Learning to recognize situations in which a business venture may have potential liability to another party is an important part of limiting risk in business operations. Tort law and products liability law set out certain conduct and standards of reasonableness and provide legal recourse when a violation of those standards results in an injury causing losses. Because business owners are ordinarily responsible for the intentional or accidental conduct of their employees who cause another party harm, it is essential for managers to understand ways in which to control risk and reduce liability. In this chapter, we discuss

The fundamental principles of tort law, types of torts, and how each applies in a business context.

Rules governing intentional and business competition torts.

How liability arises for negligent acts and the defenses to liability.

Special rules governing strict liability and products liability.

A tort1 is a civil wrong where one party has acted, or in some cases failed to act, and that action or inaction causes a loss to be suffered by another party. The law provides a remedy for one who has suffered an injury by compelling the wrongdoer to pay compensation to the injured party. Tort law is best understood as law that is intended to compensate injured parties for losses resulting in harm from some unreasonable conduct by another.2 One who commits a tort is known as the tortfeasor. The tortfeasor's wrongful conduct is described as tortious conduct. Recall from Chapter 1, "Legal Foundations," that an individual may commit a criminal offense and a civil wrong in the very same act. While criminal statutes are intended to punish and deter the wrongdoer, the common law of torts is primarily intended to provide compensation for the victim. In some cases, tort law also may be used to deter wrongful conduct in the future.

SOURCES OF LAW For the most part, tort law is governed by state common law principles. Recall from Chapter 1, "Legal Foundations," that courts look to rules articulated by the American Law Institute (ALI) for guidance on applying common law legal principles. For tort law, these rules are known as the Restatement of Torts. The ALI has amended the Restatements twice, and, therefore, these sources of law are called the Restatement (Second) of Torts and the Restatement (Third) of Torts. Remember that courts are not bound by any of the Restatements, but they do recognize them as widely applied principles of law. The Second Restatements have the benefit of volumes of case law and wide acceptance, and therefore references to the Restatements in this chapter refer to the Second Restatements unless otherwise noted.

Laws that cover individuals who are injured by a product, known as products liability laws, may take the form of state common law or state statutes that expressly impose liability for injuries that result from products. These statutes are based primarily on the Restatements and are relatively uniform from state to state.

CATEGORIES OF TORTS

Torts fall into one of three general categories: intentional torts, negligence, and strict liability. An intentional tort is one in which the tortfeasor is willful in bringing about a particular event that causes harm to another party. Negligence is an accidental (without willful intent) event that causes harm to another party. The difference between the two is the mind-set and intent of the tortfeasor. For example, suppose that Pangloss is the delivery van driver for Cultivate Your Garden Flowers Inc. One day while on a delivery he spots his archenemy crossing the street, so he accelerates his truck and hits him. In this case, Pangloss has committed an intentional tort (battery). If, on the other hand, Pangloss is late for his delivery, carelessly speeds around a turn, and accidentally hits a pedestrian crossing the street, he has committed the tort of negligence.

Strict liability torts, in which a tortfeasor may be held liable for an act regardless of intent or willfulness, applies primarily in cases of defective products and abnormally page 284dangerous activities (such as major construction demolition). Owning a wild animal or even some breeds of dogs can result in strict liability should the animal harm an individual, regardless of the precautions taken by the animal's owner.3

Apply the elements and defenses of the torts of defamation, trade libel, and product disparagement and discuss the applicability of each in the business environment.

While the law provides relief for injured parties in a variety of circumstances, there are some intentional torts that are more important to business owners and managers because they have the potential to impact business relationships and operations.

Defamation

The law recognizes an individual's or a company's reputation as a valuable asset by imposing liability on any party that makes false and defamatory statements affecting another party's reputation. In this context, the term party means an individual, business, or product. Just as in all civil lawsuits, the untrue statements must have caused the victim to suffer damages. Generally, we think of written defamation as libel and oral (spoken) defamation as slander. In order to recover for a defamation action, the plaintiff must prove four elements:

Defamatory statement: A false statement concerning a party's reputation or honesty or a statement that subjects a party to hate, contempt, or ridicule. In order to qualify as defamatory, the statement must have a tendency to harm the reputation of the plaintiff.4 Because many statements can be interpreted in more than one way, the law provides that the statement is defamatory so long as a defamatory interpretation is an objectively reasonable one and the plaintiff shows that at least one of the recipients did in fact make that interpretation. Note that the statement must be false, not merely unkind. Moreover, if a statement was pure opinion, that statement is not defamatory. That is, a defamatory statement is one that must be provable as false.

Dissemination to a third party: In the Restatements, this requirement is referred to as publication, but in this context it does not literally require the statement to be published. Rather, this element requires that the statement must somehow reach the ears or eyes of someone other than the tortfeasor and the victim. For example, suppose a manager telephones one of his employees and says, "You are the one who stole $100 in petty cash, so you're fired." Even if the accusatory statement is false, the manager has not defamed the employee based on that action alone. No third party heard the statement, and, thus, the dissemination element is missing.

Specificity: The statement must be about a particular party, business, or product. Thus, any general statement about a profession as a whole cannot constitute defamation, but a false statement about a specific company can be the basis of a reputation claim.

Damages: In a business context, the aggrieved party must be able to prove that he or she suffered some pecuniary harm. Examples of damages in a defamation suit include situations in which the victim has lost a valuable client due to the tortfeasor's defamatory comment or the victim is unable to secure employment because of a tortfeasor's defamatory comment during a reference check.

Malice

The intent, without justification or excuse, to commit a wrongful act or inflict harm.

Public Figure Standard If the victim is a public figure, such as a candidate for political office or a celebrity, the defamation must have been committed with malice or reckless disregard for the truth. This "public figure" rule is based on the U.S. Supreme Court's landmark ruling in New York Times v. Sullivan.5 The case involved a public official, the police commissioner of New York City, who sued The New York Times for defamation based on allegations printed in the newspaper that accused him of complicity in criminal activity. In announcing the public figure standard, the Court ruled that, in order for a public figure to prevail in a defamation case, the plaintiff must provide evidence that the defamer either had "actual knowledge" that the statement was false or made the defamatory statement with a "reckless disregard for the truth."

FACT SUMMARY The National Football League hired the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP and one of its partners, Theodore Wells (collectively Wells), to investigate allegations of bullying within the Miami Dolphins organization. The investigation centered on the bullying of a football player, Jonathan Martin, who abruptly left the Dolphins team midway through the 2013 season. At the time, Martin was an offensive lineman in his second year with the Dolphins. After leaving a Dolphins facility on October 28, 2013, Martin checked himself into a hospital for psychological treatment. Later, Martin explained that he left the team because of persistent taunting from other Dolphins players.

After several months of investigation, Wells published a 144- report (the Report) that concluded that bullying by other Dolphins players contributed to Martin's decision to leave the team. The Report also included several references to their offensive line coach, James Turner (Turner), and opined that Turner's unprofessional conduct played a role in Martin's struggles. The Report noted that Dolphins coaches and players created a culture that enabled the bullying by discouraging players from snitching on other players, known in the organization as "the Judas Code." It concluded that the treatment of Martin and others in the Miami Dolphins organization at times was "offensive and unacceptable in any environment."

After receiving the Report in February 2014, the Dolphins fired Turner, who in turn filed a defamation lawsuit against Wells and his law firm. The trial court found in favor of Wells because (1) the Report consisted of opinions and therefore was not actionable in a defamation suit and (2) Turner was a public figure and failed to adequately plead actual malice in his complaint. Turner appealed.

SYNOPSIS OF DECISION AND OPINION The U.S. Court of Appeals for the eleventh Circuit affirmed the decision of the trial court in favor of Wells. The court held (1) the Report was a product of a careful balance in the investigation and that the statements were opinion-based and could not be categorized as false or misleading and (2) Turner was a public figure and therefore had an even higher hurdle to clear, malice, but that there was no evidence of malice during the investigation or upon publication of the subsequent report.

WORDS OF THE COURT: Fact versus Opinion "Notably too, the Report included several cautionary statements that inform a reasonable reader that the conclusions contained therein are opinions. For example, the Report stated several times that it sets forth the Defendants' opinions, based on a lengthy investigation: '[t]he opinions set forth in the findings and conclusions below and elsewhere in this Report are our own'; '[i]n our opinion, the factual record supports the following findings' ... Further, it is well settled in Florida that commentary or opinion based on accurate facts set forth in an page 286article 'are not the stuff of libel.' That is precisely the case here."

WORDS OF THE COURT: Public Figure "'[S]ports figures are generally considered public figures because of their position as athletes or coaches.' ... Here, Coach Turner chose to put himself in the public arena. As the Report noted, Turner was the focus of the 2012 season of Hard Knocks, an HBO television program that 'showcase[ed] Turner's coaching style and featur[ed] interviews and footage of him on the field and in the locker room.' During his coaching career, Turner was the subject of several articles discussing his career and coaching philosophy. Turner was a prominent person on the closely followed Dolphins professional sports team.... [Turner] has failed to provide any evidence of malice in this case."

Case Questions

Why is it important that the court concluded that the Report was largely the opinions of Wells and his colleagues?

Why is malice an important factor in analyzing this case?

Focus on Critical Thinking: Why is there a special standard for public figures? Is that good public policy or does it prevent public figures from pursuing legitimate claims?