Penna v. Toyota Motor Sales, U.S.A., Inc., S044053

• Citation: 45 Cal.Rptr.2d 436,902 P.2d 740,11 Cal.4th 376
• Decision Date: 12 October 1995
• Docket Number: No. S044053,S044053
• Court: United States State Supreme Court (California)
• Parties: , 902 P.2d 740, 64 USLW 2237, 95 Cal. Daily Op. Serv. 8056, 95 Daily Journal D.A.R. 13,801 John DELLA PENNA, Plaintiff and Appellant, v. TOYOTA MOTOR SALES, U.S.A., INC., Defendant and Respondent.

Page 436

45 Cal.Rptr.2d 436

11 Cal.4th 376, 902 P.2d 740, 64 USLW 2237,

95 Cal. Daily Op. Serv. 8056,

95 Daily Journal D.A.R. 13,801

John DELLA PENNA, Plaintiff and Appellant, v. TOYOTA MOTOR SALES, U.S.A., INC., Defendant and Respondent.

No. S044053.

Supreme Court of California.

Oct. 12, 1995.

Korda, Johnson & Wall, Michael J. Korda and J. Joseph Wall, Jr., San Jose, for Plaintiff and Appellant.

William A. Plourde, Jr., Torrance, David D. Laufer, Gibson, Dunn & Crutcher, Paul G. Bower, Daniel G. Swanson, J. Andrew Chang, Los Angeles, and John A. Arguelles, Irvine, for Defendant and Respondent.

Horvitz & Levy, David M. Axelrad, Lisa Perrochet, Downey, Brand, Seymour & Rohwer and J. Keith McKeag, Sacramento, as Amici Curiae on behalf of Defendant and Respondent.

ARABIAN, Justice.

We granted review to reexamine, in light of divergent rulings from the Court of Appeal and a doctrinal evolution among other state high courts, the elements of the tort variously known as interference with "prospective economic advantage," "prospective contractual relations," or "prospective economic relations," and the allocation of the burdens of proof between the parties to such an action. We conclude that those Court of Appeal opinions requiring proof of a so-called "wrongful act" as a component of the cause of action, and allocating the burden of proving it to the plaintiff, are the better reasoned decisions; we accordingly adopt that analysis as our own, disapproving language in prior opinions of this court to the contrary. Such a requirement, incorporating the views of several other jurisdictions, much of the Restatement Second of Torts, the better reasoned decisions of the Court of Appeal, and the views of leading academic authorities, sensibly redresses the balance between providing a remedy for predatory economic behavior and keeping legitimate business competition outside litigative bounds. We do not in this case, however, go beyond approving the requirement of a showing of wrongfulness as part of the plaintiff's case; the case, if any, to be made for adopting refinements to that element of the tort--requiring the plaintiff to prove, for example, that the defendant's conduct amounted to an independently tortious act, or was a species of anticompetitive behavior proscribed by positive law, or was motivated by unalloyed malice--can be considered on another day, and in another case.

In this case, after the trial court modified the standard jury instruction to require the plaintiff automobile dealer to show that defendant Toyota's interference with his business relationships was "wrongful," the jury returned a verdict for Toyota. The Court of Appeal reversed the ensuing judgment and ordered a new trial on the ground that plaintiff's burden of proof did not encompass

[902 P.2d 742] proof of a "wrongful" act and that the modified jury instruction was therefore erroneous. Given our conclusion that the plaintiff's [11 Cal.4th 379] burden does include proof that the defendant's conduct was wrongful by some measure other than an interference with the plaintiff's interest itself, we now reverse the Court of Appeal and direct that the judgment of the trial court be affirmed.

I

John Della Penna, an automobile wholesaler doing business as Pacific Motors, brought this action for damages against Toyota Motor Sales, U.S.A., Inc., and its Lexus division, alleging that certain business conduct of defendants both violated provisions of the Cartwright Act, California's state antitrust statute (Bus. & Prof.Code, § 16700 et seq.), and constituted an intentional interference with his economic relations. The impetus for Della Penna's suit arose out of the 1989 introduction into the American luxury car market of Toyota's Lexus automobile. Prior to introducing the Lexus, the evidence at trial showed, both the manufacturer, Toyota Motor Corporation, and defendant, the American distributor, had been concerned at the possibility that a resale market might develop for the Lexus in Japan. Even though the car was manufactured in Japan, Toyota's marketing strategy was to bar the vehicle's sale on the Japanese domestic market until after the American roll-out; even then, sales in Japan would only be under a different brand name, the "Celsior." Fearing that auto wholesalers in the United States might re-export Lexus models back to Japan for resale, and concerned that, with production and the availability of Lexus models in the American market limited, re-exports would jeopardize its fledgling network of American Lexus dealers, Toyota inserted in its dealership agreements a "no export" clause, providing that the dealer was "authorized to sell [Lexus automobiles] only to customers located in the United States. [Dealer] agrees that it will not sell [Lexus automobiles] for resale or use outside the United States. [Dealer] agrees to abide by any export policy established by [distributor]."

Following the introduction into the American market, it soon became apparent that some domestic Lexus units were being diverted for foreign sales, principally to Japan. To counter this effect, Toyota managers wrote to their retail dealers, reminding them of the "no-export" policy and explaining that exports for foreign resale could jeopardize the supply of Lexus automobiles available for the United States market. In addition, Toyota compiled a list of "offenders"--dealers and others believed by Toyota to be involved heavily in the developing Lexus foreign resale market--which it distributed to Lexus dealers in the United States. American Lexus dealers were also warned that doing business with those whose names appeared on the "offenders" list might lead to a series of graduated sanctions, from reducing a dealer's allocation to possible reevaluation of the dealer's franchise agreement.

During the years 1989 and 1990, plaintiff Della Penna did a profitable business as an auto wholesaler purchasing Lexus automobiles, chiefly from the Lexus of Stevens Creek retail outlet, at near retail price and exporting them to Japan for resale. By late 1990, however, plaintiff's sources began to dry up, primarily as a result of the "offenders list." Stevens Creek ceased selling models to plaintiff; gradually other sources declined to sell to him as well.

In February 1991, plaintiff filed this lawsuit against Toyota Motors, U.S.A., Inc., alleging both state antitrust claims under the Cartwright Act and interference with his economic relationship with Lexus retail dealers. At the close of plaintiff's case-in-chief, the trial court granted Toyota's motion for nonsuit with respect to the remaining Cartwright Act claim (plaintiff had previously abandoned a related claim--unfair competition--prior to trial). The tort cause of action went to the jury, however, under the standard BAJI instructions applicable to such claims with one significant exception. At the request of defendant and over plaintiff's objection, the trial judge modified BAJI No. 7.82--the basic instruction identifying the elements of the tort and indicating the burden of proof--to require plaintiff to prove that The jury returned a divided verdict, nine to three, in favor of Toyota. After Della Penna's motion for a new trial was denied, he appealed. In an unpublished disposition, the Court of Appeal unanimously reversed the trial court's judgment, ruling that a plaintiff alleging intentional interference with economic relations is not required to establish "wrongfulness" as an element of its prima facie case, and that it was prejudicial error for the trial court to have read the jury an amended instruction to that effect. The Court of Appeal remanded the case to the trial court for a new trial; we then granted Toyota's petition for review and now reverse.

[902 P.2d 743] defendant's alleged interfering conduct was "wrongful." ¹

II

A

Although legal historians have traced the origins of the so-called "interference torts" as far back as the Roman law, the proximate historical impetus for their modern development lay in mid-19th century English common law. (See, e.g., Sayre, Inducing Breach of Contract (1923) 36 Harv.L.Rev. 663; Note, Tortious Interference with Contractual Relations in the Nineteenth Century: The Transformation of Property, Contract, and Tort (1980) 93 Harv.L.Rev. 1510.) The opinion of the Queen's Bench in Lumley v. Gye (1853) 2 El. & Bl. 216, a case that has become a standard in torts casebooks, is widely cited as the origin of the two torts--interference with contract and its sibling, interference with prospective economic relations ²--in the form in which they have come down to us. The plaintiff owned the Queen's Theatre, at which operas were presented. He contracted for the services of a soprano, Johanna Wagner, to perform in various entertainments between April 15 and July 15, with the stipulation that Miss Wagner would not perform elsewhere during that time without his permission.

In an action on the case, the theater owner alleged that Gye, the owner of a rival theater, knowing of the Wagner-Lumley agreement, "maliciously" interfered with the contract by "enticing" Wagner to abandon her agreement with Lumley and appear at Gye's theater. Gye's demurrer to the complaint was overruled by the trial court, a ruling that was affirmed by the justices of the Queen's Bench on the then somewhat novel grounds that (1) "enticing" someone to leave his or her employment was not limited to disrupting the relationship between master and servant but applied to a "dramatic artiste" such as Miss Wagner, and (2) "wrongfully and maliciously, or, which is the same thing, with notice, interrupt[ing]" a personal service contract, regardless of the means the defendant employed, was an actionable wrong. (2 El. & Bl. at p. 224, per Crompton, J.)

The opinion in Lumley dealt, of course, with conduct intended to induce the breach of an existing contract, not conduct intended to prevent or persuade others not to...