Transactional Torts

• Author: Eric E. Johnson
• Pages: 530-577

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30. Transactional Torts

“In business, sir, one has no friends, only correspondents.”

– Alexandre Dumas

Introduction

In this chapter we look at torts that arise in the context of business

transactions. These are often called “business torts,” although

businesses deal with all torts, from negligence to defamation. What

makes these torts unique is that they are tied to deals and transactions

– the business of business, if you like. We will see buyers suing sellers,

lawyers suing accountants, and sports agents suing sports agents. As

opposed to the personal injury torts we have been exploring, the

primary harm here is economic. But that is not to say things don’t get

personal. Transactional-tort cases frequently involve a surprising

amount of spite and pique – something you will see in the cases

below.

There are a variety of causes of action that could fall under the

umbrella of transactional torts, but this chapter covers a few

particularly important ones: intentional economic interference, fraud,

and breach of fiduciary duty. They are all torts that pick up where

contract law leaves off in defining the legal landscape for conducting

commerce.

For all transactional torts, it is important to keep in mind the

overarching default rule: Where the gravamen of the plaintiff’s

complaint is that a contract has been breached, then the plaintiff’s

only remedy is breach of contract. Tort law is not supposed to

interfere in the contractual context – at least not unless the rationale

is highly compelling. But that is not to say that these torts are

infrequently alleged. For plaintiffs in business disputes, tort law has

great allure. Tort law’s concepts of compensatory damages are more

expansive than those under contract law. Plus, for real bad apples,

there is the possibility of punitive damages. And business disputes

often turn up bad apples. Also, plaintiffs going to trial on a tort may

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benefit from a strategic advantage. In a regular contract dispute,

evidence that makes the defendant look bad is likely to be irrelevant,

and therefore inadmissible. But if a tort is alleged, the plaintiff’s

lawyers may be able to put before the jury all sorts of disparaging

evidence because it is relevant to showing tortious intent.

Because of these advantages, plaintiffs are always looking for ways to

tortify contract disputes. And that means courts are always looking

for ways to keep this drive toward tortification from getting out of

hand. In fact, one theme that runs through the doctrines of

intentional economic interference, fraud, and breach of fiduciary

duty, is the existence of safeguards put into the doctrine that are

meant to prevent workaday contract disputes from morphing into

mudslinging tort litigation.

Intentional Economic Interference

The idea behind the cause of action for intentional economic

interference is that a person should be free to seek economic

opportunities without being impeded by intermeddling ne’er-do-

wells.

Suppose I manage to get a contract with my neighbors to mow their

lawn – something that will give me enough cash to go to the movies

and buy a few new video games. Yet you – just because you want to

see me fail – work to destroy my nascent lawn mowing business, and

you manage to cause my neighbors to terminate my services.

At this point, I can sue you for intentional economic interference.

But we should stop to wonder why I would need such a cause of

action to sue you. Most of the things you could do to sabotage me

are already tortious. For instance, you could tell lies about me that

would cause my neighbor to fire me. You could steal my lawn

mower. Or you could put sugar in the mower’s gas tank. If you do all

that to me, I can sue you for intentional economic interference, but I

can also sue you for defamation, trespass to chattels, and conversion.

So the question is, why does tort law need an independent cause of

action for intentional economic interference?

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The true value of the intentional economic interference tort shows its

worth when something particularly sneaky is afoot. Say you convince

your little brother and sister to go over to play with the neighbors’

kids and convince them to host an elaborate tea party on the lawn

during what you know to be the only hours I have free to get the

mowing done. Let’s say you do this two weeks in a row, at which

point the neighbors terminate my services because I’m not getting the

job done. In such a situation, I would have no claim for trespass,

conversion, or defamation, but my claim for intentional economic

interference will let me in the courthouse doors.

Instead of having a single tort of “intentional economic

interference,” many jurisdictions have two causes of action: the tort

of intentional interference with contract and the separate tort of

intentional interference with prospective economic advantage.

Both torts are essentially the same, except that with the former, there

is a contract between the plaintiff and a third party. With the later,

there would have been a contract but for the defendant’s actions.

Here is a statement of the blackletter rule for intentional economic

interference:

A plaintiff can establish a prima facie case for

intentional economic interference by

showing: (1) there is a valid contract or non-

speculative economic expectancy between the

plaintiff and a third party; (2) the defendant had

knowledge of this economic interest; (3) the

defendant intended to interfere with this

economic interest; (4) but for the interference,

the plaintiff would have received the benefit of

the economic interest; and (5) the plaintiff

thereby accrued damages.

These elements are mostly self-explanatory, but a few observations

should be made.

First, it bears emphasis that the economic interest (the contract or

prospective economic advantage) must arise between the plaintiff and

a third party – that is, someone who is not the defendant. If the

defendant backs out of a contract, the remedy is breach of contract.