Business Torts: Getting Into and Out of Legal Trouble

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Join attorney Hooman Yavi for an overview of the four main types of business torts and what they entail. During this video conversation, Hooman also provides examples of business torts as they have played out in the real world.

What Are Business Torts?

Business torts are wrongful acts against businesses that have or are likely to cause economic loss. Offenses may be intentional, or due to negligence or recklessness, and can be committed by another business or an individual. Impacted businesses can seek monetary damages in civil court.

There are four main types of business torts that businesses should be aware of:

  • Fraud.
  • Defamation (libel/slander).
  • Misappropriation of trade secrets.
  • Intentional (negligent) interference with economic relations.

Fraud

Fraud may have occurred if all the following conditions are met:

  1. Misinformation was represented as fact.
  2. The defendant knew the information was false at the time that they made the representation.
  3. The representation was made to induce the plaintiff to act, or not to act, based on their reliance on the false information provided.
  4. The plaintiff was damaged by on acting on the false information.

Oral, written, or non-verbal conduct can be considered a representation for the purposes of fraud. The information shared must be typically considered fact. An argument cannot be made that the statement was opinion. Additionally, the plaintiff must actually and reasonably rely on the representation.

Another type of fraud is when a defendant purposefully fails to disclose a fact. In this case, the plaintiff must prove that:

  • They had no knowledge of the concealed fact.
  • The defendant excluded the fact to mislead the plaintiff.
  • The plaintiff would have acted differently if they had known the fact.
  • The plaintiff was harmed by the defendant concealing the fact.

The last type of fraud is the most difficult to prove. It occurs when a defendant presents a fact to the plaintiff, but the representation of the fact was untrue. The defendant may have honestly believed they were being truthful and did not intend to mislead. The key factor in this type of fraud case is that the defendant intended that the plaintiff rely on this representation of the facts. The plaintiff was harmed by relying on the defendant’s representation.

Defamation

Defamation is defined as a false statement of fact about a plaintiff or a plaintiff’s business that has caused financial harm. The two types of defamatory statements are libel, or written statements, and slander, or spoken statements.

While standards for a defamation claim may vary by state, there are certain elements that are common across states:

  1. Publication of a false statement of fact.

The defendant made a false statement about the plaintiff which they presented as fact. The plaintiff must prove that the statement is false, and that the defendant was indeed referring to their business.

Additionally, to qualify as defamation, the statement must be made public through publication in a newspaper, online posting, or otherwise.

  1. Fault.

The defendant is at fault. The standard for fault varies by state. However, in a business defamation case, often the defendant must have either known the statement was false, or recklessly disregarded whether the statement was false.

  1. Privilege.

The person making the statement has a right to make it without incurring defamation claims. This includes judicial proceedings, political broadcasts or speeches, and more.

  1. Damage to economic interests.

The plaintiff must show that the defamatory statements caused financial harm to their business. An example of financial harm could be that the business lost opportunities due to the defamatory statements.

Misappropriation of Trade Secrets

For a trade secrets-related case, the plaintiff must be the rightful owner or licensee of an alleged trade secret. A trade secret is a piece of information that is secret, had independent economic value because it was secret, and the plaintiff made efforts to keep the information secret. Employees must have been instructed to keep the secrets, and it should not be known to the public.

Misappropriation is the improper acquisition, use, or disclosure of the trade secret. The defendant’s misappropriation must have caused harm. The plaintiff must prove all the following:

  1. That the plaintiff owned/was a licensee of the following: each item claimed, by plaintiff, to be a trade secret that is subject to the misappropriation claim.
  2. That the item(s) were trade secret(s) at the time of the misappropriation.
  3. That the defendant improperly acquired, used, or disclosed the trade secret(s).
  4. That the plaintiff was harmed, or the defendant was unjustly enriched.
  5. That the defendant’s acquisition, use, or disclosure was a substantial factor in causing the plaintiff’s harm or the defendant to be unjustly enriched.

Intentional Interference with Economic Relations

In an intentional interference with economic relations case, the plaintiff claims that the defendant intentionally breached contract with the plaintiff. All the following must be proven:

  1. There was a contract between the plaintiff and a noted third party.
  2. The defendant knew of the contract.
  3. The defendant intended to cause the noted third party to breach the contract.
  4. The defendant’s conduct caused the noted third party to breach the contract.
  5. The plaintiff was harmed.
  6. The defendant’s conduct was a substantial factor in causing the plaintiff’s harm.

In an intentional interference with a contract case, the plaintiff claims that the defendant intentionally interfered with a contract between the plaintiff and a third party. All the following must be proven:

  1. There was a contract between the plaintiff and the identified third party.
  2. The defendant knew of the contract.
  3. The defendant’s conduct prevented performance or made performance more expensive or difficult.
  4. The defendant intended to disrupt the performance of this contract or knew that disruption of performance was certain or likely to occur.
  5. The plaintiff was harmed.
  6. The defendant’s conduct was a substantial factor in causing the plaintiff’s harm.

Conclusion

Protect your business interests with a skilled legal professional on your side. Contact your trusted Chugh, LLP attorney for help navigating legal compliance issues that affect your business.

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