Intentional Interference with Prospective Economic Advantage – California Law

“Intentional interference with prospective economic advantage” is a type of unfair business practice that occurs when someone intentionally interferes with an established business relationship using unlawful or wrongful means (as compared to fair competitive practices).

The tort is also referred to sometimes as:

• Intentional interference with prospective economic relations,
• 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 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 the law, our California personal injury lawyers discuss:

• 1. Elements of a claim
• 2. Existing business relationship
• 3. Proving knowledge
• 4. Future economic benefit
• 5. Independently wrongful
• 6. Proving intentional acts
• 7. Punitive damages

1. Elements of a claim

To make out a California common law cause of action for interference with economic advantage, a plaintiff must prove that:

1. The plaintiff had an economic relationship with a third party, with the probability of future economic benefit to the plaintiff;
2. The defendant knew of the existence of the relationship;
3. The defendant engaged in wrongful conduct in order to disrupt the relationship or with the defendant’s knowledge that disruption was substantially certain to occur;
4. As a result of defendant’s interference, there was an actual breach or actual disruption of the relationship, and
5. Because of the defendant’s actions, the plaintiff suffered economic harm.²

Let’s take a closer look at some of these elements of tortious interference claims.

2. Existing business relationship

An essential element of intentional interference under state law is an existing business relationship. It does not need to be a contractual relationship with an existing contract. 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 or valid contract to disrupt.

3. Proving knowledge

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. Future economic benefit

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. 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 and improper means for purposes of intentional interference claims include (but are not limited to):

• Acts or threats of violence,
• Defamation,
• Trade libel,
• Trademark infringement,
• Extortion,
• Fraud/misrepresentation, or
• Unfounded 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 intentional acts

To constitute intentional interference with contractual relations in California, the defendant must have intended to disrupt an established business relationship. This is a higher bar than merely negligent interference. 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 intentional acts 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. Punitive damages

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 that 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.

Further Resources

Also see our California articles on unfair competition and fair competition laws prepared by our California personal injury lawyers.

From Nevada? See our article on intentional interference with prospective economic advantage in Nevada.

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