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06 . 28 | General Law

What is tortious interference with a contract?

When a person or business intentionally damages a business relationship or a contract you have with another business that caused or may cause economic harm, California considers that tortious interference— also called economic interference. It’s the role of a third party that makes this a tort claim and not a breach of contract, which is between two parties to a legal contract.

And you don’t need a written contract to sue for economic interference. A verbal contract is just as binding. In addition, California also recognizes negligence as the cause for tortious interference but only when there is no existing contract.

So, when a Los Angeles chain of dry cleaners contracting with a supply company learned that a competing business had bought up the supply company’s entire dry cleaning chemicals stock, that action interfered with the existing contract. The supply company was now late in its obligation to the first dry cleaning chain.

What’s more, the dry cleaning chain knew its competitor could not possibly use all of the supplies it ordered. Rather, the chain believed its competitor made the purchase so the chain wouldn’t be able to get the chemicals it needed. This intent is what the chain would try to prove in court.

To prove the interference with a contract in court, you must show that:

  • Your contract or agreement was legally valid.
  • The defendant knew about the contract or agreement.
  • The defendant intended to harm or breach your contract or knew that harm was likely certain to occur by their actions.
  • The defendant’s actions interrupted, increased costs or made it more difficult to carry out your contract.
  • Because of the defendant’s interference, you suffered economic damages.

Keep in mind that in 2020, the California Supreme Court added another burden to proving tortious interference for at-will contracts — the plaintiff must also show an independent wrongful act by the defendant. An at-will contract means that both parties agree that either one can end the agreement at any time, usually with a certain number of days specified.

So it’s important to know how California views your contract before filing a tortious interference claim. Why? Because in making its decision, the court didn’t address what actually is an at-will agreement in business. Instead, it relied on at-will employment law.

You can also sue on grounds of tortious interference with prospective economic advantage, Here, no legally binding contract is required. Instead, you must show:

  • The defendant had or should have had knowledge of your economic relationship with the business or person.
  • The defendant interfered your economic relationship with another business or person that probably will harm your future economic benefits on purpose — or through negligence if there’s no contract.

Either way, the interference must have resulted in the third party gaining or having the prospect to gain an economic advantage from the interference.

What compensation can you claim for tortious interference?

A famous California tortious interference case was when Pennzoil sued Texaco in 1984. The claim was that Texaco interfered with Pennzoil’s purchase of part of Getty Oil.  Pennzoil sought $7.4 billion in actual damages the same amount in punitive damages. The jury awarded a total of $10 billion, and  Pennzoil later settled for $3 billion.

If your tortious interference claim is successful, you can claim compensation for:

  • Expenses.
  • Loss of profit.
  • Prospective loss of profit.
  • Punitive damages. Under the California Civil Code, you can seek this if you can prove intentional acts of “malice, oppression , or fraud.”

The L.A. dry cleaning chain, of course, asked for much less in actual and punitive damages, but the legal grounds remain the same in both cases. Was the conduct by the competing chain intentional? Was malice involved? Did the plaintiff lose money and/or will it in the future?

Claiming tortious interference in California is complex and, as happened in 2020, the laws can change. If you think that you may have legal grounds to sue for economic interference with a n existing contract or business agreement, LawPLA’s skilled attorneys can help. Contact us through our website or by telephone for a free consultation today.

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