“Intentional interference with prospective economic relations” is a type of unfair business practice that occurs when someone intentionally interferes with an established business relationship through unlawful or wrongful means (as compared to fair competitive practices).
California’s law against intentional interference with prospective economic relations” is also referred to sometimes as:
- Intentional interference with prospective economic advantage,
- Intentional interference with prospective business advantage,
- Tortious interference with economic expectancy, or
- Any of various combinations of the above terms.
“Intentional interference with prospective economic relations” is similar to several other torts, most notably “intentional interference with contractual relations” and “inducing breach of contract.”
But unlike the last two, interference with prospective economic relations does not require there to be a contract between the plaintiff and a third party. It simply requires that the plaintiff have:
- An existing business relationship with a third party, and
- A reasonable certainty that a specific future dealing with such third party will be economically profitable.1
Example: Bob’s Bicycles places a monthly toner ink order from Jane’s business supply company. Bob does not have a contract with her.
But because Bob has regularly placed orders with Jane in the past, Jane has an existing business relationship with Bob as well as a reasonable expectation of future economic profit.
To help you better understand “interference with prospective economic relations,” our California personal injury lawyers discuss, below:
- 1. The elements of “intentional interference with prospective economic relations” in California
- 2. What constitutes an “existing business relationship” under California law?
- 3. Proving the defendant had knowledge of the business relationship
- 4. Damages / reasonable expectation of future economic beneﬁt to the plaintiff
- 5. The requirement that the defendant’s conduct be “independently wrongful”
- 6. Proving that the defendant acted intentionally
- 7. Punitive damages in California for intentional interference cases
1. The elements of “intentional interference with prospective economic relations” in California
To make out a case for interference with economic advantage, a plaintiff must prove that:
- The plaintiff had an economic relationship with a third party, with the probability of future economic beneﬁt to the plaintiff;
- The defendant knew of the relationship;
- The defendant engaged in wrongful conduct in order to disrupt the relationship or with knowledge that disruption was substantially certain to occur;
- As a result of defendant’s conduct, the relationship was actually disrupted, and
- Because of the disruption, the plaintiff suffered economic harm.2
Let’s take a closer look at some of these elements.
2. What constitutes an “existing business relationship” under California law?
An essential element of intentional interference is an existing business relationship. It does not need to be a contractual relationship. But prior business dealings are required.3
In the first example set forth above, for instance, Bob’s Bicycles has purchased toner ink from Jane in the past.
But if Jane and Kevin are both pursuing the same new customer and Kevin breaks a law in order to get the business, Jane cannot sue for interference since there is no existing business relationship to disrupt.
3. Proving the defendant had knowledge of the business relationship
To recover for interference with prospective economic advantage, is not enough that there was an existing business relationship. The defendant must also have known about it.
Example: In the example first set forth above, let’s say that Kevin knows nothing about Bob’s Bicycles, but learns about the company from a list he purchased from a leads vendor. When Kevin cold calls Bob, Kevin bad-mouths Jane’s product.
But Kevin did it because Jane is the leading supplier in the area, not because he knows she and Bob’s already do business. Since he did not know of the relationship, it is not intentional interference (though Jane may be able to sue him for harm to reputation).
4. Reasonable expectation of future economic beneﬁt to the plaintiff
To recover for intentional interference with prospective economic relations, the plaintiff must show that if not for the defendant’s wrongful interference, the plaintiff would have been reasonably certain of obtaining an economic advantage.4
The usual measure of the lost economic advantage is “lost profits.” Lost profits do not need not be calculated with mathematical precision. But there must be a reasonable basis for computing the loss.5
With an established business, proving lost profits may be as simple as introducing historical data showing past profits and expenses. If the business is new, or exceptionally complicated, it might require market surveys and testimony from a financial expert witness.
In some cases, the plaintiff may be able to introduce evidence of profits made by similar businesses under similar conditions.6
An experienced California business torts litigator can help you determine how to prove lost profits and whether expert testimony is required.
5. The requirement that the defendant’s conduct be “independently wrongful”
California law recognizes a so-called “competition privilege.” Under this privilege competitors are free to divert business to themselves as long as they use means that are fair and reasonable. 7
Competition is not fair and reasonable if it is independently wrongful — that is, in some way other than just disrupting the plaintiff’s business.8
An act is independently wrongful if it violates a statute or is otherwise prohibited by a determinable legal standard.9
For instance, merely saying a competitor’s products are not as good as one’s own does not rise to a wrongful act, even if it is not true. But making a defamatory claim about a competitor’s products would be independently wrongful because California has a law against “business disparagement.” (a type of defamation that applies to businesses).
Other common wrongful actions for purposes of intentional interference claims include (but are not limited to):
- Acts or threats of violence,
- Fraud / misrepresentation, or
- Baseless litigation.10
Example: Let’s assume in our toner ink example that Kevin diverts Bob’s Bicycles’ business to himself by pretending to be affiliated with Jane. Intentional misrepresentation is fraud under California law.
Fraud is a wrongful act that is prohibited by California law. 11 Therefore, it is independently wrongful above and beyond disrupting Jane’s relationship with Bob.
6. Proving that the defendant acted intentionally
To constitute intentional interference with contractual relations in California, the defendant must have intended to disrupt an established business relationship. This means:
- The defendant actively sought to disrupt the plaintiff’s business relationship with a third party, or
- The defendant knew that disruption of the relationship was certain or substantially certain to occur as a result of his or her actions.12
Evidence of such intent or knowledge can be shown by, without limitation:
- Emails, text messages and other communications between the parties,
- Testimony of the parties and other witnesses, and/or
- The defendant’s internal notes and communications (which may be uncovered during the process of discovery after filing a lawsuit).
7. Can I get punitive damages in California for intentional interference with contractual relations?
California law allows a plaintiff to recover punitive damages when the defendant has acted with “malice, fraud or oppression.”13 By definition, “malice” includes conduct which is intended by a defendant to cause injury to the plaintiff.14
Thus punitive damages are appropriate where a defendant intended not just to disrupt the plaintiff’s business relationship but to injure it as well.
From Nevada? See our article on intentional interference with prospective economic advantage in Nevada.
- Paciﬁc Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118.
- Youst v. Longo (1987) 43 Cal.3d 64. See also California Civil Jury Instructions (CACI) 2202. Intentional Interference With Prospective Economic Relations.
- Roth v. Rhodes (1994) 25 Cal.App.4th 530.
- Youst, endnote 2.
- Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747; Meister v. Mensinger (2014) 230 Cal.App.4th 381. See also CACI 3903N. Lost Profits (Economic Damage).
- Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376.
- I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257; PMC, Inc. v. Saban Entertainment, Inc. (1996) 45 Cal.App.4th 579, disapproved on other grounds in Korea Supply Co. Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134.
- See cases cited in endnote 5.
- San Jose Construction, Inc. v. S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528.
- PMC, Inc. v. Saban Entertainment, endnote 7.
- California Civil Code 1709.
- Korea Supply Co., endnote 7; Ramona Manor Convalescent Hospital v. Care Enterprises (1986) 177 Cal.App.3d 1120
- California Civil Code 3294.
- California Civil Code 3294(c).