MICHAEL J. BETTS LLC
Commercial Litigation, Securities Litigation and Dispute Resolution Services in Pittsburgh, PA
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Business Torts

Business Torts

proficient in handling trade secret misappropriation claims, any professional or account malpractice , negligence or non complete agreement claims

Pennsylvania and federal law provide that in certain circumstances claims may be asserted for “business torts,” i.e., claims to recover for economic injuries to businesses.  Examples of business torts include:

Common Law Fraud.  Claims for fraud may be based on misrepresentations or nondisclosures.  Under Pennsylvania law, the elements of a claim for common law fraud are:  (1) a representation; (2) that is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) the resulting injury was proximately caused by the reliance.  The plaintiff in a fraud claim must prove these elements by clear and convincing evidence (rather than the “preponderance of the evidence” standard that applies to most civil litigation claims).

Tortious Interference with Contractual and Prospective Contractual Relations.  The torts of intentional interference with existing contractual relationships and interference with prospective contractual relations are described by Sections 766 and 766B of the Restatement (Second) of Torts.  The Pennsylvania Supreme Court adopted Section 766 in Adler, Barish, Daniels, Levin & Creskoff v. Epstein, 393 A.2d 1175 (Pa. 1978). Section 766 provides that one who intentionally and improperly interferes with the performance of a contract between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.  Under Pennsylvania law, the required elements of the cause of action are (1) the existence of a contractual relationship between the complainant and a third party; (2) an intent on the part of the defendant to harm the plaintiff by interfering with that contractual relationship; (3) the absence of privilege or justification on the part of the defendant; and (4) the occasioning of actual damage as a result of defendant's conduct.

Misappropriation and Conversion of Trade Secrets and Other Business Assets.  Claims relating to the misappropriation of trade secrets are generally brought under the Pennsylvania Uniform Trade Secrets Act (PUTSA).  Please see the discussion of PUTSA, as well as the federal Defend Trade Secrets Act, in our Trade Secrets and Restrictive Covenants Litigation page.  Although PUTSA preempts certain common law claims, claims for misappropriation, conversion and other common law claims may be asserted in certain circumstances, when a business’s trade secrets or other business assets are misappropriated.

Breach of Fiduciary Duties, Including the Duty of Loyalty.  Fiduciary relationships may be formed under various circumstances.  When a person or entity stands in a fiduciary relationship with a business and causes harm to the business through wrongdoing, a claim for breach of fiduciary duties may lie on behalf of the business.  Pennsylvania courts have recognized that employees of businesses owe fiduciary duties to their employers, including a duty of loyalty.  The duty of loyalty derives from the agent-principal relationship.  An agent owes a duty of loyalty to the principal, and in all matters affecting the subject of his agency, the agent must act with the utmost good faith in the furtherance and advancement of the interests of the principal.  Under certain circumstances, the duty of loyalty owed by an employee can survive termination of the employment relationship – i.e., a former employee can be regarded as owing a continuing duty of loyalty to the former employer with regard, for example, the nondisclosure of the former employer’s confidential information.

Aiding and Abetting a Breach of Fiduciary Duty.  Pennsylvania law recognizes a cause of action for aiding and abetting a breach of fiduciary duty.  The Restatement (Second) of Torts § 876 sets out the elements of such a claim and provides that one can be liable for aiding and abetting for harm caused to a third person when he or she:  (1) does a tortious act in concert with another or pursuant to a common design; or (2) knows that another person’s conduct constitutes a breach of duty to the third person and gives substantial assistance or encouragement to the other to so conduct himself or herself; or (3) gives substantial assistance to another person in accomplishing a tortious result and his or her own conduct, separately considered, constitutes a breach of duty to the third person.

Wrongful Procurement and Conversion of Business Information.  This claim may be asserted alternatively to a claim under PUTSA for misappropriation of trade secrets, and may apply, despite PUTSA preemption, when the misappropriated information does not rise to the level of a trade secret.  Under Pennsylvania law, to establish a claim for conversion of confidential information, a plaintiff must show that the defendant, for the purpose of advancing a rival business interest, procures by improper means information about the plaintiff’s business and that harm was caused by the defendant’s possession, disclosure or use of the information.

Professional Negligence.  Many claims for negligence in the commercial litigation context will be barred by the gist of the action doctrine or the economic loss doctrine (see below).  However, certain claims, including professional negligence claims, may be pursued under certain circumstances despite these doctrines.  Judge Maurice B. Cohill, Jr. of the United States District Court for the Western District of Pennsylvania discussed the law in this area in the case of Sherman v. John Brown Insurance Agency, Inc., 38 F. Supp. 3d 658 (W.D. Pa. 2014)

Trade Disparagement/Lanham Act/Defamation.  In certain circumstances businesses may assert claims for trade disparagement and defamation.  The Pennsylvania Judicial Code, at 42 Pa.C.S. § 8343(a), sets forth the required elements of defamation claims.  In addition, certain types of disparagement claims can be asserted under the Lanham Act, a federal statute found at 15 U.S.C. § 1125.  The Act imposes civil liability on “[a]ny person who … uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any … false or misleading description of fact, or false or misleading representation of fact, which … in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.” 

Unjust Enrichment.  Claims may be asserted to recover damages from a defendant who has been unjustly enriched, to the detriment of the plaintiff.  To establish unjust enrichment, a plaintiff need demonstrate three elements:  (1) benefits conferred on defendant by plaintiff; (2) appreciation of such benefits by defendant; and (3) acceptance and retention of such benefits under such circumstances that it would be inequitable for defendant to retain the benefit without payment of value.

Unfair Competition.  Section 1 of the Restatement (Third) of Unfair Competition recognizes several specific categories of commercial behavior that give rise to a claim of unfair competition, including:  (1) deceptive marketing; (2) infringement of trademark and other protectable intellectual property rights; (3) misappropriation of trade secrets and other intangible trade values; and (4) acts or practices that are actionable under federal or state statutes.  Also included in the Restatement is a "catch-all" or "residual" category which includes "other acts or practices determined to be actionable as an unfair method of competition, taking into account the nature of the conduct and its likely effect on both the person seeking relief and the public."  The Pennsylvania Supreme Court has not expressly adopted the Restatement's definition of unfair competition, but other Pennsylvania courts have recognized causes of action for unfair competition based the Restatement categories, and the Eastern District of Pennsylvania has cited the Restatement's "catch-all" provision as a basis for a cause of action for common law unfair competition.

Civil Conspiracy.  Civil conspiracy is a tort recognized under Pennsylvania law, and is a cause of action frequently asserted in commercial litigation matters.  To state a cause of action for civil conspiracy, the plaintiff must demonstrate:  (1) a combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by unlawful means or for an unlawful purpose; (2) an overt act done in pursuance of the common purpose; and (3) actual legal damage.

 

Business tort claims governed by Pennsylvania law often implicate two doctrines that have been used by the courts to narrow the availability of such claims.  The gist of the action doctrine is frequently invoked by defendants in seeking dismissal of business tort claims when the parties are, or were, in a contractual relationship and the claims are based on factual allegations that arise out of that relationship.  Similarly, the economic loss doctrine generally provides that there is no cause of action for negligence that results solely in economic damages unaccompanied by physical or property damage.  The doctrines are subject to various exceptions.

The Pennsylvania Supreme Court explored the contours of the gist of the action doctrine in the case of Bruno v. Erie Insurance Co., 106 A.3d 48 (Pa. 2014).

 

For additional information about the services provided by Michael J. Betts LLC related to claims involving business torts, please contact Mr. Betts by telephone at 412-397-9933 or via email mbetts@bettsllc.com

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