Tortious Interference with Prospective Economic Advantage

In March 2014, the Minnesota Supreme Court finally recognized the tort of tortious interference with prospective economic advantage as a viable claim in Minnesota in Gieseke v. IDCA, Inc., 844 N.W.2d 210 (Minn. 2014). The cause of action has existed in Minnesota for over a century but has been called various things throughout that time and has never been formally recognized.

The case arises out of the dispute between two brothers Michael Hogenson and Arthur Hogenson who formerly jointly owned Standard Water Control Systems, Inc. since 1984. The brothers eventually had a falling out in 1999, an agreement was reached to end their business relationship. Mike became the sole owner of Standard and Arthur became the sole owner of Hogenson Properties, another family-owned business. John Gieseke, a friend of Arthur’s, was terminated from his employment with Standard. In 2000, Gieseke started a company, Diversified, to compete with Standard and Arthur joined that business to become part owner. Mike then formed a new company, IDCA, Inc., to purchase Arthurs 50% interest of Diversified in order to put Diversified out of business.

Gieseke brought the current lawsuit on behalf of Diversified claiming conversion of Diversified’s equipment, replevin, and tortious interference with prospective economic advantage. When the lawsuit went to trial in November 2011, Diversified presented testimony that IDCA tortiously interfered with its business through Mike and his wife Debra. Specifically testimony showed that IDCA converted Diversified’s equipment (which prevented Diversified from doing business), changed Diversified’s registered business address, settled a judgment for much less than what it was worth, and obtained Diversified’s tax returns. In addition to the testimony regarding tortious interference, Diversified presented testimony that it saw dramatic decrease in business.

After an advisory jury found that IDCA had tortiously interfered with Diversified’s prospective economic advantage, IDCA moved for judgment as a matter of law claiming that the tortious interference with prospective economic advantage is not a recognized cause of action in Minnesota. The district court denied the motion. The Court of Appeals affirmed, holding that tortious interference with prospective economic advantage is a recognized cause of action in Minnesota and that the evidence was sufficient to support the jury’s verdict on liability and damages.

In affirming the Court of Appeals decision, Minnesota Supreme Court relied on the Restatement (Second) of Torts § 766(B) in setting forth five elements necessary to successfully pursue a Porsche’s interference with prospective economic advantage. Those elements are:

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

Interestingly, although the Minnesota Supreme Court recognized that a claim for tortious interference with prospective economic advantage exists under Minnesota law, it reversed the judgment in favor of Diversified holding that the evidence did not support all of the evidence needed to prove such a claim.

Case Law Since Gieseke

Peterson v. Northern Gaul Properties, Inc.

The Gieseke decision has only been around for a few months, however, it has already been discussed and cited by two cases.

In the first case, Peterson v. Northern Gaul Properties, Inc., No. A13-2161, 2014 WL 2921956, (Minn. Ct. App. June 30, 2014), Elizabeth Peterson and her then husband formed a corporation, Holiday Recreational Industries, Inc. to sell recreational vehicles. Elizabeth’s mother-in-law was the sole shareholder of Holiday Recreational Industries and the title owner of the real property at which HRI did business. The ownership of HRI and the title to the real property were eventually transferred to Patricia Peterson, the mother of Elizabeth Peterson. Elizabeth and her husband operated the dealership, but did not own any of its assets. Sometime later, Elizabeth and her husband got divorced and Elizabeth sued Patricia and HRI regarding ownership of HRI and the real property. Patricia then conveyed the real property by deed to RV Princess, LLC, an entity that Patricia had formed. Patricia was found in contempt of court and was ordered to transfer the ownership of HRI to Elizabeth. Elizabeth had possession of the dealership property, however Patricia had surrendered HRI’s dealers license which made it impossible for Elizabeth to continue to do business as HRI. Patricia was eventually successful in her appeal however no assets of HRI remained and she regained control of the business.

Foreclosures on some of real property began and one of the encumbrances on the property was transferred to Northern Gaul Properties Inc. Northern Gaul then redeemed and was issued a certificate of redemption by the share of. Northern Gaul then began at Torrens proceeding for new certificate of title. RV Princess contested stating that Northern Gaul’s redemption was improper. Patricia Peterson sued alleging fraud, conversion, unjust enrichment, accounting, intentional infection of emotional distress, tortious interference with prospective business advantage, and defamation. With regards to the tortious interference with prospective business advantage claim, Peterson alleges that false statements were made about the title and future ownership of the dealership real property while Patricia was attempting to sell it. Specifically that a prospective purchaser was told that there were “title problems” with the real property and that any prospective purchaser should not buy from Patricia.

In examining these statements, the Supreme Court stated that the statements must be “independently tortious” for the claim to survive. The Supreme Court found that the statements were not independently tortious and stated,

The “title problems”…were both the existence of liens and an ongoing mortgage foreclosure that had once been successfully challenged, but was recommenced in 2007. In context, the claim of “title problems” was not false. Although appellants claim the existence of equity in the property above the lien totals, they neither allege nor offer any evidence of statements by any respondent that the property had no equity. [The] alleged statement that there were “title problems” is true.

[The] other statement, that Northern Gaul would own the property in the future, was also not independently tortious. First, it was a statement of present intention, rather than one of fact. Second, Northern Gaul later redeemed the property from the foreclosure and obtained a new certificate of title for the real property. For both reasons, this alleged statement was not tortious. Because neither of [the]alleged statements were independently tortious, appellants’ tortious-interference claim fails as a matter of law.

Id. at *6-7 (internal citations omitted).

The Supreme Court went on further to say,

Even if we were to hold that [the] alleged statements were independently tortious, appellants would still have to carry their burden on the fourth element, namely, in the absence of the wrongful act of defendant, it is reasonably probable that plaintiff would have realized his economic advantage or benefit. There is no record evidence that [the prospective buyer] or anyone else would have purchased the property after an independent examination of title revealed the ongoing foreclosure proceedings, regardless of whether [the title issues were disclosed].

Id. at *7 (internal quotations omitted).

Ahlers v. CFMOTO Powersports, Inc.

In Ahlers v. CFMOTO Powersports, Inc., No. 13-1221 2014 WL 2574747 (D. Minn. June 9, 2014), and employment dispute arose when Ahlers was terminated from her employment at CFMOTO. After her termination, CFMOTO alleges that she accessed company email and computer systems and drafting emails to business partners in dealers falsely claiming that CFMOTO had unsafe products, was unfair and its dealings, and was in violation of various federal and state safety laws. CFMOTO also claims that Ahlers sent defamatory emails from anonymous email addresses companies CFMOTO had business relationships with. CFMOTO filed the complaint alleging tortious interference with existing and prospective economic advantage, among other things.

The court found that Ahlers conduct did not rise to the severity of tortious interference with prospective economic advantage. The court stated,

[A] claim for tortious interference with prospective advantage may exist where such interferences induc[es] or otherwise caus[es] a third person not to enter into or continue the prospective relation or (b) prevent[s] the other from acquiring or continuing the prospective relation. CFMOTO points to no authority to suggest that mere intent to interfere with prospective economic advantage gives rise to a cause of action. As a result, dismissal is warranted.

Id. at *4 (citations and internal quotation marks omitted).