Lowell v. Mother's Cake & Cookie Co.

• Decision Date: 22 March 1978
• Citation: 79 Cal.App.3d 13,144 Cal.Rptr. 664
• Court: California Court of Appeals Court of Appeals
• Parties: , 6 A.L.R.4th 184, 1978-1 Trade Cases P 62,003 Fred LOWELL, Jr., Plaintiff and Appellant, v. MOTHER'S CAKE & COOKIE CO., etc., Defendant and Respondent. Civ. 40822.

Page 664

144 Cal.Rptr. 664

79 Cal.App.3d 13, 6 A.L.R.4th 184, 1978-1 Trade Cases P 62,003

Fred LOWELL, Jr., Plaintiff and Appellant, v. MOTHER'S CAKE & COOKIE CO., etc., Defendant and Respondent.

Civ. 40822.

Court of Appeal, First District, Division 2, California.

March 22, 1978.

As Amended March 27, 1978.

Carr, Smulyan & Hartman, San Francisco, for plaintiff-appellant.

Knox, Ricksen, Snook, Athony & Robbins, Thomas A. Palmer, Oakland, for defendant-respondent.

KANE, Associate Justice.

Plaintiff, Fred Lowell, Jr., the sole owner of Lowell Freight Lines, Inc., a common carrier, appeals from a judgment of dismissal entered after respondent's demurrer to the second amended complaint was sustained without leave to amend.

Appellant filed his original complaint (Complaint) on January 30, 1976, alleging causes of action for interference with prospective economic advantage, and violations of the Cartwright Act (Bus. & Prof.Code, §§ 16700-16758) and the California Unfair Practices Act (Bus. & Prof.Code, § 17000, et seq.). Respondent's demurrer to the Complaint was sustained with leave to amend as to the cause of action for wrongful interference with prospective economic advantage, and without leave to amend as to the second cause of action charging violations under the Cartwright Act and the Unfair Practices Act. Appellant filed his first amended complaint on May 20, 1976, alleging a single cause of action predicated on the theory of wrongful interference with prospective economic advantage. After respondent's demurrer to the first amended complaint was sustained with leave to amend, appellant filed his second amended complaint (hereafter Second Complaint) reiterating his cause of action based on tortious interference with prospective economic advantage. Respondent demurred to the Second Complaint on the grounds that it failed to state a cause of action and that it was uncertain. This time the trial court sustained respondent's demurrer without leave to amend, and dismissed the action.

The principal issues on appeal are whether the complaints to which the demurrers were sustained without leave to amend alleged actionable wrongs (1) for tortious interference with prospective business advantage; and (2) for violations of the antitrust and unfair practice statutes.

Intentional Interference With Prospective Business Advantage : In addressing the first issue, we initially note that the basic principles underlying the tort of inducing breach of contract have been extended to impose liability for intentional interference with business relations or advantages which are merely prospective and not subject to an existing, legally binding agreement (Buckaloo v. Johnson (1975) 14 Cal.3d 815, 823, 122 Cal.Rptr. 745, 537 P.2d 865; Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 994, 135 Cal.Rptr. 720; 4 Witkin, Summary of Cal. Law (8th ed., 1974), § 392, p. 2643). While the criteria of this new tort are developing and admittedly vague, it is widely recognized that in order to be actionable the interference with prospective economic advantage or advantageous business relationship must be unjustified and/or without privilege. As has been pointed out, "one who unjustifiably interferes with an advantageous business relationship to another's damage may be held liable therefor." (Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244, 255, 67 Cal.Rptr. 19, 25, emphasis added. See also Speegle v. Board of Fire Underwriters (1946) 29 Cal.2d 34, 39, 172 P.2d 867; Shida v. Japan Food Corp. (1967) 251 Cal.App.2d 864, 866, 60 Cal.Rptr. 43; Masoni v. Board of Trade of S.F. (1953) 119 Cal.App.2d 738, 741, 260 P.2d 205.) Restatement of Torts, section 766, likewise provides in part that "one who, without a privilege to do so, induces or otherwise purposely causes a third person not to . . . (b) enter into or continue a business relation with another is liable to the other for the harm caused thereby." (Emphasis added.)

The unjustifiability or wrongfulness of the act may consist of the methods used and/or the purpose or motive of the actor. On one hand it is emphasized that the wrong consists of intentional and improper methods of diverting or taking business from another which are not within the privilege of fair competition (A. F. Arnold & Co. v. Pacific Professional Ins., Inc. (1972) 27 Cal.App.3d 710, 715, 104 Cal.Rptr. 96; 4 Witkin, Summary of Cal. Law, supra). On the other, it is underscored that the cases involving interference with prospective business advantage " 'have turned almost entirely upon the defendant's motive or purpose, and the means by which he has sought to accomplish it. As in the case of interference with contract, any manner of intentional invasion of the plaintiff's interest(s) may be sufficient if the purpose is not a privileged one . . .' " (A. F. Arnold & Co. v. Pacific Professional Ins., Inc., supra, at p. 716, 104 Cal.Rptr. at p. 100, emphasis added; Prosser on Torts (4th ed., 1971), p. 952). In accordance therewith it has been held that an action for interference with prospective business advantage will lie where the right to pursue a lawful business is intentionally interfered with either by unlawful means or by means otherwise lawful when there is a lack of sufficient justification (Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 319, 70 Cal.Rptr. 849, 444 P.2d 481; Willis v. Santa Ana etc. Hospital Assn. (1962) 58 Cal.2d 806, 810, 26 Cal.Rptr. 640, 376 P.2d 643; Guillory v. Godfrey (1955) 134 Cal.App.2d 628, 632, 286 P.2d 474; Masoni v. Board of Trade of S.F., supra, 119 Cal.App.2d at p. 741, 260 P.2d 205). Finally, it bears special emphasis that while the defendant's culpable intent and the damages resulting from the interference are elements of the cause of action which must be pleaded and proved by the plaintiff, the defendant's justification is not an ingredient of the cause of action, but rather constitutes an affirmative defense (A. F. Arnold & Co. v. Pacific Professional Ins., Inc., supra, 27 Cal.App.3d at p. 714, 104 Cal.Rptr. 96; Prosser on Torts, supra, at p. 953). As has been said in Herron v. State Farm Mutual Ins. Co. (1961) 56 Cal.2d 202, 207, 14 Cal.Rptr. 294, 296, 363 P.2d 310, 312, "Justification is an affirmative defense and may not be considered as supporting the trial court's action in sustaining a demurrer unless it appears on the face of the complaint." (Accord: Gold v. Los Angeles Democratic League (1975) 49 Cal.App.3d 365, 376, 122 Cal.Rptr. 732; A. F. Arnold & Co. v. Pacific Professional Ins., Inc., supra.)

When examined in light of the foregoing principles we believe the Second Complaint alleges facts sufficient to state a cause of action for tortious interference with prospective business advantage and at the same time the requisite justification fails to appear upon the face of the complaint. As a consequence, we hold that the trial court erred in sustaining respondent's demurrer to the Second Complaint and in dismissing appellant's action.

The Second Complaint in essence avers that appellant was the sole owner of Lowell Freight Lines, Inc., a trucking firm (Company). For over five years the Company performed delivery services for respondent pursuant to an oral contract. The revenue derived from that contract amounted to approximately 40 percent of the gross income of appellant's business. Appellant intended to sell the Company, and he received several offers from potential purchasers. One of these offers, which was conditioned on the Company's continued business with appellant, was for approximately $200,000. Respondent, however, intentionally interfered with the consummation of this agreement by informing the prospective purchasers that the delivery contract would be terminated if the Company was sold to a third person. The purpose of the interference was to discourage potential buyers from purchasing the Company from appellant and thereby depress its purchase price substantially below its market value. Respondent succeeded in its scheme. The Company was sold to respondent for about $17,400 instead of its true market value of $200,000, and as a result appellant suffered damages in the sum of $183,000.

The facts alleged in the Second Complaint, which for the purpose of a demurrer must be regarded as true (Mercer v. Elliott (1962) 208 Cal.App.2d 275, 279, 25 Cal.Rptr. 217), thus clearly establish that respondent intentionally interfered with a prospective advantageous business relationship, and that the interference resulted in substantial damages to appellant. These allegations, of course, are sufficient to state a valid cause of action for interference with prospective economic advantage unless it can be said that the facts averred in the complaint show justification or privilege as a matter of law (A. F. Arnold & Co. v. Pacific Professional Ins., Inc.,supra; Prosser on Torts, supra, at p. 953).

This leads us to the very heart of the dispute, i. e., whether the facts alleged in the Second Complaint divulge upon their face that the acts complained of were justified or privileged. Respondent, in effect, argues that in the absence of a binding contract it was free to terminate its business relationship with appellant or any potential successor, and was also at liberty to inform the future buyers that respondent did not intend to utilize the services of the Company if the latter changed hands. Since the means adopted and utilized by respondent were entirely proper and lawful, continues the argument, no actionable wrong was alleged or committed, even if the Second Complaint charged that the steps complained of were taken for an improper purpose or motive. Respondent's position is unacceptable for a number of considerations.

One, as spelled out above, even if the means used by the defendant are entirely lawful, intentional interference with prospective economic advantage constitutes actionable wrong if it results in damages to the...