3 N.Y.3d 182 (2004)

To sustain a claim for tortious interference with prospective economic relations in New York, a plaintiff must demonstrate that the defendant’s conduct constituted a crime, an independent tort, or conduct aimed solely at harming the plaintiff; otherwise, the conduct must be considered egregious wrongdoing.

Summary

Carvel franchisees sued Carvel Corporation, alleging that Carvel’s supermarket distribution program tortiously interfered with their prospective economic relations. The New York Court of Appeals was asked to determine if the evidence presented at trial permitted a jury finding in favor of the franchisees on this claim. The court held that it did not, clarifying that to succeed on such a claim, the franchisee must show either criminal or tortious conduct, actions intended solely to inflict harm, or, at minimum, egregious wrongdoing. Carvel’s conduct, motivated by economic self-interest and not aimed solely at harming franchisees, did not meet this threshold.

Facts

Until the early 1990s, Carvel distributed its ice cream exclusively through franchised stores, assuring franchisees of this practice. Facing declining business, Carvel implemented a supermarket program, selling its products through supermarkets either directly or through franchisees who opted into the program (at a cost). Most franchisees did not participate. The franchisees alleged the supermarket program, including bargain pricing and coupon discrepancies, harmed their businesses. Franchise agreements varied: “Type A” agreements restricted Carvel from establishing another store within a quarter mile, while “Type B” agreements were non-exclusive and allowed Carvel to sell through various channels, including supermarkets.

Procedural History

Several franchisees sued Carvel in federal court. Juries awarded damages to three franchisees on tort and contract claims. Carvel appealed to the Second Circuit Court of Appeals. The Second Circuit certified questions to the New York Court of Appeals regarding the tortious interference claim and punitive damages.

Issue(s)

1. Under applicable standards for a claim of tortious interference with prospective economic relations, did the evidence of the franchisor’s conduct in each of the three trials on review in these consolidated appeals permit a jury finding in favor of the franchisee?

Holding

1. No, because Carvel’s conduct, while potentially harmful to franchisees, did not constitute a crime, an independent tort, or conduct aimed solely at harming the franchisees, and was not egregious enough to support a tortious interference claim.

Court’s Reasoning

The court distinguished between inducing breach of contract and interfering with non-binding economic relations, noting the latter requires more culpable conduct. Referencing Guard-Life Corp. v. S. Parker Hardware Mfg. Corp. and NBT Bancorp Inc. v. Fleet/Norstar Fin. Group, Inc., the court explained that generally, a defendant’s conduct must amount to a crime or an independent tort to establish tortious interference with non-binding relations. An exception exists if the conduct is “for the sole purpose of inflicting intentional harm on plaintiffs,” but this did not apply as Carvel was motivated by economic self-interest. The court emphasized the “means” employed by Carvel were not “wrongful” or “culpable.” Making goods available in supermarkets at attractive prices, like any form of price competition, is not “economic pressure” rising to the level of wrongful conduct. The court stated the relationship between franchisor and franchisee is complex and contractual. The court reasoned that coupon programs and distribution are also economic pressure, but it is best decided by contract rather than tort law. As such, the Court of Appeals determined that tort law should not be used in this case. Judge Graffeo concurred, arguing that the improper conduct standard should apply in cases involving non-competitors but agreed that the Carvel did not act improperly and also answered the first certified question negatively.