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Tortious Interference with Business Relations (Steering)

This topic, which is near and dear to all independent and many dependent (DRP) Auto Body shops in New Jersey and throughout the country creates more questions than it provides answers.  While this article outlines the law as it stands today in New Jersey, it also provides an outline of the questions that are posed in pending litigation and the likely questions which will be posed in future litigation.  The answers to these questions may well determine the livelihood of many Auto Body shops in the coming years.

The Model Jury Charges to 3.30A UNLAWFUL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE provides the following language:

Thus, plaintiff must prove the following elements:

1. The existence of a reasonable expectation of economic advantage or benefit belonging or accruing to the plaintiff;

2.  That the defendant had knowledge of such expectancy of economic advantage;

3.  That the defendant wrongfully and without justification interfered with plaintiff’s expectancy of economic advantage or benefit;   

4.  That in the absence of the wrongful act of the defendant it is

Mitchell H. Portnoi, Esq.
Attorney-At-Law of New Jersey

reasonably probable that the plaintiff would have realized his/her economic advantage or benefit (i.e., effected the sale of the property and received a commission); and

5.  That the plaintiff sustained damages as a result thereof.

As can be seen from the Jury Charge many of the reported cases have dealt with this situation from a real estate broker contract that has gone bad.  A leading case in this area has been Harris v. Perl, 41 NJ 455 (1964), which generally talked about the rights of the aggrieved party to a contract or one’s interest in the reasonable expectations of an economic advantage:
The law protects a man in the pursuit of his livelihood.  True, he cannot complain of every disappointment; others too may further their equal interests, and if the means are fair, the advantage should remain where success has put it.  But if the act complained of does not rest upon some legitimate interest or if there is sharp dealing or overreaching or other conduct below the behavior of fair men similarly situated, the ensuing loss should be redressed.

Hence one who unjustifiably interferes with the contract of another is guilty of a wrong.  And since men usually honor their promises no matter what flaws a lawyer can find, the offender should not be heard to say the contract he meddled with could not have been enforced.  "Accordingly, it usually is held that contracts which are voidable by reason of the statute of frauds, formal defects, lack of consideration, lack of mutuality, or even uncertainty of terms, still afford a basis for a tort action when the defendant interferes with their performance."  Prosser, Torts (2d ed. 1955) § 106, p. 726.  Aalfo Co. v. Kinney, 105 N.J.L. 345, 347 (E. & A. 1929); Louis Kamm, Inc. v. Flink, 113 N.J.L. 582, 591 (E. & A. 1934); George H. Beckmann, Inc. v. Charles H. Page 462; Reed & Sons, Inc., 44 N.J. Super. 159, 165 (App. Div. 1957).

Protection is not limited to contracts already made. The law protects also a man's interest in reasonable expectations of economic advantage.  Harper and James, Torts § 6.11, p. 510 (1956). As Mr. Justice (then Judge) Francis summed it up in Mayflower Industries v. Thor Corp., 15 N.J. Super. 337, 339 (Ch. Div. 1951), affirmed o.b. 9 N.J. 605 (1952):

"It is no answer to say that the contractual relations were not complete because Thor had not gone through the formality of signing the agreement.  This status should not stand in the way of the existence of the right of action.  Treating the case (on the facts here) in terms of unlawful interference with prospective economic advantage, the cause of action exists.  Prosser puts the principle this way: ` By analogy to interference with existing contractual relations, tort liability has been imposed for interference with prospective advantage.'  Prosser on Torts, p. 1013. Citing Brennan v. United Hatters of North America,
73 N.J.L. 729 (E. & A. 1906), wherein Justice Pitney declared:  `In a civilized community, which recognizes the right of private property among its institutions, the notion is intolerable that a man should be protected by the law in the enjoyment of property, once it is acquired, but left unprotected by the law in his efforts to acquire it. * * *,' Prosser goes on to say: `and that since a large part of what is most valuable in modern life depends upon the "probable expectancies," as social and industrial life becomes more complex the courts must do more to discover, define and protect them from undue interference.' (Pp. 1014-1015; also Jersey City Printing Co. v. Cassidy, 63 N.J. Eq. 759, at page 765, 53 A. 230 (Ch. 1902))."

How does this case and the line of cases interpreting the Tort of “Interference with the Right to Contract” or the “Unlawful Interference with Economic Advantage” affect the Auto body world?  What constitutes a Reasonable Expectation of Economic Advantage?  Must there be a written contract for work to begin to constitute a contract with its customer?  What information should a shop advise a carrier to insure its contractual relationship with its customer or its expectancy of a future contract?  What is considered wrong doing which would justify the unlawful interference with such a contract or such an expectation?  And finally what are the damages (and proof of those damages) that the shop owner would have likely sustained as a result of such interference?  All these questions are fair game in the currently hotly controversial issue related to “steering” within the Auto body industry.  The answers are unfortunately going to be based upon the facts of each individual case.

To date there has been no reported New Jersey Case interpreting the Interference Tort as it relates to the Auto Body world and until there is one the industry will continue to operate as the Wild West.  The problems to date include the high costs of such a case combined with the low amount of recovery for the individual case.  The recovery would seemingly amount to the loss of profits on the individual job.  Your answer would then be-“Class Action”, right?  However, a Class Action is generally based upon the same or similar factual issues and the Tort of “Interference” would seem to vary widely upon each factual scenario.  Time will certainly bear this out as a case has recently been filed in Ohio on a class basis alleging Progressive Insurance Company has been steering customers from an Auto Body shop.  This case has only recently been filed and we will endeavor to follow it closely.

While a pattern of conduct (the carrier’s conduct) may be able to be proven, the question to ask is whether that conduct is unlawful or does that conduct lawfully inure to the insurer’s economic benefit?  May a carrier lawfully entice an insured to use an in network body shop just as an insurer may entice an insured to use an in network doctor by his having to pay more of a co-pay or even pay full price?

How is loss of profits determined?  Are the lost profits capable of being determined on a car by car basis?  Or is there a profit margin of a certain percentage built into the entire shop?  Will a court allow the testimony of lost profits being an estimated amount?

While this article has posed more questions than it has answered it has laid out the outline by which the industry must go forward in order to bring about fair competition and the distribution of meaningful profits to it members.  Let’s keep fighting for the truth.