When Wrongdoing Isn’t Wrong Enough: Lack of Culpable Conduct Results in Reduced Judgment
August 26, 2021
In recent news out of the world of Formula 1 racing, a tight battle between seven-time World Champion, Lewis Hamilton, and rival, Max Verstappen, came to a head at the first lap of the British Grand Prix at Silverstone. In fighting for dominant position over a high-speed corner, Hamilton’s car inadvertently clipped Verstappen’s, flinging Verstappen’s car across the track into the barriers at 51Gs, demolishing the car but miraculously leaving the driver battered but alive. Hamilton was given a 10-second penalty, and went on to win the race.
For weeks after the race, reporters, commentators, fans, and the teams themselves argued whether Hamilton’s penalty was too lenient. Was it fair that Hamilton took out his chief rival, only received a minor penalty, and went on to win the race? Yet, the race stewards stood by their decision. Why? Because when evaluating any incident, they are constrained to faithfully apply the language of the regulations and apply the prescribed penalty. Much to the dissatisfaction of Verstappen fans clamoring for a harsher penalty to Hamilton, the race stewards may not consider the impact of the incident—no matter how outsized—when considering fault or penalties.
Attorneys are all too familiar with this principle. Courts are constrained by the elements of the causes of action before them. This is all the more relevant when assessing business tort claims—wrongful acts against businesses that are not contract-based—as often times, “bad behavior” may simply not be enough. This was recently explored by the Second Department in Stuart’s LLC et al. v. Edelman et al, 2021 NY Slip Op 04569, in which the Second Department modified a $1,436,128 award against defendant-appellant Michael Hong by $1,262,753, a near 90% reduction.
This action involved a dispute between a clothing distributor and its remaining principal (the plaintiffs Stuart’s LLC and Wayne Galvin) against a rival clothing distributor (defendant Level 8 Apparel, LLC) formed by Galvin’s former partner (defendant Stuart Edelman) together with core employees formerly employed by, and/or associated with, Stuart’s LLC, including defendant-appellant Michael Hong. Hong was a creative designer for Stuart’s and later Level 8.
Plaintiffs claimed that, among other things, the defendants colluded to divert assets and business from Stuart’s to Level 8. Plaintiffs asserted 16 causes of action against the defendants, including a slew of business tort claims.
After a 16-day, bench trial before Judge Vito M. DeStefano of the Nassau County Commercial Division, the court issued a 48-page Opinion methodically going through findings of fact, chief arguments raised by each of the parties, and the court’s determination on the issues before it.
As is relevant to the appeal, the trial court rendered a judgment in favor of Plaintiffs and against Hong in the amount of $1,436,128 arising out of three causes of action: tortious interference with contract between Stuart’s and non-party Tumi, Inc. ($173,375); tortious interference with business relationship between Stuart’s and Aeropostale, Inc. ($543,689); and unfair competition ($719,064).
The Second Department affirmed that portion of the judgment against Hong for tortious interference with contract, holding that there was adequate evidence in the record warranting the trial court’s finding that Hong tortiously interfered with Stuart’s licensing agreement with Tumi.
However, the Second Department did not come to the same conclusion with respect to the tortious interference with business relationship claim.
The chief difference between tortious interference with contract and tortious interference with business relationship, the Second Department pointed out, is that while the former requires an intentional procurement of breach without justification, the latter raises the culpability bar. Tortious interference with business relationship requires that the interference must be accomplished by “wrongful means or where the offending party acted for the sole purpose of harming the other party.” The conduct must amount to a crime or independent tort; conduct motivated by economic self-interest cannot be characterized as “solely malicious” sufficient to meet this standard.
Thus, while there was certainly evidence in the record that Hong knew Stuart’s had an existing business relationship with non-party Aeropostale, Inc., and that his collusive actions with the defendants impacted the relationship between Stuart’s and Aeropostale, Hong’s actions did not rise to the level of “wrongful” conduct required by the claim. At best, Hong’s conduct might be characterized as motivated by economic self-interest, which cannot be deemed “solely malicious.”
As such, the Second Department reversed the judgment as against Hong for tortious interference with business relationship in the amount of $543,689, holding that the cause of action should have been dismissed as to Hong.
Likewise, the Second Department closely examined the trial court’s determination on the unfair competition claim. Here too, the Second Department found that the trial record did not demonstrate that Hong “acted wrongfully” in alleged diverting Stuart’s business (his former employer) to Level 8 (his new employer). In the absence of evidence that Hong removed proprietary information from Stuart’s, or that Hong directly participated in conversations with non-parties Tumi or Aeropostale concerning the transfer of any business from Stuart’s to Level 8, his alleged collusion with other defendants who had taken a more direct and active role was simply not culpable enough to sustain this claim.
As such, the Second Department reversed the judgment as against Hong for unfair competition in the amount of $719,064, holding that this cause of action should have been dismissed.