Tag: tortious interference with prospective economic advantage

ReMax Franchisor Defeats Tortious Interference Claim With Privilege Defense – IL 4th Dist.

The plaintiffs in Byram v. Danner, 2018 IL App (4th) 170058-U, sued after their planned purchase of a Remax real estate franchise imploded.  The plaintiffs missed an installment payment and the defendants responded by cancelling the agreement. Plaintiffs then filed a flurry of tort claims including fraud and tortious interference with contract.

Plaintiffs’ fraud count alleged the defendants lacked Remax authority to sell the franchise and hid this fact from the plaintiffs. The tortious interference claim asserted defendants bad-mouthed plaintiffs to certain agents, causing them to disassociate from plaintiffs.

The plaintiffs sought to recover their franchise fee, their first installment payment and unpaid commissions earned over a 16-month period. The trial court dismissed all of plaintiffs’ claims under Code Sections 2-615 and 2-619.  Plaintiffs appealed.

In finding the trial court properly jettisoned the fraud claim, the court noted that a valid cause of action for fraud requires (1) a false representation of material fact, (2) by a party who knows or believes it to be false, (3) with the intent to induce the plaintiff to act, (4) action by the plaintiff in reliance on the statement, and (5) injury to the plaintiff as a consequence of the reliance.

However, where a contractual provision negates one of the fraud elements, the fraud claim fails. Here, the underlying contract expressly conditioned defendants’ sale of the franchise on Remax accepting plaintiffs as a franchisee. This qualified language precluded plaintiffs from alleging that defendants misrepresented that they had authority from Remax to sell their franchise. (⁋ 43)

The appeals court also affirmed the trial court’s dismissal of plaintiffs’ tortious interference with prospective economic advantage claim.  To prevail on this theory, a plaintiff must plead and prove (1) his reasonable expectation of entering into a valid business relationship, (2) the defendant’s knowledge of the plaintiff’s expectancy, (3) purposeful interference by defendant that prevents plaintiff’s legitimate expectation from coming to fruition, and (4) damages to the plaintiff.

The ‘purposeful interference’ prong of the tort requires a showing of more than interference.  The plaintiff must also prove a defendant’s improper conduct done primarily to injure the plaintiff.  Where a defendant acts to protect or enhance his own business interests, he is privileged to act in a way that may collaterally harm another’s business expectancy.  Where a defendant invokes a privilege to interfere with a plaintiff’s business expectancy, the burden shifts to the plaintiff to show that the defendant’s conduct was unjustified or malicious.  (¶ 46)

The Court found defendants’ actions were done to protect the future success of their real estate franchise and listings.  Since plaintiffs failed to plead any specific facts showing defendants’ intent to financially harm the plaintiffs, dismissal of the tortious interference count was proper.

The Court reversed the dismissal of plaintiff’s breach of contract claims, however. This was because the affidavit filed in support of defendant’s Section 2-619 motion didn’t qualify as affirmative matter.  An affirmative matter is any defense other than a negation of the essential allegations of the plaintiff’s cause of action.  Affirmative matter is not evidence a defendant expects to contest an ultimate fact alleged in a complaint.

Here, defendants’ Section 2-619 affidavit effectively plaintiffs’ allegations were “not true:” that defendants didn’t owe plaintiffs any commissions.  The Court found that a motion affidavit that simply denies a complaint’s material facts does not constitute affirmative matter. (¶¶ 56-59)

Afterwords:

Byram provides a useful summary of the relevant guideposts and distinctions between section 2-615 and 2-619 motions to dismiss. Where a supporting affidavit merely disputes plaintiff’s factual allegations, it will equate to a denial of the plaintiff’s allegations. Such an affidavit will not constitute proper affirmative matter than wholly defeats a claim.

The case also provides value for its discussion of the Darwinian privilege defense to tortious interference. When a defendant acts to protect herself or her business, she can likely withstand a tortious interference claim by a competitor – even where that competitor is deprived of a remedy.

Unjust Enrichment – For When the Handshake Deal Goes Bad

An imploded business arrangement for importing and then selling Christmas decorations sets the stage for the Northern District’s (IL) analysis of a slew of signature commercial litigation issues in Sunny Handicraft, Inc. v. Envision This!, LLC, 2015 WL 231108. 

While the case only involves a ruling on a 12(b)(6) pleadings motion, it’s still post-worthy for its discussion of some important and recurring issues that arise in breach of contract lawsuits.

The plaintiff ornament maker entered into an agreement with defendants – a buyer (“Buyer”) and end-retailer (“Retailer”) of the decorations, respectively – for about $3.5M worth of Christmas-themed merchandise. Plaintiff sued when the defendants failed to pay.

The Buyer, for its part, counter-sued the plaintiff to recoup unpaid advertising costs and miscellaneous shipping charges. The Retailer moved to dismiss several complaint counts and the plaintiff moved to dismiss the purchaser defendant’s counterclaims.

Granting the Retailer’s motion to dismiss the unjust enrichment count, the court pronounced that unjust enrichment  is a ‘quasi-contract’ theory where a court implies a contract in order to prevent unjust results. 

An unjust enrichment plaintiff must allege that defendant has unjustly retained a benefit to the plaintiff’s detriment and that retention violates fundamental principles of equity, justice and good conscience.

But a party can’t claim unjust enrichment where an express contract governs the parties’ relationship. A plaintiff can, however, plead unjust enrichment as an alternative theory to a breach of contract claim as long as the plaintiff doesn’t incorporate the express contract allegations into its unjust enrichment ones.

Generally, a court will not impose unjust enrichment liability against a third party that receives a benefit from the plaintiff’s agreement with another party. So, if x and y have a contract, x normally won’t be able to sue z just because z happens to benefit from x’s services. 

The only time a third party can be liable for unjust enrichment is where the plaintiff can show that the plaintiff had a reasonable expectation of being paid by the third party. *4.

The court granted the Retailer’s motion to dismiss the plaintiff’s unjust enrichment claim and denied the plaintiff’s motion to dismiss the Buyer’s unjust enrichment counterclaim.  On the former claim, the plaintiff failed to allege any conduct by the Seller that would lead plaintiff to have a reasonable expectation of being paid by the Seller.

Plaintiff’s conclusory allegation that the Retailer “was aware” that Plaintiff expected payment was too bare to survive dismissal.  The plaintiff was required to plead specific conduct by the Retailer that could lead plaintiff to reasonably expect payment.

The court did allow the Buyer’s unjust enrichment counterclaim to proceed.  The Buyer pled unjust enrichment in the alternative to its breach of contract count and alleged that it conferred a measurable benefit – marketing services and paid shipping expenses – on the plaintiff and that the plaintiff’s retention of the Buyer’s services without paying for them was unfair.

Afterwords:

– Unjust enrichment is viable alternative claim even where there is an express contract that governs;

– A plaintiff can implicate a third party in an unjust enrichment case where he can offer evidence or plead facts that demonstrate the plaintiff had a reasonable expectation of being paid by the third party.

Defamation Law: The Qualified Privilege Defense (N.D. Ill.)

webIn Tamburo v. Dworkin, 2013 WL 5408540 (N.D.Ill. 2013), an Internet libel case, the Illinois Northern District examined the nature and reach of the qualified privilege and truth defenses to defamation claims filed by a software company against a defendant that made disparaging comments about the company on web message boards.

Facts:  Defendant, a professional dog breeder, created a website that provided free canine pedigree information to the dog-breeding community.  Plaintiffs created a Data Mining Robot that “harvested” defendant’s site data, packaged it and sold it to the public.  Defendant, irate that plaintiffs took defendant’s dog data without  permission, accused plaintiffs of stealing the pedigree information.  Plaintiffs sued for defamation and tortious interference with contract and prospective economic advantage.  Defendant moved to dismiss all counts of the complaint.

Holding: Defendant’s Rule 12(b)(6) motion to dismiss is granted.  All claims dismissed.

Reasoning:

The plaintiffs alleged that defendant’s venomous posts caused plaintiffs to fall into disrepute in the business community.  An Illinois defamation plaintiff must allege (1) a false statement about the plaintiff, (2) published to a third party, (3) that causes damage to the plaintiff.  *8. 

If its defamation per se (imputing commission of crime, infection with a loathsome disease, incompetence or lack of integrity in employment, adultery or fornication), the plaintiff doesn’t have to show special damages.  Common defamation defenses include truth, that the statement is capable of an innocent construction, the statement is an opinion (not factual), and the challenged statement is “rhetorical hyperbole.” *8.

Qualified Privilege Defense

Another defamation defense is the qualified privilege defense.  This applies where a statement implicates a legitimate interest of the speaker/publisher or an interest of the recipient of the statement/publication.  A prototypical example is a false statement that involves matters of important public concern.  

To defeat a qualified privilege defense, the defamation plaintiff must show (a) the statement was false; and (b) the defendant abused the privilege by intentionally publishing the falsehood or by displaying a “reckless disregard” concerning the statement’s truth or falsity.  Reckless disregard means the defendant “entertained serious doubts” about the truth of the statement yet failed to properly investigate its truth.  *11. 

The court held that defendant’s statements that plaintiffs’ principal was unethical and deceitful, while defamatory per se, were still non-actionable statements of opinion protected by the First Amendment.  In addition, defendant’s statements that plaintiffs stole (committed “theft”) defendant’s data and was engaged in “hacking” were substantially true: plaintiffs’ web trolling Robot did swipe data from defendant’s website without permission and later sold it for a profit.  *9,

The defendant also had a legitimate interest in protecting her time investment in compiling the pedigree information and there was a public interest in protecting private information from unconsented Web harvesting.  The Court also found that plaintiffs produced no evidence that defendant abused the qualified privilege by making the theft accusations recklessly or indiscriminately publishing them to unnecessary recipients.  *10, 13.

Finally, the Court found that defendant’s statement that the plaintiffs “took” defendant’s data and was “holding it hostage” were not actionable since the former statement was reasonably susceptible to an innocent construction (defendant didn’t literally mean that plaintiff removed the information from defendant’s site) and the latter “held hostage” statement was pure rhetorical hyperbole.  *15-16.

Case Lessons: It’s hard to prove defamation.  A defamation defendant has a varied arsenal of defenses including truth, innocent construction, opinion vs. fact and rhetorical hyperbole, among others.  The qualified privilege defense will apply where a defendant can show that he has a legitimate interest in the subject matter of the statement or if the statement implicates an important public policy interest.  In Tamburo, there an undercurrent (my interpretation) of the Court viewing plaintiffs’ practices as unfair: swiping or “scraping” the fruits of defendant’s labor (information compiled over a five-year period and provided free of charge to the pubic) and then trying to profit from it.