer, alleged defendant made false statements implicating plaintiff in investor fraud (committed by a nonparty). The court noted that the law of the case doctrine applies only to courts of coordinate jurisdiction, not to the appellate courts:

The tortious interference claim was properly sustained insofar as it was premised on emails sent by defendant to a key investor, but not insofar as it was premised on comments made by defendant’s attorney that were quoted in various news articles.

As to the emails, plaintiff adequately pled that defendant’s conduct was unlawful or for the sole purpose of inflicting intentional harm on plaintiff … – as we observed in a related action premised on these same emails (see Rebecca Broadway L.P. v Hotton, 143 AD3d 71, 77 [1st Dept 2016]). Specifically, plaintiff alleged that, in sending the emails, defendant misappropriated confidential information he was privy to as a result of his position as the musical’s press agent and committed the independent tort of defamation … . Sprecher v Thibodeau, 2017 NY Slip Op 02519, 1st Dept 3-30-17

March 30, 2017

Contract Law, Tortious Interference with Contract, Tortious Interference with Prospective Business Relations

Elements of Tortious Interference with Contract and Tortious Interference With Prospective Business Relations Explained

The Second Department, over a dissent, determined that the counterclaims alleging tortious interference with contract and tortious interference with prospective business relations were properly dismissed. The counterclaims alleged that the plaintiffs-attorneys, who represented defendant, Landmark, improperly sought payment of attorney’s fees for a negotiated stipulation of settlement directly from the party with whom Landmark settled, rather than from Landmark. In dismissing the counterclaims, the court explained the required elements of each:

A necessary element of [tortious interference with contract] is the intentional and improper procurement of a breach and damages … . Here, Landmark failed to adequately plead facts that would establish that the plaintiffs, in communicating with the third party to secure their attorney’s fees, intentionally procured that party’s breach of the stipulation of settlement… . …

A claim for tortious interference with prospective business relations does not require a breach of an existing contract, but the party asserting the claim must meet a “more culpable conduct” standard … . This standard is met where the interference with prospective business relations was accomplished by wrongful means or where the offending party acted for the sole purpose of harming the other party … . ” Wrongful means’ include physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure” … . As a general rule, the offending party’s conduct must amount to a crime or an independent tort, as conduct that is neither criminal nor tortious will generally be “lawful” and thus insufficiently “culpable” to create liability for interference with prospective business relations … . The mere violation of an attorney disciplinary rule will only create liability if actual damages are incurred as a result of the violating conduct … . In addition, where the offending party’s actions are motivated by economic self-interest, they cannot be characterized as solely malicious … . Law Offs. of Ira H. Leibowitz v Landmark Ventures, Inc., 2015 NY Slip Op 06575, 2nd Dept 8-19-15

August 19, 2015

Contract Law, Tortious Interference with Contract, Tortious Interference with Prospective Business Relations

“But For” Causation Element of Tortious Interference with Contract and Prospective Business Relationship Not Present—Notwithstanding the Actions of the Defendants, there Was Evidence the Contract Was Cancelled for Financial Reasons

The Third Department, in finding the causes of action should have been dismissed, explained the “but for” element of tortious interference with contractual relations and prospective business relationships. The complaint alleged that defendants made disparaging and false remarks about the plaintiff which caused plaintiff to lose a consulting contract. However the evidence demonstrated the contract was cancelled for financial reasons. Therefore the “but for” element was not present:

Causation is an essential element of a claim for tortious interference with contractual relations. Such a cause of action requires proof that, “but for” the defendants’ conduct, the plaintiff would not have breached its contract with a third party … .

In opposition to defendants’ motion for summary judgment, plaintiffs submitted a letter not previously disclosed during discovery … . * * * This letter established that, regardless of whether defendants acted in such a manner as to interfere with the consulting contract, the contract … was terminated for financial reasons … . Thus, it cannot be shown that “but for” defendants’ alleged interference, plaintiffs’ contractual relationship … would have continued … . Ullmanglass v Oneida Ltd, 2014 NY Slip Op 07234, 3rd Dept 10-23-14

October 23, 2014