Economic torts

In common law countries (such as the United States), an economic tort, resulting from business transactions, is one in which the legal injury suffered involves economic losses rather than physical harm. In the United States, typical economic torts include tortious interference, fraud, conspiracy, and restraint of trade. Because the American common-law tradition departed from English common law at an early point in the development of American industrialism, the common-law system of torts is fairly skeletal in its address of industry and the business world, compared to its treatment of disputes between individuals. As a result, most relevant law governing business is statutory rather than common, with large bodies of antitrust, labor, intellectual property, and occupational safety laws, for instance, having been adopted in the twentieth century. But economic torts, though they may be a smaller one than others, remain an important area of law.

Background

The legal system both of the individual states (apart from Louisiana, which uses France’s code law system) and the federal government is based on the common-law system inherited from the English colonial days. Common law relies on the precedential effect of previous case law that is, the decisions courts make in one case inform the cases future courts make in similar cases, and form a growing body of law. While the federal government is not able to define new common-law crimes, state legislatures have the power to define new causes of action for torts. A cause of action is a set of conditions that must exist in order for a plaintiff to make a pleading, a statement of their case against a defendant. Common law or statutory law, as the case may be, defines specific elements that must be provided for each cause of action, such as for the tort of fraud.

A tort is any civil wrong that results in loss or harm to another party. The distinction is important primarily because some civil wrongs, such as breach of contract, do not require that loss or harm occur. The party who allegedly committed the tort is known as the "tortfeasor," and is typically the defendant in a tort case, while the party who allegedly suffered from the tort is known as the injured party and is typically the plaintiff.

In American law, torts fall broadly into three categories: intentional torts, such as fraud; negligence, in which the tortfeasor’s act or failure to act resulted in reasonably foreseeable but unintended harm; and strict liability torts, in which the defendant is held liable for injuries resulting from their activities even when they are not negligent, due to the special hazardous nature of those activities or specific legal statutes. Most strict liability torts arise from hazardous materials or laws to protect the environment, but some deal with copyright or trademark infringement.

Most economic torts are intentional torts. To prove that an economic tort was intentional, plaintiff’s lawyers must demonstrate the following elements: intent, act, damages/result, and causation. Lawyers for the plaintiff must prove that (1) the tortfeasor acted with intent, and knew their actions would result in harm or loss to the injured party; (2) the tortfeasor’s act was unlawful and voluntary; (3) the injured party suffered damages, an economic loss, as a result; and (4) the tortfeasor’s actions were the cause of the loss.

Overview

The loss suffered in economic torts is usually "pure economic loss," a legal term meaning that the financial losses that have been suffered can be shown only on paper, and do not result from the theft or destruction of property. For instance, in a case of fraud, the injured party has not lost any property but has lost the amount of money for which they were defrauded. While that amount would be easy to establish, a more difficult one is when the tortfeasor has induced a third party to breach their contract with the injured party in which the contract was for an ongoing business arrangement that provided an income to the injured party. With the arrangement ended, establishing the injured party’s loss means determining how much future income has been denied to the injured party by the third party because of the tortfeasor’s actions.

Efforts at tort reform are motivated by those who wish to limit the cases in which plaintiffs can sue over purely economic losses and the amounts for which they can sue. Those in favor of reform argue the ability to sue over the loss of hypothetical future incomes has made plaintiffs too litigious, especially when the defendants are large businesses with the ability to pay out large amounts of money in settlements, damages, fees, or other compensation; having to insure against these liabilities increases the cost of doing business. Those against reforming economic tort laws argue that making it harder for injured parties to sue tortfeasors will erode legal protections against economic torts.

Fraud is perhaps the most commonly known economic tort, and is among the most underreported crimes in the United States. There are numerous kinds of fraud, all of which have in common the attempt to deceive in order to deprive the victim of something. Many high-profile fraud cases are criminal, with the fraud treated as a crime rather than a tort, but some are civil, such as the 2012 and 2015 lawsuits against pharmacy chain Walgreens for overbilling the federal health care programs Medicare and Medicaid. Walgreens settled the lawsuit in 2019, paying about $200 million to the US government.

Civil conspiracy (as distinguished from criminal conspiracy) is an economic tort in which two or more parties collude to deceive a third party or deprive them of a legal right. One of the best-known civil conspiracy suits in the United States is the 1994 suit by forty-six US states, Puerto Rico, and Washington, DC, against the largest cigarette manufacturers in the country. The states were suing for reimbursement of tobacco-related health care costs on the grounds that the companies had conspired to deceive the public about the health effects of smoking. The manufacturers agreed, in what is known as the Master Settlement Agreement, to make annual payments to the participating states in perpetuity and to restrict cigarette advertising in return for being released from future legal claims relating to medical costs.

Restraint of trade is a common-law tort that forms the basis for modern laws protecting fair competition, such as the Sherman Antitrust Act; in essence, contracts between business partners have limits on the extent to which either party can restrain the other party’s ability to conduct trade. Price-fixing is one of the most common kinds of restraint of trade. Like fraud, price-fixing can be prosecuted as a criminal offense, but civil suits regarding price-fixing are still filed, especially as class-action lawsuits. Sometimes, these lawsuits can be filed by a single party or a government actor; for example, in 2022, the attorney general of California filed a price-fixing lawsuit against online retailer Amazon, accusing the company of coercing and incentivizing third-party sellers into anticompetitive price agreements.

Commercial disparagement is an economic tort in which the offending party has made false statements disparaging the quality of a business's goods or products, resulting in the loss of business. If the statement is oral, the tort is slander; if the statement is written, it is trade libel. In 1996, the auto maker Suzuki sued Consumer Union, publisher of the magazine Consumer Reports, over a negative review of the Suzuki Samurai SUV that claimed the car rolled over easily. Suzuki alleged that the tests had been rigged, a claim supported by video footage of the magazine's tests of the automobile and testimony of a former employee of Consumer Union, and that therefore the magazine's sales-damaging review was a deliberate falsehood. In the 2004 settlement, Consumer Reports did not pay Suzuki or fully retract the review, but did publish a "clarification" stating that they had not intended to suggest that the car would tip over under normal driving conditions.

Tortious interference, or intentional interference with contractual relations, covers two areas of intentional interference by the tortfeasor with the relationship between the plaintiff and a third party: interference with a contract, and interference with a business relationship (regardless of whether a contract is involved). In either case, interference results when the tortfeasor intervenes in order to convince the third party to breach the contract or end the relationship, acts to interfere with the third party’s ability to carry out their contractual obligations, or convinces a third party not to enter into a contract or not to do business with the plaintiff. It is of course important to demonstrate intent, and with tortious interference, intent can be particularly difficult to establish, although the burden of proof varies by state.

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