Interference with Economic Advantage

Protecting your Business’ Reasonable Expectation of Prospective Business Relationships and Economic Advantage

seniors man writing

The Common Law Claim – Wrongful Interference with Business Relationships

Until March, 2014 Minnesota had not formally recognized a claim for tortious interference with prospective economic advantage. A common law claim, its roots can be traced to three important Minnesota state cases, Witte Transportation Company v. Murphy Motor Lines, Inc. 193 N.W.2d 148 (Minn. 1971) (acknowledging claim for wrongful interference with non-contractual business relationships); Wild v. Rarig, 234 N.W.2d 775 (Minn. 1975) (wrongful interference with business relationships is actionable and protects an interest in the reasonable expectation of economic advantage); and United Wild Rice, Inc. v. Nelson, 313 N.W.2d 628 (Minn. 1982) (re-acknowledging that Minnesota law provides cause of action for wrongful interference with prospective contractual relations). The legal defense to a claim for such a tort had been, at a most basic, that interference with prospective economic advantage is not an actionable claim in Minnesota.

Business Dispute Alleging Illegal Interference

In March, 2014, however, the Minnesota Supreme Court decided Geske ex rel. Diversified Water Diversion, Inc. v. IDCA, Inc., 844 N.W.2d 210 (Minn. 2014), which decisively held that interference with prospective economic advantage is a separate, actionable tort viable in the State of Minnesota. Geske further defined the claim requirements, or elements, under the law.

The case arose out of a dispute between two brothers who owned competing businesses, Standard Water Control Systems, Inc. (Standard) and Diversified Water Diversion, Inc. (Diversified), each doing business in the drain tile installation industry in the Twin Cities Metro Area. The pair had previously litigated disputes between themselves and their respective businesses, including actions for misappropriation of trade secrets and unfair competition, and defamation. One of these prior cases resulted in a default judgment, which was also thoroughly litigated on jurisdictional grounds. In this case, an amended complaint alleged, among other causes of action, tortious interference with prospective economic advantage against IDCA, Inc., a company formed (by the brother owning Standard) for the sole purpose of purchasing and shutting down Diversified. At trial, the testimony established that IDCA converted Diversified’s business equipment, changed Diversified’s registered business address with the Minnesota Secretary of State, settled an outstanding judgment against Diversified without authority, and obtained Diversified’s tax returns. Evidence also showed a decrease in annual profits, approximately $80,000 lower than expected from 2009 through 2011.

Proving Tortious Interference with Prospective Economic Advantage

The Supreme Court said a claimant must prove five elements to recover:

  1. “The existence of a reasonable expectation of economic advantage;
  2. defendant’s knowledge of that expectation of economic advantage;
  3. that defendant intentionally interfered with plaintiff’s reasonable expectation of economic advantage, and the intentional interference is either independently tortious or in violations of a state or federal statute or regulation;
  4. that in the absence of the wrongful act of defendant, it is reasonably probable that plaintiff would have realized his economic advantage or benefit; and
  5. that plaintiff sustained damages.”

Id. at 219. Ultimately, Geske’s claim failed for lack of evidence of any third parties with whom his business had a reasonable expectation of a future economic relationship, and failed to prove damages which were caused by the interference. Id. at 223.

In the cases following the Geske decision, courts have strictly followed the above requirements, declining to sustain a claim for tortious interference with prospective economic advantage. See for example, Peterson v. Northern Gaul Properties, Inc., 2014 WL 2921956 (Minn. App., June 30, 2014) (not reported) (in a real estate transaction, claim for tortious interference with prospective economic advantage failed for lack of evidence on Element 3, i.e. no independently tortious interference, and Element 4, i.e. lack of evidence that any third party would have purchased the property); and Ahlers v. CFMOTO Powersports, Inc., 2014 WL 2574747 (D. Minn., 2014) (in an employment case, claim failed for lack of evidence on Element 3, i.e. allegation of intent to interference insufficient, but may exists if party had proved that the interference induced or caused a third party not to enter or continue a business relationship). Our experienced business litigators are ready to answer your specific questions about tortious interference with prospective economic advantage. Contact our business attorneys today.