Torts

Can Conspiring to Engage in a Legal Act Be Actionable "Civil Conspiracy"?

An interesting discussion of the question—with a vivid example—in a South Carolina case.

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In last week's Paradis v. Charleston County School Dist., the South Carolina Supreme Court rejected the requirement that allegations of tortious civil conspiracy include a claim of "special damages that go beyond the damages alleged in other claims to state a cause of action [for the underlying tort]." In the process, Chief Justice Beatty's opinion noted, but didn't resolve, a question about the scope of the civil conspiracy tort:

We note a few jurisdictions recognize two forms of civil conspiracy. The first, which is the general rule, requires an underlying actionable wrong or tort, and liability is imposed on an individual for the tort of another. A second form, also described as an exception to the general rule, exists when the conduct complained of would not be actionable if done by one person, but where by force of numbers or other exceptional circumstances, the defendants possess a peculiar power of coercion that gives rise to an independent tort of civil conspiracy (often referred to as the "force of numbers" or "economic boycott" exception). See Am. Diversified Ins. Servs., Inc. v. Union Fid. Life Ins. Co. (Fla. Dist. Ct. App. 1983); Baker v. Wilmer Cutler Pickering Hale & Dorr LLP (Mass. App. Ct. 2017); see also Schmitt v. MeritCare Health Sys. (N.D. 2013) (observing "[s]ome courts have applied an 'economic boycott' or 'force of numbers' exception to the general rule that the basis for a civil conspiracy must be an independent wrong or tort," but not deciding whether to adopt the exception in that state because it would not be applicable, in any event).

Early South Carolina law … appeared to reference similar concepts. See, e.g., Howle v. Mountain Ice Co. (S.C. 1932); Charles II v. Texas Co. (S.C. 1942). However, to rule on whether this Court has or ever will recognize an exception to the general rule would require the Court to issue an advisory opinion on a distinct subject that has not yet been disputed in this case.

But Justice Few's separate opinion argued that the court should indeed consider the issue, and reject the second formulation:

[T]he special damages requirement we now [rightly] hold legally invalid previously served the valid practical purpose of restraining the use of the undefined civil conspiracy cause of action. In almost all legitimate civil actions, there are no "special damages" as that term was used in civil conspiracy. In other words, it was hardly ever possible to allege or prove "damages that go beyond the damages alleged in other causes of action." As a practical matter, therefore, the requirement of special damages prevented civil conspiracy from being a significant cause of action in civil litigation.

Now, any plaintiff may bring a civil conspiracy action against any defendant—even for lawful, non-tortious conduct—and the law imposes no meaningful standards on courts and juries by which they must judge the defendant's conduct. I disagree with the majority that we should unleash this still-undefined and now-unrestrained menace on the public as an independent tort. To that extent, I respectfully dissent.

Certainly, civil conspiracy is a proper cause of action in its derivative form…. If one defendant who did not personally commit defamatory acts conspired with another who did defame the plaintiff, the legal elements the plaintiff must establish in a defamation case—along with the legal requirements for conspiracy—guide the court and the jury in deciding whether the conspirator should also be liable for defamation.

As an independent tort, however, the undefined theory of civil conspiracy leaves courts and juries free to determine civil liability—both of the alleged tortfeasor and the supposed conspirator—not based on the law, but by using the individual judge or juror's sense of fairness or responsibility. Imagine in a fraud case that the dispute arose out of business competition between the plaintiff and the defendant. The defendant intentionally made a false statement to the plaintiff for the purpose of gaining competitive advantage.

Imagine further the plaintiff's fraud cause of action fails because the court or the jury finds—applying the law—the plaintiff had no right to rely on the false statements. The defendant's conduct might have been unfair or irresponsible, but the plaintiff loses on the fraud claim—rightfully—because the law does not support the claim.

If, however, the plaintiff's lawyer thought to add a cause of action for civil conspiracy, the plaintiff might nevertheless prevail because the independent tort of civil conspiracy has no specific requirements, elements, or standards to guide the court and jury. Civil conspiracy … permits the court and jury to impose liability for lawful, non-tortious conduct.

We need not imagine how a defamation claim could unfold; we can turn to the plaintiff's allegations in this case. The plaintiff alleged in her complaint the principal of the school where she taught became angry when she asked him to report a student to the police for disruptive behavior in her classroom. She claimed the principal retaliated against her by placing her into a formal job evaluation process she did not deserve and her conduct did not warrant. By the time the evaluation results were reported, the principal was no longer involved, both because he did not participate in the evaluations and because he was no longer employed at the school. She claimed statements made about her during the evaluation process—not by the principal—defamed her as being a bad teacher.

On a derivative claim for conspiracy to commit defamation, the principal would have the defenses of truth, fair reporting privilege, the two-year statute of limitations for defamation, and perhaps others. If the statements made by those conducting the evaluation were true or fair, or if the claim was brought outside the limitations period, the principal—like those who made the defamatory remarks—would rightfully benefit from those legally defined defenses.

The plaintiff's lawyer in this case did think to add a cause of action for civil conspiracy. Thus, on the majority's remand for trial, the plaintiff might nevertheless prevail because the independent tort of civil conspiracy has no specific requirements, elements, or standards to guide the court and jury. Defamation defenses do not apply to civil conspiracy, which—as confirmed by the majority to be an independent tort—permits the court and jury to impose liability for lawful, non-tortious conduct based on a court or juror's sense of fairness or responsibility. In other words, the civil conspiracy claim we remand for trial permits a court and jury to impose liability for defamation despite the fact the law provides valid defenses that prevent liability.

My point is illustrated by a case I tried years ago when I was a circuit judge. I have modified the facts slightly for simplicity. In an aging twenty-four unit condominium building in a beachfront city here in South Carolina, owners could sell individual units for an average of $250,000. A real estate developer believed he could renovate the building and sharply increase the value of each unit. The developer offered to purchase each unit for $400,000 on the condition that each of the twenty-four owners must sell.

The owners realized their units were undervalued; they predicted that even this offer was less than full value; and they decided to seek competing offers from other developers. After receiving a superior offer from a second developer, and a counter offer from the first, the owners voted to accept the offer from the second developer. Twenty-three of them entered contracts to sell their units to the second developer.

The first developer—understandably—did not give up. He had figured out a way to bring a combined financial benefit of $3.6 million ($150,000 each) to the twenty-four unit owners, to renovate an aging building in the city, to employ quite a few people in the renovation and resale process, and to make a considerable profit for himself.

He knew the condominium owners' association by-laws did not permit a sale or renovation of the entire building on less than a unanimous vote. Thus, he knew the second developer could not complete the deal without successfully purchasing all twenty-four units. So, the first developer approached one of the unit owners and purchased that individual unit for $600,000. By doing so, he placed himself back in control of the deal he had conceived.

Everybody was furious with the first developer, and they all sued him on every conceivable cause of action. The breach of contract claim failed because the developer had no contract with anyone except the one owner who sold to him. The breach of fiduciary duty claim failed because the developer owed no such duty. The fraud and slander of title claims failed because the developer made no false statement. The intentional interference with a contract claim failed because the developer was justified in purchasing real estate to further his own financial interests. The interference with prospective contractual rights claim failed because the unit owners had a contract to sell to the second developer, not prospective contractual rights.

I dismissed each of those claims because—applying the law—the plaintiffs had no right to recover from the developer. Nothing was left, except civil conspiracy.

In a hearing on the developer's motion for a directed verdict, the plaintiffs acknowledged the developer's actions were lawful. Quoting, however, from this Court's opinion in LaMotte v. Punch Line of Columbia, Inc. (S.C. 1988), the plaintiffs argued "lawful acts may become actionable as a civil conspiracy when the 'object is to ruin or damage the business of another,'" and, "An action for civil conspiracy may exist even though respondents committed no unlawful act and no unlawful means were used."

The plaintiffs' arguments were facially correct. The first developer intentionally conspired with the owner of one unit for the purpose of preventing the other twenty-three owners from realizing the extra value in their units, and for the purpose of preventing the second developer from profiting from renovation of the building and resale of the renovated units.

Yet, I granted a directed verdict on the civil conspiracy claim. I did so because the law should never permit a court or a jury to impose civil liability for lawful, non-tortious conduct. Without specific requirements, elements, or standards, the decision maker is left with nothing but its own sense of what is fair or responsible. That is neither fair nor responsible.

In our free-enterprise economy, we encourage entrepreneurs to use aggressive tactics to seize competitive advantage, create jobs for our people, and build value for our communities. For these efforts, entrepreneurs rightfully expect to earn handsome profits. Participants in this healthy competition use every lawful tactic at their disposal. Those who lose out are understandably envious, and often angry. But, actions that conform to the law—even when motivated by anger or an intent to harm—must not be the basis of civil liability. As the Supreme Court of the United States admonished 160 years ago,

"An act legal in itself, and violating no right, cannot be made actionable on account of the motive which superinduced it. It is the province of ethics to consider of actions in their relation to motives, but jurisprudence deals with actions in their relation to law …."