I Scream, You Scream...

So the law of tortious interference in business relations (our equivalent would be intentional interference with economic relations) just got a little narrower in the state of New York, as a result of a decision from the New York Court of Appeals in Carvel Corp. v. Noonan.

The quick overview of the case is as follows:  Until the early 1990's, Carvel only distributed its (rather tasty) ice cream through franchised locations.  After some rough economic times, Carvel decided to develop an alternate distribution stream... through supermarkets.  Franchisees were invited to participate in this new distribution stream, but participation required additional license fees and store upgrades, so few franchisees jumped on the bandwagon.

After some time, it became apparent to the franchisees that the supermarket program was thriving, while the franchises were... not.

The problem for Carvel was that at least some of its franchise agreements contained a restrictive covenant that prevented Carvel from competing within a particular territory (others didn't contain territorial restrictions and in fact specifically gave Carvel discretion to develop alternate methods of distribution and the right to itself operate or to license others to operate competing outlets).

A group of franchisees sued Carvel for tortious interference with business relations, and at trial, received a favourable verdict.  That verdict was overturned on appeal, and the Court of Appeals in doing so based its decision on the question of whether the means employed by Carvel in competing with the franchisees were "wrongful" or "culpable" (that is; essentially whether the acts would be criminal or independently tortious).  The Court of Appeals determined that they were not.

Interestingly, the Court of Appeals also noted in its decision that in choosing an alternate method of distribution, Carvel was doing what it had to to ensure economic survival, and was justified in doing so.

The result of this case may very well be that franchisees (and others) who wish to argue tortious interference with business relations are going to find it much more difficult making their case in the state of New York.