Lead Opinion
Opinion
This case addresses what claims and remedies may be pursued by a plaintiff who alleges a lost business opportunity due to the unfair practices of a competitor. The Republic of Korea wished to purchase military equipment known as synthetic aperture radar (SAR) systems and solicited competing bids from manufacturers, including Loral Corporation (Loral) and MacDonald, Dettwiler, and Associates Ltd. (MacDonald Dettwiler). Plaintiff Korea Supply Company (KSC) represented MacDonald Dettwiler in the negotiations for the contract and stood to receive a commission of over $30 million if MacDonald Dettwiler’s bid was accepted. Ultimately, the contract was awarded to Loral (now Lockheed Martin Tactical Systems, Inc.). KSC contends that even though MacDonald Dettwiler’s bid was lower and its equipment superior, it was not awarded the contract because Loral and its agent had offered bribes and sexual favors to key Korean officials. KSC instituted the present action asserting claims under both California’s unfair competition law (Bus. & Prof. Code, § 17200 et seq.) and the tort of interference with prospective economic advantage.
Second, we address whether, to state a claim for interference with prospective economic advantage, a plaintiff must allege that the defendant specifically intended to interfere with the plaintiff’s prospective economic advantage. We conclude that a plaintiff need not plead that the defendant acted with the specific intent to interfere with the plaintiff’s business expectancy in order to state a claim for this tort. We affirm the judgment of the Court of Appeal on this issue.
I.
“Because ‘[t]his case comes to us after the sustaining of a general demurrer . . . , we accept as true all the material allegations of the complaint.’” (Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001)
Plaintiff KSC is a corporation engaged in the business of representing manufacturers of military equipment in transactions with the Republic of Korea. In the mid-1990’s, the Republic of Korea solicited bids for a SAR system for use by its military. KSC represented MacDonald Dettwiler, a Canadian company, in its bid to obtain the contract award. KSC expected a commission of 15 percent of the contract price, or over $30 million, if MacDonald Dettwiler were awarded the contract.
In June 1996, the Korean Ministry of Defense announced that Loral,
Beginning in October 1998, major news publications in the Republic of Korea revealed that an internal investigation had established that the SAR contract was awarded to Loral as a result of bribes and sexual favors, rather than pressure from the United States government. Loral’s agent for the procurement of the SAR contract, defendant Linda Kim, had bribed two Korean military officers. In addition, Ms. Kim had extended bribes and sexual favors to the Minister of National Defense, the ultimate decision maker with respect to the award of the SAR contract. Ms. Kim reportedly received approximately $10 million in commission from Loral, an
Upon learning of these alleged reasons for the award of the SAR contract to Loral, KSC commenced the present action on May 5, 1999. In its first amended complaint, KSC alleged that defendants
The first amended complaint asserts three causes of action: (1) conspiracy to interfere with prospective economic advantage, (2) intentional interference with prospective economic advantage, and (3) unfair competition pursuant to Business and Professions Code section 17200.
Lockheed Martin, joined by Ms. Kim, generally demurred to all counts. The trial court sustained the demurrer without leave to amend, finding that plaintiffs complaint did not state facts sufficient to constitute a cause of action under California law. Judgment was entered dismissing the action on September 7, 1999. After the trial court subsequently denied KSC’s motion for reconsideration, KSC filed its notice of appeal. The Court of Appeal reversed the trial court’s judgment in full, finding that plaintiff had sufficiently stated causes of action for unfair competition and for intentional interference with prospective economic advantage.
Lockheed Martin sought review in this court of two bases of the Court of Appeal’s decision: first, its holding that disgorgement of profits is an available remedy under the UCL even where the disgorgement sought does not represent restitution of money or property in which plaintiff has an ownership interest; and second, its holding that the tort of intentional interference with prospective economic advantage does not require plaintiff to plead that
II.
We first address plaintiffs unfair competition claim. Business and Professions Code section 17200 et seq.
Section 17200 “borrows” violations from other laws by making them independently actionable as unfair competitive practices. (Cel-Tech, supra,
While the scope of conduct covered by the UCL is broad, its remedies are limited. (Cel-Tech, supra,
A.
The Court of Appeal in this case held that plaintiff can recover disgorgement of profits earned by defendants as a result of their allegedly unfair practices, even where the money sought to be disgorged was not taken from plaintiff and plaintiff did not have an ownership interest in the
In Kraus, we held that disgorgement of unfairly obtained profits into a fluid recovery fund is not an available remedy in a representative action brought under the UCL. (Kraus, supra,
We defined an order for “restitution” as one “compelling a UCL defendant to return money obtained through an unfair business practice to those persons in interest from whom the property was taken, that is, to persons who had an ownership interest in the property or those claiming through that person.” (Kraus, supra, 23 Cal.4th at pp. 126-127.) We then clarified that “disgorgement” is a broader remedy than restitution. We stated that an order for disgorgement “may include a restitutionary element, but is not so limited.” (Id. at p. 127.) We further explained that an order for disgorgement “may compel a defendant to surrender all money obtained through an unfair business practice even though not all is to be restored to the persons from whom it was obtained or those claiming under those persons. It has also been used to refer to surrender of all profits earned as a result of an unfair business practice regardless of whether those profits represent money taken directly from persons who were victims of the unfair practice.” (Ibid.) Relying on this distinction between restitution and disgorgement, we held in Kraus that although restitution was an available remedy in UCL actions, a plaintiff in a representative action under the UCL could not recover disgorgement in the broader, nonrestitutionary sense, into a fluid recovery fund. (Kraus, at p. 137.)
The Court of Appeal in the present case misread our opinion in Kraus. Noting that plaintiff in this case seeks disgorgement of profits unjustly earned by defendants, the Court of Appeal quoted our statement in Kraus that “ ‘[a]n order that a defendant disgorge money obtained through an unfair business practice may include a restitutionary element, but is not so limited. . . . [S]uch orders may compel a defendant to surrender all money obtained through an unfair business practice even though not all is to be restored to the persons from whom it was obtained or those claiming under those persons. It has also been used to refer to surrender of all profits earned as a result of an unfair business practice regardless of whether those profits represent money taken directly from persons who were victims of the unfair practiced ” (Quoting Kraus, supra,
As Lockheed Martin and several amici curiae point out, however, this passage from Kraus, cited by the Court of Appeal as authorization for disgorgement under the UCL, merely defined the term “disgorgement”
B.
We begin our analysis with the statutory authorization for relief under the UCL, found in section 17203: “Any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction. The court may make such orders or judgments, including the appointment of a receiver, as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition, as defined in this chapter, or as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.”
The fundamental objective of statutory construction is to ascertain the Legislature’s intent and to give effect to the purpose of the statute. (Code Civ. Proc., § 1859.) If the language of the statute is unambiguous, the plain meaning governs. (Day v. City of Fontana (2001)
While a remedy of nonrestitutionary disgorgement of profits is not expressly authorized by the statute, KSC argues that the equitable language in section 17203 is sufficiently broad to allow courts to award this monetary remedy for an unfair competition claim. KSC contends that under the UCL a court may, in its discretion, order Lockheed Martin to surrender its profits to KSC because KSC allegedly has been wronged by Lockheed Martin’s unfair conduct.
Here, since the remedy of nonrestitutionary disgorgement is not expressly authorized by the statute, we determine whether the Legislature intended to authorize such a remedy under section 17203. If the statutory language is ambiguous, we may look to the history and background of the statute. (Kraus, supra,
We described the legislative history of the UCL in Kraus. (Kraus, supra, 23 Cal.4th at pp. 129-130.) As amended in 1933, the predecessor to the current law provided express authority to enjoin unfair competition. (Civ. Code, former § 3369, as amended by Stats. 1933, ch. 953, § 1, p. 2482.) While no specific provision empowered courts to order monetary remedies, in People v. Superior Court (Jayhill Corp.) (1973)
While express authority to order restitution was added to the UCL, courts were not given similar authorization to order nonrestitutionary disgorgement. Further, plaintiff has not pointed to anything in the legislative history that suggests that the Legislature intended to provide such a remedy in an individual action. Plaintiff contends that this court’s interpretation of the UCL and commentary by leading academic authorities establish that a court’s equitable power under the UCL is broad. Notably absent from this argument, however, is any showing from the language or history of section 17203 that the Legislature intended to authorize a disgorgement remedy that was not restitutionary in nature. Instead, KSC merely asserts, without pointing to any particular statutory language or legislative history, that a court’s equitable powers under section 17203 are broad enough to encompass its requested remedy.
We have previously found that the Legislature did not intend section 17203 to provide courts with unlimited equitable powers. In Kraus, we rejected the argument, revived by plaintiff in this case, that the general grant of equitable authority in section 17203 implicitly permitted a disgorgement remedy—in that case, into a fluid recovery fund in a representative action. We found that since there was nothing in the express language of the statute or its legislative history indicating that the Legislature intended to provide such a remedy, the remedy was not available. (Kraus, supra,
In fact, the language of section 17203 is clear that the equitable powers of a court are to be used to “prevent” practices that constitute unfair competition and to “restore to any person in interest” any money or property acquired through unfair practices. (§ 17203.) While the “prevent” prong of section 17203 suggests that the Legislature considered deterrence of unfair practices to be an important goal, the fact that attorney fees and damages, including punitive damages, are not available under the UCL is clear evidence that deterrence by means of monetary penalties is not the act’s sole objective. A court cannot, under the equitable powers of section 17203, award whatever form of monetary relief it believes might deter unfair practices. The fact that the “restore” prong of section 17203 is the only reference to monetary penalties in this section indicates that the Legislature intended to limit the available monetary remedies under the act.
C.
In an attempt to fit its claim within the statutory authorization for relief, and as an implicit acknowledgement that nonrestitutionary disgorgement is not an available remedy in an individual action under the UCL, plaintiff describes its requested remedy as “restitution.” This term does not accurately describe the relief sought by plaintiff. As defined in Kraus, an order for restitution is one “compelling a UCL defendant to return money obtained through an unfair business practice to those persons in interest from whom the property was taken, that is, to persons who had an ownership interest in the property or those claiming through that person.” (Kraus, supra, 23 Cal.4th at pp. 126-127.) The object of restitution is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.
The remedy sought by plaintiff in this case is not restitutionary because plaintiff does not have an ownership interest in the money it seeks to recover from defendants. First, it is clear that plaintiff is not seeking the return of money or property that was once in its possession. KSC has not given any money to Lockheed Martin; instead, it was from the Republic of Korea that Lockheed Martin received its profits. Any award that plaintiff would recover from defendants would not be restitutionary as it would not replace any money or property
Further, the relief sought by plaintiff is not restitutionary under an alternative theory because plaintiff has no vested interest in the money it seeks to recover. We have stated that “[t]he concept of restoration or restitution, as used in the UCL, is not limited only to the return of money or property that was once in the possession of that person.” (Cortez, supra,
While the plaintiffs in Cortez had a vested interest in their earned but unpaid wages, KSC itself acknowledges that, at most, it had an “expectancy” in the receipt of a commission. KSC’s expected commission is merely a contingent interest since KSC only expected payment if MacDonald Dettwiler was awarded the SAR contract. (See U.S. v. Rodrigues (9th Cir. 2000)
KSC’s expectancy in this case is further attenuated since KSC never anticipated payment directly from Lockheed Martin. Instead, it expected the Republic of Korea to pay MacDonald Dettwiler, which would then pay a commission to KSC. In contrast, in Cortez, the defendant was the employer from which the plaintiffs expected payment. (Cortez, supra,
D.
We reaffirm that an action under the UCL “is not an all-purpose substitute
The nonrestitutionary disgorgement remedy sought by plaintiff closely resembles a claim for damages, something that is not permitted under the UCL. As one court has noted: “Compensation for a lost business opportunity is a measure of damages and not restitution to the alleged victims.” (MAI Systems Corp. v. UIPS (N.D.Cal. 1994)
Allowing the plaintiff in this case to recover nonrestitutionary disgorgement under the UCL would enable it to obtain tort damages while bypassing the burden of proving the elements of liability under its traditional tort claim for intentional interference with prospective economic advantage. As we have stated, any member of the public can bring suit under the UCL. In addition, “to state a claim under the act one need not plead and prove the element of a tort. Instead, one need only show that ‘members of the public are likely to be deceived.’ [Citation.]” (Bank of the West, supra,
In addition, it is possible that due process concerns would arise if an individual business competitor could recover disgorgement of profits under the UCL. While restitution is limited to restoring money or property to direct victims of an unfair practice, a potentially unlimited number of individual plaintiffs could recover
Plaintiff suggests ways of alleviating these due process concerns, proposing several “options to prevent abuse,” including that this remedy be “limited to instances where the defendant has engaged in egregious practices.” None of plaintiffs proposals, however, alleviate the possibility that defendants would be subjected to duplicate liability. Further, none of plaintiffs proposed “options to prevent abuse” are contemplated by the legislative scheme.
E.
We conclude, therefore, that allowing plaintiff to recover monetary relief under the UCL in this case would be at odds with the language and history of the statute, our previous decisions construing the UCL, and public policy. We hold that nonrestitutionary disgorgement of profits is not an available remedy in an individual action under the UCL. We note that the UCL remains a meaningful consumer protection tool. The breadth of standing under this act allows any consumer to combat unfair competition by seeking an injunction against unfair business practices. Actual direct victims of unfair competition may obtain restitution as well. The present decision merely reaffirms the balance struck in this state’s unfair competition law between broad liability and limited relief.
In addition, we note that our decision does not foreclose all relief to plaintiff. While plaintiff may not recover monetary relief under the limited remedies provided by the UCL, plaintiff may pursue a cause of action under traditional tort law. In fact, as we conclude below, plaintiff in this case can state a claim for the tort of intentional interference with prospective economic advantage. While the pleading and proof requirements under this tort are more rigorous than under the UCL, if plaintiff succeeds in meeting its burden of proof, it may recover damages for the injuries it claims to have suffered as a result of unfair competition.
III.
Lockheed Martin argues that KSC fails to state a claim for intentional interference with prospective economic advantage because it has not shown that Lockheed Martin acted with the specific intent to disrupt KSC’s business relationship. KSC counters that a plaintiff need only show that the defendant acted with the knowledge that its wrongful acts were substantially certain to disrupt plaintiff’s business expectancy. We conclude that the tort of intentional interference with
A.
We first articulated the elements of the tort of intentional interference with prospective economic advantage in Buckaloo v. Johnson (1975)
We most recently considered this tort in Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995)
Since our opinion in Della Penna, lower courts considering this tort have continued to apply the elements we articulated in Buckaloo, with the added understanding that a plaintiff must plead that the defendant engaged in an act that is wrongful apart from the interference itself. (See, e.g., Limandri v. Judkins (1997)
We disagree with the Court of Appeal’s conclusion that the elements we first articulated in Buckaloo, supra,
B.
Having clarified the required elements, we now consider the intent requirement of this tort. The question is whether a plaintiff must plead and prove that the defendant engaged in wrongful acts with the specific intent of interfering with the plaintiffs business expectancy. We conclude that specific intent is not a required element of the tort of interference with prospective economic advantage. While a plaintiff may satisfy the intent requirement by pleading specific intent, i.e., that the defendant desired to interfere with the plaintiffs prospective economic advantage, a plaintiff may alternately plead that the defendant knew that the interference was certain or substantially certain to occur as a result of its action.
Lockheed Martin argues that specific intent is an established element of this tort. It contends that to satisfy the tort’s third element—intentional wrongful acts designed to disrupt the plaintiffs relationship with its benefactor—a plaintiff must allege that the defendant purposely sought the disruption. It asserts that the inclusion of the word “designed” in the typical formulation of the third element is evidence that a plaintiff is required to plead specific intent. We disagree. The elements of the tort of interference with prospective economic advantage do not require a plaintiff to allege that the defendant acted with the specific intent, or purpose, of disrupting the plaintiffs prospective economic advantage.
Contrary to Lockheed Martin’s assertion, the inclusion of the word “designed” in the third element of the tort does not necessarily mean that this tort contains a specific intent requirement. Our analysis of the intent requirement for the tort of intentional interference with contract in Quelimane Co. v. Stewart Title Guaranty Co. (1998)
In determining that intentional interference with contract does not contain a specific intent requirement, we relied on the Restatement Second of Torts. (Quelimane, supra,
We similarly look to the Restatement to determine whether the tort at issue in the present case, intentional interference with prospective economic advantage, contains a specific intent requirement. Restatement Second of Torts section 766B, entitled Intentional Interference with Prospective Contractual Relation,
In explaining the intent requirement for intentional interference with prospective economic advantage, the Restatement Second of Torts specifically refers to the intent requirement for the tort of intentional interference with contract, as defined in section 766, comment j. We relied on this section of the Restatement in Quelimane to conclude that this tort contained no specific intent requirement. (Quelimane, supra,
Based on our reading of the Restatement and our discussion in Quelimane of the intent requirement, we reject Lockheed Martin’s argument that the tort of intentional interference with prospective economic advantage contains a requirement that a plaintiff plead and prove that the defendant acted with the specific intent, purpose, or design to interfere with the plaintiff’s prospective advantage. Instead, we agree with the Restatement that it is sufficient for the plaintiff to plead that the defendant “[knew] that the interference is certain or substantially certain to occur as a result of his action.” (Rest.2d Torts, § 766B, com. d, p. 22.)
C.
We caution that although we find the intent requirement to be the same for the torts of intentional interference with contract and intentional interference with prospective economic advantage, these torts remain distinct. We reiterate our statement in Della Penna that “[o]ur courts should . . . firmly distinguish the two kinds of business contexts, bringing a greater solicitude to those relationships that have ripened into agreements, while recognizing that relationships short of that subsist in a zone where the rewards and risks of competition are dominant.” (Della Penna, supra,
We note initially that even though these two torts are distinct, some plaintiffs may be able to state causes of action for both torts. As we stated in Buckaloo, “the tort of interference with contract is merely a species of the broader tort of interference with prospective economic advantage.” (Buckaloo, supra,
Moreover, the existence of a contract does not mean that a plaintiff’s claim must be brought exclusively as one for interference with contract. In Buckaloo, we concluded that the tort of interference with prospective economic advantage “is considerably more inclusive than actions based on contract or interference with contract, and is thus is not dependent on the existence of a valid contract.” (Buckaloo, supra, 14 Cal.3d at pp. 826-827; see id. at p. 823, fn. 6 [“ ‘the basic tort of interference with economic relations can be established by showing, inter alia, an interference with an existing contract or a contract which
As we have made clear in both Della Penna and Quelimane, the distinction between these two torts is found in the independent wrongfulness requirement of the tort of interference with prospective economic advantage. We stated in Quelimane: “Because interference with an existing contract receives greater solicitude than does interference with prospective economic advantage [citation], it is not necessary that the defendant’s conduct be wrongful apart from the interference with the contract itself. [Citation.] [^[] . . . Intentionally inducing or causing a breach of an existing contract is ... a wrong in and of itself. Because this formal economic relationship does not exist and damages are speculative when remedies are sought for interference in what is only prospective economic advantage, Della Penna concluded that some wrongfulness apart from the impact of the defendant’s conduct on that prospect should be required.” (Quelimane, supra, 19 Cal.4th at pp. 55-56.)
Thus, while intentionally interfering with an existing contract is “a wrong in and of itself’ (Quelimane, supra,
Here, KSC has clearly satisfied the independent wrongfulness requirement. In its complaint, KSC alleged that defendant Kim, as an agent for Loral, engaged in bribery and offered sexual favors to key Korean officials in order to obtain the contract from the Republic of Korea. Under the Foreign Corrupt Practices Act, it is unlawful to pay or offer money or anything of value to a foreign official for the purposes of influencing any act or decision of the foreign official, or to induce the foreign official to use his or her influence with a foreign government to affect or influence any act or decision of the government. (15 U.S.C. § 78dd-l(a)(l)(A), (B).) In addition, the complaint alleges that the commissions paid by Loral to Kim exceeded the maximum allowable amounts established by the Foreign Corrupt Practices Act. (15 U.S.C. § 78dd-2(a)(l)(A), (B).) The complaint thus clearly alleges that defendants engaged in unlawful behavior in order to secure the SAR contract. KSC has, therefore, sufficiently alleged that defendants’ acts, in addition to interfering with KSC’s business expectancy, were wrongful in and of themselves.
D.
It is this independent wrongfulness requirement that makes defendants’ interference with plaintiff’s business expectancy a tortious act. Because we have determined that the act of interference with prospective economic advantage is not tortious in and of itself, the requirement of pleading that a defendant has engaged in an act that was independently wrongful distinguishes lawful competitive behavior from tortious interference. Such a requirement “sensibly redresses the balance between providing a remedy for predatory economic behavior and keeping legitimate business competition outside litigative bounds.” (Della Penna, supra,
The independent wrongfulness requirement also differentiates California law from that of other states and the Restatement Second of Torts. Lockheed Martin’s reliance on these authorities is unpersuasive since they require a plaintiff only to plead that the defendant’s interference was improper, and not that the interference was independently unlawful. As we explain, California’s independent wrongfulness requirement more narrowly defines actionable conduct under this tort.
According to the Restatement, there are two requirements for liability under this tort: The interference must be both intentional and improper. A defendant who “intentionally and improperly interferes with another’s prospective contractual relation” is subject to liability. (Rest.2d Torts, § 766B.) The intent requirement, as described above, is that the defendant either desires to bring about the interference or knows that the interference is certain or substantially certain to occur as a result of its action. (Rest.2d Torts, § 766B, com. d, p. 22.) In addition to this
Unlike California, the Restatement Second of Torts does not require a plaintiff to plead that a defendant engaged in an independently wrongful act in order to show “improper” interference. Instead, a general intent plus an actor’s motive or purpose to interfere is enough to subject a defendant to liability under the Restatement. In the absence of an independent wrongfulness requirement, a purpose to interfere with the plaintiff’s business expectancy suffices to distinguish actionable conduct from behavior that is merely competitive, and therefore privileged. The Restatement, however, recognizes that when the defendant’s conduct is innately wrongful, a purpose to interfere may be unnecessary. The Restatement appreciates that the independent wrongfulness of a defendant’s acts may satisfy the “improper” requirement of the tort without the need to look to the motive or purpose behind a defendant’s acts.
Thus, while California does follow the Restatement’s general intent requirement, California law adheres to a narrower interpretation of what conduct is improper under this tort. After Della Penna, supra,
Lockheed Martin’s citation to out-of-state decisions holding that a plaintiff must plead that the defendant acted with a specific intent or purpose to interfere with the plaintiffs economic relations is similarly unpersuasive. Like the Restatement Second of Torts, the cases cited by Lockheed Martin look to a defendant’s motive or purpose to distinguish tortious conduct from lawful behavior. (See, e.g., Ethyl Corp. v. Balter (Fla.Dist.Ct.App. 1980)
We additionally reject Lockheed Martin’s reliance on DeVoto v. Pacific Fid. Life Ins. Co. (9th Cir. 1980)
The DeVoto court, then, determined that a defendant’s motive or purpose to interfere is a necessary element only when the defendant’s conduct is not independently unlawful. After Della Penna, independent wrongfulness has been recognized as a required element of the tort. Therefore, an additional showing of specific intent to interfere is not necessary.
E.
Lockheed Martin additionally argues that a specific intent requirement is necessary to prevent potential plaintiffs with injuries remotely caused by a defendant’s acts from maintaining standing .to sue for this tort. It contends that since KSC is an indirect victim of defendants’ alleged acts of interference, KSC should only be able to state a claim if it can show that Lockheed Martin acted with the purpose of interfering with KSC’s economic expectancy. We disagree. Were we to adopt a specific intent requirement, a plaintiff’s standing would turn on the subjective intent of a defendant who has committed an independently wrongful act. Such a requirement would lead to absurd and unfair results. A defendant who engaged in an unlawful act knowing that it would harm the plaintiffs business interest could escape liability if the defendant acted with the purpose of furthering its own interest, rather than specifically harming the plaintiffs interest. Standing for this tort should not be made to turn on such a consideration.
As support for its argument, Lockheed Martin cites section 767 of the Restatement Second of Torts and argues that a defendant must act with the specific intent of interfering with a plaintiffs business expectancy when the plaintiff is not the direct victim of the interference. We note, however, that section 767 of the Restatement Second of Torts is entitled Factors in Determining Whether Interference is Improper. This section, then, refers to the element of the tort that defines when interference is improper, not to the element that defines the required intent. As stated above, California law does not follow the Restatement’s definition of when interference is improper. Instead, California law defines “improper” more narrowly than the Restatement, allowing recovery only when the defendant’s conduct is independently unlawful.
We further note that even the Restatement, with its broader definition of improper
Contrary to the arguments of Lockheed Martin and the concurring and dissenting opinion, we find no sound reason.for requiring that a defendant’s wrongful actions must be directed towards the plaintiff seeking to recover for this tort. The interfering party is liable to the interfered-with party “when the independently tortious means the interfering party uses are independently tortious only as to a third party. Even under these circumstances, the interfered-with party remains an intended (or at least known) victim of the interfering party—albeit one that is indirect rather than direct.” (Della Penna, supra,
We do not share the concern of Lockheed Martin and the concurring and dissenting opinion that our ruling today will expose defendants to an unlimited number of potential plaintiffs.
First, a plaintiff that wishes to state a cause of action for this tort must allege the existence of an economic relationship with some third party that contains the probability of future economic benefit to the plaintiff. This tort therefore “protects the expectation that the relationship eventually will yield the desired benefit, not necessarily the more speculative expectation that a potentially beneficial relationship will arise.” (Westside Center Associates v. Safeway Stores 23, Inc., supra,
Second, a defendant must have knowledge of the plaintiffs economic relationship. KSC alleges that “Loral acted with full knowledge of the commission relationship between plaintiff and MacDonald Dettwiler.” Again, this element serves to restrict the class of plaintiffs that can state a claim for this tort.
Third, the defendant must have engaged in intentionally wrongful acts designed to disrupt the plaintiffs relationship. As discussed above, this requires a plaintiff to plead (1) that the defendant engaged in an independently wrongful act, and (2) that the defendant acted either with the desire to interfere or the knowledge that interference was certain or substantially certain to occur as a result of its action. Here, KSC alleges that defendants bribed and offered sexual favors to Korean officials, and paid excessive commissions, in violation of the Foreign Corrupt Practices Act. Further, KSC claims that Loral acted “knowing that its interference with the award of the contract on a competitive basis would cause plaintiff severe loss.”
This intent requirement is an appropriate limitation on both the potential number of plaintiffs that may bring a claim under this tort and the remoteness of these plaintiffs to a defendant’s wrongful conduct. At the very least, a defendant must know that its action is substantially certain to interfere with the plaintiff’s business expectancy. This interference becomes less certain as the time frame expands, the identity of potential victims becomes more vague, the causal sequence becomes more attenuated, and the assumption of easy preventability becomes less plausible. If the interference is not certain or substantially certain to occur as a result of the defendant’s acts,
Liability will not be imposed for unforeseeable harm, since the plaintiff must prove that the defendant knew that the consequences were substantially certain to occur. For example, if the president of MacDonald Dettwiler stood to receive a bonus if the company secured the SAR contract, it would be unlikely that Lockheed Martin would have known this with substantial certainty. Here, however, KSC has alleged that defendants had full knowledge of its commission relationship with MacDonald Dettwiler and that KSC would lose its commission if Lockheed Martin secured the contract through anticompetitive means.
Fourth, only plaintiffs that can demonstrate actual disruption of their economic relationship will be able to state a claim for this tort. In this case, KSC sufficiently pleads actual disruption by alleging that it did not receive its expected commission, since MacDonald Dettwiler was not awarded the contract.
Fifth, a plaintiff must establish proximate causation. Specifically, this element requires a plaintiff to show that the economic harm it suffered was proximately caused by the acts of the defendant. Here, KSC claims that MacDonald Dettwiler would have been awarded the contract but for Lockheed Martin’s interference. KSC specifically pleads that MacDonald Dettwiler’s product was superior and that its bid was significantly lower than the bid submitted by Lockheed Martin. KSC also alleges that its own loss of commission from MacDonald Dettwiler was directly caused by Lockheed Martin’s tortious acts. We therefore conclude that KSC has satisfied the proximate cause element. In other cases, however, this proximate cause requirement will prevent a plaintiff from recovering for harm that is more remotely connected to a defendant’s wrongful conduct.
F.
An actor engaging in unlawful conduct with the knowledge that its actions are certain or substantially certain to interfere with a party’s business expectancy should be held accountable. Liability for such actions, which are independently wrongful, should not turn on the subjective intent of the defendant.
We conclude that the Court of Appeal correctly determined that to state a claim for intentional interference with prospective economic advantage, a plaintiff need not plead that the defendant acted with the specific intent to interfere with the plaintiffs business expectancy.
IV.
We reverse the judgment of the Court of Appeal with respect to its holding that
Kennard, Acting C. J., Baxter, J., Werdegar, J., and Rubin, J.,
Notes
In 1996, Loral changed its name to Lockheed Martin Tactical Systems, Inc., and became a subsidiary of Lockheed Martin Corporation, both of which are defendants in the present case. These defendants will collectively be referred to as Lockheed Martin, unless otherwise indicated.
Lockheed Martin Corporation, Lockheed Martin Tactical Systems, Inc., and Linda Kim were named as defendants in the present action.
As in Kraus v. Trinity Management Services, Inc. (2000)
Business and Professions Code section 17200 states: “As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.” All subsequent statutory citations are to the Business and Professions Code, unless otherwise noted.
The parties did not challenge this ruling and so we accept, without deciding, that a claim under the UCL may be predicted on a violation of the Foreign Corrupt Practices Act.
Our discussion in this case is limited to individual private actions brought under the UCL. In public actions, civil penalties may be collected from a defendant. (§ 17206.) Further, in Kraus we noted that the Legislature “has authorized disgorgement into a fluid recovery fund in class actions.” (Kraus, supra,
The concurring and dissenting opinion argues that we should rely on Seaman‘s Direct Buying Service, Inc. v. Standard Oil Co. (1984)
This section states: “One who intentionally and improperly interferes with another’s prospective contractual relation (except a contract to marry) is subject to liability to the other for pecuniary harm resulting from loss of the benefits of the relation, whether the interference consists of [D] (a) inducing or otherwise causing a third person not to enter into or continue the prospective relation or [If] (b) preventing the other from acquiring or continuing the prospective relation.” (Rest.2d Torts, § 766B, p. 20.)
We consider only whether, to state a claim for this tort, a plaintiff need allege that the defendant acted with a specific intent to interfere with the plaintiffs business expectancy. A defendant’s intent, as defined in section 8A of the Restatement Second of Torts, is still a triable issue of fact. (See Quelimane, supra,
The concurring and dissenting opinion contends that the Buckaloo court made other statements indicating that the two torts were mutually exclusive. But it is apparent that each of the statements it quotes in support of this contention, when read in context, are merely made in furtherance of Buckaloo’’s central thesis: that the existence of a contract is not necessary to maintain an action for intentional interference with prospective economic advantage.
We need not in this case further define which sources of law can be relied on to determine whether a defendant has engaged in an independently wrongful act, other than to say that such an act must be wrongful by some legal measure, rather than merely a product of an improper, but lawful, purpose or motive. To the extent that the lower courts have determined otherwise, these decisions are disapproved. (See, e.g., PMC, Inc. v. Saban Entertainment, Inc. (1996)
Contrary to the assertion of the concurring and dissenting opinion, section 767 “applies to each form of the tort,” and is therefore applicable to both interference with contract and interference with prospective economic advantage. (Rest.2d Torts, § 767, com. a, p. 27.)
Further, we find federal cases discussing antitrust and RICO (Racketeer Influenced and Corrupt Organizations Act) law to be inapplicable to the question of whether a plaintiff may state a claim under the California common law tort of interference with prospective economic advantage. The federal antitrust cases cited by the concurring and dissenting opinion address the question of whether the plaintiffs in those cases could maintain standing under section 4 of the Clayton Act (15 U.S.C. § 15). (Associated General Contractors v. Carpenters (1983)
We address only plaintiffs allegations as pleaded in its complaint. We express no view as to whether plaintiffs proof will be sufficient to establish these elements at trial.
As noted above, however, we disagree with the Court of Appeal’s determination that, after Della Penna, supra,
Associate Justice of the Court of Appeal, Second Appellate District, Division Eight, assigned by the Acting Chief Justice pursuant to article VI, section 6 of the California Constitution.
Concurrence Opinion
I concur in the majority opinion.
The majority holds that disgorgement of profits is not an available remedy under California’s unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.) when the action is brought by an individual entity on its own behalf. This conclusion logically follows from this court’s decision in Kraus v. Trinity Management Services, Inc. (2000)
I wrote separately in Kraus, however, because I was troubled by dictum in that case suggesting “ ‘it may be appropriate ... to condition payment of restitution to [nonparty] beneficiaries of a representative UCL action on execution of acknowledgement that the payment is in full settlement of claims against the defendant.’ ” (Kraus, supra,
Concurrence Opinion
I agree with the majority’s conclusion that disgorgement of profits is not a proper remedy where an individual private plaintiff alleges a violation of California’s unfair competition law (Bus. & Prof. Code, § 17200 et seq.) and the requested disgorgement would not be restitutionary in nature. However, I dissent from the majority’s conclusion that recovery for intentional interference with prospective advantage is available to a plaintiff whose alleged injury only indirectly and remotely followed from the defendant’s interference with the prospective economic advantage of a third party with whom the plaintiff had a contractual relationship. Here, plaintiff Korea Supply Company (KSC) alleges that it sustained such remote, indirect, and derivative injury as a result of the interference by defendants Lockheed Martin Tactical Systems, Inc., and Lockheed Martin Corporation (collectively Lockheed) with the prospective economic advantage of MacDonald, Dettwiler, and Associates Ltd. (MacDonald). Thus, in my view, KSC may not state a claim for intentional interference with prospective economic advantage.
I. KSC’s Claim Fails for Lack of a Prospective Economic
Advantage.
As a threshold matter, KSC has improperly brought its claim as one for intentional interference with prospective economic advantage, when it should have brought the claim, if at all, as one for interference with contract. The “first element” of a claim for intentional interference with prospective economic advantage is “an economic relationship between the plaintiff and some third person containing the probability of future economic benefit to the plaintiff.” (Blank v. Kirwan (1985)
In reaching a contrary conclusion, the majority errs factually in stating that KSC does “not allege” that it had a contractual
The majority also errs in asserting that “the existence of a contract does not mean that a plaintiff’s claim must be brought exclusively as one for interference with contract.” (Maj. opn., ante, at p. 1157.) As support for its assertion, the majority cites dictum in Buckaloo v. Johnson (1975)
For several reasons, Buckaloo’s dictum is insufficient to support the majority’s conclusion. First, other statements in Buckaloo contradict the majority’s analysis. Buckaloo explained that the tort of intentional interference with prospective advantage applies where “a prospective economic relationship has not attained the dignity of a legally enforceable agreement . . . .”
Second, the majority’s reliance on Buckaloo’s dictum is also incorrect because the federal decision Buckaloo endorsed did not, as the majority erroneously suggests, state that a claim for interference with contract may be brought as one for intentional interference with prospective economic advantage. Rather, it suggested that these claims should be recognized not as “ ‘separate torts,’ ” but as alternative theories for establishing a single, broader tort called “ ‘interference with economic relations.’” (Buckaloo, supra,
Finally, the other statement from Buckaloo the majority cites—that “ ‘the tort of interference with contract is merely a species of the broader tort of interference with prospective economic advantage’ ” (maj. opn., ante, at p. 1157)—is both imprecise and incorrect. Buckaloo cited several authorities as establishing this proposition, but none of them stated that the tort of interference with contract is a species of the tort of intentional interference with prospective economic advantage. Rather, to the extent they spoke to this question, consistent with the federal decision discussed above, they characterized or analyzed
The discussion of this subject in the Restatement Second, on which the majority heavily relies, fully supports the conclusion that Buckaloo’’s dictum, and the majority’s conclusion based on that dictum, are incorrect. Consistent with the authorities I have already discussed, the Restatement Second explains that interference with contract and “interference with prospective advantage” are separate “form[s]” of the broader subject of “intentional interference with business relations.” (Rest.2d, § 766A, com. b, p. 18; see also id., § 767, com. j, p. 37 [interference with contract and interference with prospective economic advantage are separate “forms of interference with business relations”].) The Restatement Second also explains that, as their names suggest, intentional interference with contract involves only interference with an “existing contract,” whereas intentional interference with prospective economic advantage “is concerned only with intentional interference with prospective contractual relations not yet reduced to contract.'” (Rest.2d, § 766B, com. a, p. 20, italics added.) Thus, the Restatement Second supports the conclusion that because KSC alleges only a loss of benefits under its existing contract with MacDonald, and it had no prospective relationship with the Republic of Korea, its claim for intentional interference with prospective economic advantage fails at the threshold for lack of a prospective economic advantage with which Lockheed allegedly interfered. The majority’s contrary conclusion improperly “blurs the analytical line between interference with an existing business contract and interference with commercial relations less than contractual,” thus “invit[ing] both uncertainty and unpredictability . . . .” (Della Penna, supra,
In its demurrer, Lockheed argued that “the economic relationship [it] allegedly disrupted was MacDonald’s . . . effort to obtain the award of the . . . contract from” the Republic of Korea, and that KSC’s alleged injury was merely “an indirect consequence of’ this alleged disruption. This indirect injury, Lockheed continued, “does not give rise to a claim for intentional interference with prospective economic advantage because [KSC] cannot show that the injury resulted from the disruption of a prospective economic relationship to which [KSC] was a party.” In sustaining the demurrer, the trial court agreed with Lockheed, finding that KSC’s claim failed because it was “secondary and derivative and indirect and [KSC] has found no case from any U.S. state or federal jurisdiction giving cognizance to a comparable secondary or derivative or indirect claim.”
The majority rejects this view and holds that “an indirectly injured plaintiff may state a claim” for intentional interference with prospective economic advantage, and may do so “without pleading that the defendant acted with the purpose to interfere with the plaintiff’s business expectancy.” (Maj. opn., ante, at pp. 1162-1163.) The majority gives scant attention to this issue. It cites no decisions, from California or elsewhere, supporting either its analysis or its holding. The sole authority the majority cites is a portion of comment h to section 767 of the Restatement Second (comment h). The majority states: “Section 767, comment h, of the Restatement [Second], discussing the proximity or remoteness of the defendant’s conduct to the interference, supports our conclusion: ‘This remoteness [between the defendant’s conduct and the plaintiffs injury] conduces toward a finding that the interference was not improper. The weight of this factor, however, may be controverted by . . . the factor of the actor’s conduct if that conduct was inherently unlawful or independently tortious.’ [Citation.] If the defendant’s improper conduct constitutes independently wrongful behavior, the fact that the plaintiff is an indirect victim does not preclude recovery.” (Maj. opn., ante, at p. 1163, fn. omitted.)
For several reasons, comment h is insufficient support for the majority’s conclusion that KSC’s status as “an indirect victim does not preclude recovery.” (Maj. opn., ante, at p. 1163.) First, comment h does not, as the majority suggests, categorically state that a defendant’s commission of an independently wrongful act does overcome remoteness between the defendant’s conduct and the plaintiffs injury. Rather, in decidedly equivocal terms, comment h states that the significance of remoteness “may be controverted . . . perhaps by the factor of the actor’s conduct if that conduct was inherently unlawful or independently tortious.” (Rest.2d Torts, § 767, com. h, p. 36, italics added.) Comment h’s equivocal language does not support the majority’s categorical holding that where a defendant’s conduct is independently wrongful, “the fact that the plaintiff is an indirect victim does not preclude recovery.”
Third, and most important, the Restatement Second’s sections and comments regarding interference with contract and intentional interference with prospective economic advantage do not even purport to address the fundamental question before us: whether Lockheed’s alleged interference is the legal cause of the remote, indirect, and derivative injury KSC alleges. The relevant sections of the Restatement Second state rules for determining whether someone is “subject to liability.” (Rest.2d, §§ 766, 766B.) Under the Restatement Second, “subject to liability” means only that “the actor’s conduct is such as to make him liable for another’s injury, iff in addition, “the actor’s conduct is a legal cause” of the injury. (Rest.2d, § 5, italics added.) “Legal cause,” according to the Restatement, means that “the causal sequence by which the actor’s tortious conduct has resulted in an invasion of some legally protected interest of another is such that the law holds the actor responsible for such harm unless there is some defense to liability.” (Rest.2d, § 9.) Regarding the relationship between these concepts, the Restatement Second explains: “To become liable . . . under the principles of the law of Torts, an actor’s conduct must not only be tortious in character but it must also be a
Our prior decisions discuss similar concepts in tort law. As we have explained, “[p]roximate cause involves two elements. [Citation.] One is cause in fact. An act is a cause in fact if it is a necessary antecedent of an event. [Citation.] . . . [^J] To simply say, however, that the defendant’s conduct was a necessary antecedent of the injury does not resolve the question of whether the defendant should be liable. . . . ‘[T]he consequences of an act go forward to eternity, and the causes of an event go back to the dawn of human events, and beyond. But any attempt to impose responsibility upon such a basis would result in infinite liability for all wrongful acts, and would “set society on edge and fill the courts with endless litigation.” ’ [Citation.] Therefore, the law must impose limitations on liability other than simple causality. These additional limitations are related not only to the degree of connection between the conduct and the injury, but also with public policy. [Citation.] As Justice Traynor observed, proximate cause ‘is ordinarily concerned, not with the fact of causation, but with the various considerations of policy that limit an actor’s responsibility for the consequences of his conduct.’ [Citation.]” (PPG Industries, Inc. v. Transamerica Ins. Co. (1999)
Regarding the more fundamental policy question of legal, or proximate, cause, the majority has little to say. The majority declares that there is “no sound reason for requiring that a defendant’s wrongful actions must be directed towards the plaintiff.” (Maj. opn., ante, at p. 1163.) To do so, the majority suggests, would exclude what a law review article describes as “ ‘the most numerous of the tortious interference cases’ ”—“ ‘those in which the disruption is caused by an act directed not at the plaintiff, but at a third person.’” (Maj. opn., ante, at p. 1163.)
This analysis simply attacks a straw man of the majority’s own creation. Contrary to the majority’s suggestion, no one asserts that we should allow recovery only where the defendant’s wrongful act is “directed towards the plaintiff.” (Maj. opn., ante, at p. 1163.) Rather, the issue here is whether to allow recovery where the wrongful act is not directed towards the plaintiff or towards anyone with whom the plaintiff had a prospective economic advantage. As I have previously explained, Lockheed directed no actions towards either KSC or MacDonald. It directed its actions only towards the Republic of Korea—with which KSC has no prospective economic relationship—and KSC’s alleged injury is only a remote, indirect, and derivative consequence of those alleged acts towards the Republic of Korea. Moreover, contrary to the majority’s suggestion, cases involving such derivative injury are not among those that the cited law review article described as being the “most numerous.” (Perlman, Interference with Contract and Other Economic Expectancies: A Clash of Tort and Contract Doctrine (1982) 49 U. Chi. L.Rev. 61, 106.) According to the article, that category consists of cases in which the defendant’s act of interference was directed towards a third person who was “in a [Relationship with the [p]laintiff.” (Ibid.; see also id. at p. 99.) Again, this is not such a case, because Lockheed’s alleged acts were not directed towards anyone having either an existing or prospective relationship with KSC.
The majority also summarily declares that because, under Della Penna, supra,
Regarding this threshold policy question, and lacking governing California authority, we should follow the substantial body of case law from other courts—including the United States Supreme Court—that deals with analogous causes of action and holds that parties with remote, indirect, and derivative injuries may not recover. The high court has addressed this subject in the context of antitrust law. Consistent with the causation principles I have previously discussed, the high court has explained that although “[a]n antitrust violation may be expected to cause ripples of harm to flow through the Nation’s economy,” “ ‘there is a point beyond which the wrongdoer should not be held liable.’ [Citation.]” (Blue Shield of Virginia v. McCready (1982)
The high court focused on these questions in Associated General, where several labor unions sought damages for an alleged antitrust violation by an employers association. The unions alleged that the employers association illegally “coerced certain third parties ... to enter into business relationships with nonunion firms. This coercion, according to the [unions’] complaint, adversely affected the trade of certain unionized firms and thereby restrained the business activities of the unions.” (Associated General, supra, 459 U.S. at pp. 520-521 [
Notably, in reaching its conclusion, the high court in Associated General expressly relied on common law principles, which are, of course, applicable in the case now before us. The court reasoned: “In 1890, notwithstanding general language in many state constitutions providing in substance that ‘every wrong shall have a remedy,’ a number of judge-made rules circumscribed the availability of damages recoveries in both tort and contract litigation—doctrines
In holding that the unions could not maintain their antitrust action, the high court in Associated General stressed, among other factors, the “indirectness of the [unions’] asserted injury.” (Associated General, supra,
In Illinois Brick, the high court applied similar principles in holding that where the defendant violates the antitrust laws by fixing prices and sells to an entity that passes the resulting overcharges on to its customers, the injuries of the customers resulting from the defendant’s antitrust violation are legally too remote to support recovery. (Illinois Brick, supra, 431 U.S. at pp. 725-729 [97 S.Ct. at pp. 2064-2066].) The court acknowledged that this holding “denies recovery to . . . indirect purchasers who may have been actually injured by antitrust violations.” (Id. at p. 746 [
The high court reaffirmed Illinois Brick in Kansas v. UtiliCorp United, Inc. (1990)
In Holmes v. Securities Investor Protection Corporation (1992)
In reaching its conclusion, the Holmes court began by finding it “unlikely] that Congress meant to allow all factually injured plaintiffs to recover . . . .” (Holmes, supra,
The Holmes court next discussed its application of the proximate cause concept in antitrust cases. Citing Associated General, the court explained that “directness of relationship” between the plaintiffs injury and the defendant’s conduct is one of the “central elements” of “causation” under antitrust law “for a variety of reasons. First, the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiffs damages attributable to the violation, as distinct from other, independent, factors. [Citation.] Second, quite apart from problems of proving factual causation, recognizing claims of the indirectly injured would force courts to adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury from the violative acts, to obviate the risk of multiple recoveries. [Citations.] And, finally, the need to grapple with these problems is simply unjustified by the general interest in deterring injurious conduct, since directly injured victims can generally be counted on to vindicate the law as private attorneys general, without any of the problems attendant upon suits by plaintiffs injured more remotely. [Citation.]” (Holmes, supra, 503 U.S. at pp. 269-270 [112 S.Ct. at pp. 1318-1319].)
Finally, applying these principles to RICO, the Holmes court held that SIPC could not maintain its RICO action. After noting SIPC’s theory of recovery—that SIPC was “subrogated to the rights of those customers of the broker-dealers who did not purchase manipulated securities” (Holmes, supra,
Lower federal courts have applied these principles to preclude recovery for remote, indirect, and derivative injury in several cases that are relevant here because they involved commission relationships, bribes, pendent state claims for interference with prospective economic advantage, and/or allegations of specific intent to harm. In Brian Clewer, Inc. v. Pan American World Airways, Inc. (C.D.Cal. 1986)
On analogous facts, another federal court reached a similar conclusion in Fallis v. Pendleton Woolen Mills, Inc. (6th Cir. 1989)
Another case involving analogous facts is Eagle v. Star-Kist Foods, Inc. (9th Cir. 1987)
Still another relevant application of these remoteness principles occurred in Hawaii Health & Welfare Trust Fund for Operating Engineers v. Philip Morris, Inc. (D.Hawai’i 1999)
Carter v. Berger (7th Cir. 1985)
Finally, among the federal cases, Newton v. Tyson Foods, Inc. (8th Cir. 2000)
Given the overlap between antitrust law and the tort of intentional interference with prospective economic advantage, we should follow these federal decisions and decline to recognize a tort cause of action for plaintiffs, like KSC, that allege only remote, indirect, and derivative injury. Liability for both the tort and an antitrust violation requires an independently wrongful act. Moreover, the purpose of the tort is similar to the purpose of the antitrust laws: to “provid[e] a remedy for predatory economic behavior” while “keeping legitimate
Moreover, a claim for intentional interference with prospective economic advantage by a plaintiff with only remote, indirect, and derivative injuries implicates the same factors the federal courts have cited in precluding antitrust recovery for such injuries. Allowing recovery under these circumstances creates a risk of duplicative recovery. Here, for example, the lost commission KSC seeks to recover represents a percentage of the contract price MacDonald would have paid to KSC had MacDonald obtained the contract. There are, no doubt, others who also stood to gain from the award of the contract to MacDonald and who would have claims to other portions of the contract price. There is “no principled way to cut off a myriad of other indirect claimants” who can each “claim that their business was somehow impacted or adversely affected by” MacDonald’s loss of the contract. (Sharp v. United Airlines, Inc. (10th Cir. 1992)
Indeed, courts applying New York law have reached precisely this conclusion and have held that parties with indirect and remote injuries may not recover for intentional interference with prospective economic advantage. Like California, New York precludes recovery for intentional interference with prospective economic advantage “unless the means employed by [the defendant] were wrongful.” (NBT Bancorp Inc. v. Fleet/Norstar Financial Group, Inc. (1996)
In Piccoli A/S v. Calvin Klein Jeanswear Co. (S.D.N.Y 1998)
In summary, regarding the fundamental policy question of proximate cause, we should adopt the approach of the courts applying federal and New York law and hold that parties who allege only remote, indirect, and derivative injury may not recover for intentional interference with prospective economic advantage. Applying this principle here, KSC’s claim fails because Lockheed’s alleged acts were not directed towards MacDonald or any other third party with which KSC had a prospective economic advantage; they were directed solely towards the Republic of Korea.
The majority’s explanation for disregarding these decisions is demonstrably incorrect. The majority asserts that because the federal antitrust decisions “analy[ze] ... the statutory language of the Clayton Act, as well as its relevant legislative history and objectives,” they are “inapplicable” in determining “standing to bring a claim” for intentional interference with prospective economic advantage, which is governed by the “common law.” (Maj. opn., ante, at pp. 1163-1164, in. 13.) However, the high court’s decisions in both Blue Shield and Associated General conclusively refute the majority’s assertion. In Blue Shield, the court explained that “neither the statutory language nor the legislative history of [the Clayton Act] offers any focused guidance on the question of which injuries are too remote” to support recovery. (Blue Shield, supra,
III. The Majority’s Substantial Certainty Standard Is Incorrect Under Prior California Decisions.
The majority holds that to state a claim for intentional interference with prospective economic advantage, a plaintiff need not “plead that the defendant acted with the specific intent, or purpose, of disrupting the plaintiff’s prospective economic advantage.” (Maj. opn., ante, at p. 1153.) “Instead,” the majority states, “to satisfy the intent requirement for this tort, it is sufficient to plead that the defendant knew that the interference was certain or substantially certain to occur as a result of its action.” (Ibid.)
The majority’s conclusion is incorrect under existing California law. In Seaman’s Direct Buying Service, Inc. v. Standard Oil Co. (1984)
In reaching its conclusion, the majority virtually ignores our holding in Seaman’s
For several reasons, Quelimane is insufficient authority to support the majority’s holding. First, as already noted, Quelimane’s discussion of the intent requirement is dictum because the defendant did not raise this issue. It is dictum for another reason as well] the complaint in Quelimane “allege[d] that ‘defendants . . . ha[d] deliberately, willfully, and intentionally interfered with the [plaintiffs] contractual relations . . . .’ ” (Quelimane, supra,
The majority gives only slightly more consideration to Seaman’s than did Quelimane-, its discussion is as incorrect as it is brief. Relegating Seaman’s to a mere footnote, the majority states that in Della Penna, “we expressly disapproved of’ Seaman’s “to the extent that it was inconsistent with Della Penna.” (Maj. opn., ante, at p. 1155, fn. 7.) The majority’s statement, though accurate (see Della Penna, supra,
Finally, I disagree with the majority’s assertion that its substantial certainty requirement “is an appropriate limitation on both the potential number of plaintiffs that may bring a claim under this tort and the remoteness of these plaintiffs to a defendant’s wrongful conduct.” (Maj. opn., ante, at p. 1165.) As explained in the law review article on which the majority relies, “[e]conomic relationships are intertwined so intimately that disruption of one may have far-reaching consequences. Furthermore, the chain reaction of economic harm flows from one person to another without the intervention of other forces. Courts facing a case of pure economic loss thus confront the potential for liability of enormous scope, with no easily marked intermediate points and no ready recourse to traditional liability-limiting devices such as intervening cause.” (Perlman, Interference with Contract and Other Economic Expectancies: A Clash of Tort and Contract Doctrine, supra, 49 U. Chi. L.Rev. at p. 72, fns. omitted.) However, “if a plaintiff suffering economic loss is required to show that [the defendant] knew of [the plaintiffs] contract or expectancy and purposely disrupted it, the number of successful plaintiffs and the extent of liability are considerably smaller.” (Id. at p. 77, italics added.) Thus, “requiring the plaintiff to show intent by the defendant to interfere with a particular contract” or expectancy would help “distinguish[] the plaintiffs loss from injuries resulting more indirectly from the defendant’s act.” (Id. at p. 76, fn. omitted.) By contrast, the majority’s relaxed substantial certainty requirement does little to narrow the enormous scope of potential liability for harm to economic relationships and offers “no principled way to cut off a myriad of other indirect claimants” who can each “claim that their business was somehow impacted or adversely affected by” MacDonald’s loss of the contract.
IV. Conclusion.
In “[allowing suits by those injured only indirectly,” the majority “open[s] the door to” greatly expanded liability for intentional interference with prospective economic advantage. (Holmes, supra,
Brown, J., concurred.
The majority asserts that these statements were “merely made in furtherance of Buckaloo’’ s central thesis: that the existence of a contract is not necessary to maintain an action for intentional interference with prospective economic advantage.” (Maj. opn., ante, at p. 1158, fn 10.) What the majority fails to understand, and what the statements I have quoted establish, is that this thesis does not, as the majority incorrectly concludes, imply that an action for intentional interference with prospective economic advantage may be brought where there is a valid contract.
Buckaloo also cited Bernhardt, California Real Estate Transactions (Cont.Ed.Bar 1974 supp.) section 5.81. (Buckaloo, supra,
Comment b of section 767 of the Restatement Second makes the same point. In discussing “the interplay between” a defendant’s “motive” and “the nature of [his or her] conduct,” it states, in equivocal terms, that “[i]f the conduct is independently wrongful... the desire to interfere with the other’s contractual relations may be less essential to a holding that the interference is improper.” (Rest.2d, § 767, com. on cl. b, p. 33, italics added.)
As should be clear, I do not, as the majority states, “assert[]” that section 767 of the Restatement Second does not apply to intentional interference with prospective economic advantage. (Maj. opn., ante, at p. 1163, fn. 12.) What I do assert is that given the Restatement Second’s caution that “the weight carried by” the various factors “may vary considerably” with respect to the different interference torts (Rest.2d, § 767, com. a, p. 27), the majority errs in simply assuming that comment h’s discussion of remoteness in the context of interference with contract necessarily applies to the same extent to intentional interference with prospective economic advantage.
Nor does the passage the majority cites from the concurring opinion in Della Penna (maj. opn., ante, at p. 1163) address recovery where the defendant’s alleged act of interference is not directed towards the plaintiff or towards anyone with whom the plaintiff has an existing or prospective economic relationship. (Della Penna, supra,
See also S.W. Suburban Bd. of Realtors v. Beverly Area Plan. Ass’n (7th Cir. 1987)
The significance of the Restatement Second’s discussion is not, as the majority incorrectly suggests (maj. opn., ante, at pp. 1163-1164, fn. 13), diminished by the Restatement Second’s further observation that complete discussion of antitrust law is “outside the scope of the Restatement of Torts.” (Rest.2d, § 768, com. f, p. 43.)
For similar reasons, the court also held that the distributors’ antitrust claim failed as a matter of law. The court explained that the distributors’ injury was “derivative of’ the bottling company’s injury, and that “a party in a business relationship with an entity that failed as a result of an antitrust violation” does “not have standing to bring an antitrust claim.” (G.K.A. Beverage Corp. v. Honickman, supra, 55 F.3d at pp. 766-767.) This rale, the court explained, “follows naturally” from the mle that “ ‘[mjerely derivative injuries sustained by employees, officers, stockholders, and creditors of an injured company do not . . . confer antitmst standing.’ [Citation.]” (Id. at p. 766.)
Apparently, under New York law, instead of showing wrongful means, a plaintiff may alternatively show that the defendant “acted for the sole purpose of inflicting intentional harm on plaintiffs.” (NBT Bancorp, Inc. v. Fleet/Norstar Financial Group, Inc. (1995)
Notably, in the Court of Appeal, even KSC agreed that federal cases addressing “standing under the antitrust laws provide useful guidance ... in determining the reach of the tort of intentional interference with prospective economic advantage." Similarly, the law review article on which the majority relies (maj. opn., ante, at p. 1163) states that “[i]n a business competition setting, antitrust laws . . . may serve as a yardstick for liability,” and it argues for “[¡Incorporating the fluid doctrines of antitrust into an unlawful means test for tortious interference . . . .” (Perlman, Interference with Contract and Other Economic Expectancies: A Clash of Tort and Contract Doctrine, supra, 49 U. Chi. L.Rev. at p. 98, fn. omitted.)
The same is true in the case now before us, because KSC’s complaint alleges that Lockheed “intentionally indue[ed]” the Republic of Korea to award the contract to Lockheed “[i]n order to disrupt” KSC’s relationship with MacDonald. Thus, it is unnecessary to decide whether a complaint alleging only substantial certainty adequately states a claim.
For example, although the majority states that a defendant’s interference “becomes less certain as . . . the identity of potential victims becomes more vague” (maj. opn., ante, at p. 1165), at least one California court has held that recovery is available as long as the plaintiff was “ ‘identified [to the defendant] in some manner,’ ” even if the defendant did not know “of the injured party’s specific identity or name.” (Ramona Manor Convalescent Hospital v. Care Enterprises (1986)
Concurrence Opinion
I agree with the majority that a plaintiff, in order to state a claim for interference with prospective economic advantage, need not plead that a defendant acted with the specific intent to interfere with the plaintiffs business expectancy, and with the reasoning leading to that conclusion. (Maj. opn., ante, at pp. 1141, 1153-1166.) Under compulsion of Kraus v. Trinity Management Services, Inc. (2000)