July 7, 2015

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Intentional Interference

Utah Supreme Court Clarifies the Boundaries of Lawful Competition

By Christian D. Austin

July 7, 2015

For several decades, business owners have been required to tread carefully when dealing with competitors, lest they run afoul of laws which make competition, or “intentional interference with economic relations” an actionable civil tort if done with “improper purpose” or through “improper means.” However, determining what constitutes an “improper purpose” has proven difficult.

Recently, the Utah Supreme Court stepped in to provide much-needed clarity for businesses by entirely eliminating “improper purpose” as a basis for supporting a claim of intentional interference with economic relations, leaving only “improper means” (typically, unlawful conduct) as a basis for such claims.

It is generally perfectly legal for a party to breach a contract. While the breach may give rise to a claim for damages caused by the breach, the breach itself it is not typically considered an independent, actionable tort. However, when a party intentionally engages in conduct that interferes with someone’s ability to conduct business with others, such action can give rise to claim for damages caused by the conduct.

Because any competition in business could be said to, by its very nature, impair a competitor’s ability to conduct business with others, courts have placed limitations on the types of conduct that cross the line from mere competition to tortious interference.

Ill Will

The seminal case in Utah establishing the elements of a claim for intentional interference with economic relations is Leigh Furniture & Carpet Co. v. Isom, which was decided in 1982. In that case, Leigh Furniture and Carpet Co., owned by “Dub” Leigh, sold a furniture business in St. George to T. Richard Isom. Under the 10-year contract, Isom leased the first floor of the building the store occupied and had an option to purchase the entire building, including the second floor, which consisted of 17 apartments.

One year into the contract, Leigh determined that he wanted to sell the building, but found that difficult due to Isom’s long-term lease and purchase option. In an attempt to rid himself of Isom’s lease and purchase option, Leigh engaged in a four-year continuous pattern of harassment that included visiting the store in person at least once a week making demands and accusations that Isom was in default under the contract, and writing numerous letters criticizing Isom’s operation of the business and maintenance of the property, and threatening eviction. At the same time, Leigh brought multiple lawsuits, both of which were decided in favor of Isom. This strategy was ultimately successful in demoralizing Isom and his employees and upsetting his operation of the business, and in 1975 Isom was forced to abandon the business and declare bankruptcy.

Isom later sued Leigh, stating a claim for intentional interference with prospective economic relations. The Utah Supreme Court sustained a jury verdict awarding damages, including punitive damages, against Leigh. In doing so, the Court explained that Leigh’s conduct could be considered tortious if his efforts to impair the success of Isom’s business were done primarily for the “improper purpose” or improper motive of driving Isom out of business due to ill will and animosity between the parties, not simply to further Leigh’s own economic interests.

Perceived Motive

Permitting a claim for tortious interference with prospective economic relations based solely on a party’s perceived motive introduces significant uncertainty in determining when activity and competition that would otherwise be lawful becomes unlawful. Discerning a party’s motive can be very difficult and is often heavily reliant on the testimony of witnesses rather than objective facts. Particularly in the rough-and-tumble of free-market competition, it can be extremely difficult for a party, or a jury, to determine whether competitive conduct is driven primarily by malice as opposed to furthering the party’s own legitimate economic interests. 

Due to these concerns about the unpredictability and uncertainty surrounding proper versus improper motive, in the 2015 case of Eldridge v. Johndrow the Utah Supreme Court eliminated “improper purpose” as an independent basis for a claim for intentional interference with economic relations. Instead, the court held that such a claim could succeed only if a party’s interference was accomplished through “improper means.” While motive is not entirely irrelevant to this inquiry, this standard focuses primarily upon the nature of a party’s conduct, and in particular whether the conduct itself was contrary to law, such as violations of statutes, regulations or recognized rules. Accordingly, it relies heavily upon objective facts as opposed to subjective evidence, making it significantly easier for parties, lawyers, judges and juries to determine both before and after the fact whether the conduct is tortious.

In short, under this new legal standard, “a person who violates no legal duties, infringes no one’s rights, and commits no wrongful action can never be held liable for malice alone.” This should be viewed as a welcome change, and should serve to promote, rather than impair, the free flow of commerce and competition.

Christian D. Austin works in the law firm of Fabian Clendenin and has represented a broad range of clients in lawsuits, most often involving contract disputes, commercial development and real estate, and commercial torts. Austin may be reached at caustin@fabianlaw.com.

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