Written by attorney Dustin R. Marlowe

Business Torts in Georgia, Part I

A business tort can be broadly defined as a tort resulting in purely economic injury that is generally not the result of negligence. While the parties in such a case can obviously be either individual persons or corporate entities, the most likely factual scenario involves at least one corporation or other business entity.

Business-to-Business Torts or Those with a Corporate Plaintiff

Tortious Intereference with Contractual Relations

Georgia law recorgnizes as a business tort the intentional intereference with contractual relations of parties by a third party. This tort, called either "tortious intereference with contractual relations" or "malicious interference with contractual relations," requires a showing (1) of a valid contractual relationship, (2) that the defendant acted improperly and without privilege, (3) purposely and maliciously with the intent to injure, (4) that the defendant induced a third party to not enter into or continue a business relationship with the plaintiff, and (5) that the defendant’s conduct caused the plaintiff to suffer financial harm. Northeast Georgaia Cancer Care, LLC, v. Blue Cross & Blue Shield of Georgia, Inc., 297 Ga. App. 28, 33 (2009).

Tortious Interference with Business Relations

This tort is closely related to—and often confused with—tortious interference to contractual relations. The difference in the two types of business tort, however, is given away by their labels. Tortious interference with contractual relations requires the existence of a contract or group of contracts. Tortious interference with business relations has no such requirement; the “right" to be vindicated in business relations cases are thus not those that exist under contract but those that a plaintiff has or hopes to have as a result of the operation of his business. Nat’l Ass’n for Advancement of Colored People v. Overstreet, 221 Ga. 16 (1965) (“A person’s business is property in the pursuit of which he is entitled to protection from tortious interference by a third person, who, in interfering therewith, is not acting in the exercise of some right."

To maintain this claim, the plaintiff must show that the defendant (1) acted improperly and without privilege, (2) purposely and with malice and intent to injure, (3) induced a third party or parties not to enter into or continue a business relationship with the plaintiff, and (4) caused the plaintiff some financial injury. Willis v. United Family Life Ins., 226 Ga. App. 661 (1997); Parks v. Multimedia Technologies, Inc., 239 Ga. App. 282, 291 (1999). Because a tortious interference with business relations claim does not require the existence of an underlying contractual relationship, it is broader than its counterpart and may be appropriate whenever one maliciously tries to harm another’s business, put the plaintiff out of business, or interfere with a plaintiff’s future employment. Alta Anesthesia Assocs. of Ga. v. Gibbons, 245 Ga. App. 79, 84 (2000) (“Such a claim may be stated by showing a general malicious intention to harm the plaintiff's business, or to drive the plaintiff out of business. The principle is generally recognized that a person's business is property in the pursuit of which he is entitled to protection from tortious interferences by [another] person who in interfering therewith, is not acting in the exercise of some right to compete for business.").

Misappropriation of Trade Secrets

Most businesses maintain, utilize, and guard against the disclosure of proprietary business information that gives them an advantage in the marketplace, whether it be a customer list or an old family recipe. Georgialaw protects the continued confidentiality of these valuable secrets and provides punishment for anyone who discloses or misappropriates them.

In Georgia, a "trade secret" is defined by statute as "information, without regard to form . . . which is not commonly known by or available to the public and [that]. . . [d]erives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and . . . [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy." O.C.G.A. § 10-1-764(4). Generally, then, customer lists, vendor lists, proprietary computer software, and other valuable information not in the public domain qualify as trade secrets, so long as reasonable efforts are made to maintain their secrecy. DeGiorgio v. Megabyte Intern., Inc., 266 Ga. 539, 539 (1996) (vendor and customer lists); Electronic Data Systems Corp. v. Heinemann, 268 Ga. 755, 758 (1997) (computer software); Essex Group, Inc. v. Southwire Co., 269Ga. 553, 553-54 (1998) (warehouse organizational system "with components extending from architectural layout to modified computer software").

Breach of Fiduciary Duty

Corporate officers and directors owe a fiduciary duty of loyalty, good faith, and fair dealing towards the corporation for which they are representatives, officials, or employees, and that fiduciary duty prohibits them from misappropriating a business opportunity that belongs to the corporation and soliciting away the corporation’s employees. See Gresham & Associates, Inc. v. Strianese, 265 Ga. App. 559 (2004) (reversing grant of summary judgment to corporation's former vice-president who, while working for plaintiff, may have solicited or induced the plaintiff's employees to begin working for competing business that vice-president was to start); Instrument Repair Service, Inc. v. Gunby, 238 Ga. App. 138, 141 (1999). Although an officer or director does not breach any fiduciary duty simply by making plans to enter or start a competing business, unless, of course, that planning occurs on the "company's time," he cannot solicit customers for a rival business before the end of his employment, and he cannot directly compete with the employer's business while still employed. Nilan's Alley v. Ginsburg, 208 Ga. App. 145, 145 (1993) (quoting E.D. Lacey Mills v. Keith, 183Ga. App. 357, 362-63 (1987)).

A party who breaches his fiduciary duty to a corporation is liable for the actual damages caused by his breach. Bienart v. Dickerson, 276 Ga. App. 621, 623 (2005). And, importantly, "[a] breach of fiduciary duties is sufficient to support an award of punitive damages. Whether punitive damages should be awarded for a breach of fiduciary duties is ordinarily a question for the jury." Home Ins. Co. v. Wynn, 229 Ga. App. 220, 223 (1997). Because a claim for breach of a fiduciary duty belongs to the corporation, a shareholder cannot typically bring the action directly against the misbehaving officer or director; the claim must be brought as a derivative action. Williams v. Service Corp. Intern., 218 Ga. App. 10, 11 (1995); Levy v. Reiner, 290 Ga. App. 471, 473 (2008). But when the reasons for requiring a derivative action do not apply, e.g., where there is no threat of a multiplicity of actions (as is often the case in actions involving closely held corporations), the claim may be brought by a sole shareholder. See Thomas v. Dickson, 250Ga. 772, 774 (1983) (finding proper direct action brought by "sole injured shareholder").

Fraud and Negligent Misrepresentation

Even today, common-law fraud and negligent misrepresentation claims remain an important part of any discussion of business torts. Part of their importance is derived from their versatility. Fraud and negligent misrepresentation claims can result from something as relatively unsophisticated as an automobile dealer misrepresenting the condition of a particular vehicle or from something as sophisticated as a lender’s calculated campaign to defraud unknowing borrowers. But whatever the scheme, a plaintiff’s ability to maintain a fraud or negligent misrepresentation depends on his ability to make the showings set forth below.

Fraud can be either actual or constructive. To state a claim of actual fraud, a plaintiff must allege (1) that the defendant made a false representation of fact, (2) that the defendant knew the representation was false when he made it, (3) that the defendant intended to induce the plaintiff to act or refrain from acting in reliance upon the representation, (4) that the plaintiff justifiably relied on the representation, and (5) that the plaintiff suffered harm thereby. GLWIntern. Corp. v. Yao, 243 Ga. App. 38, 41 (2000). A claim of constructive fraud lies where a plaintiff can satisfy all of the elements of actual fraud, except the requirement that the defendant knowingly made a false statement. In that event, the defrauded plaintiff may be entitled to equitable relief from the defendant but would not be entitled to damages. O.C.G.A. § 23-2-51; Irvin v. Lowe’s of Gainesville, Inc., 165Ga. App. 828, 830 (1983).

Georgia law also recognizes a negligence-based tort that targets misrepresentation and deceit, aptly labeled “negligent misrepresentation." This tort lies where (1) one negligently discloses or disseminates false information to foreseeable persons, known or unknown, (2) such person reasonably relies upon that false information, and (3) economic injury proximately results from that reliance. Futch v. Lowndes County, 297 Ga. App. 308, 312 (2009). Although this tort is closely related to actual fraud, a plaintiff who alleges negligent misrepresentation is not required to show that the defendant knowingly or intentionally misrepresented anything. Hardway Co. v. Parsons, Brinckheroff, Quade & Douglass, Inc., 267Ga. 424, 426 (1997).

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