I’ll illustrate the question with an incident that happened a couple years ago (and still causes problems in Sino-Japanese relations):
Packages of dumplings imported to Japan from China were found to be tainted with a pesticide after a dozen people were hospitalized. Despite quick identification of the brand in question and the Chinese origin of the dumplings, sales of dumplings and similar products plummeted as people panicked that other brands’ products could also be tainted. This panic also extented to domestically produced foodstuffs, despite there being no danger of contamination.
I’m curious about whether there has been any precedent of financial liability for indirect damages caused by a third party. That is, is there a valid argument that the initial Chinese company (if found to have knowlingly exported tainted dumplings) should be held responsible for the losses suffered by the above actions of the public? This incident involves international law, but I’d also be interested in any comparable domestic incidents. The incident seems similar to the Alar scare of the 1980’s, but with a single actor’s malfeasance as the trigger rather than presumably well-intentioned (if perhaps sensationalistice and/or inaccurate scientific research or media reporting).
My general assumption would be that there is no liability, but I know little about the law.
(The question came to me based on some arguments I came across while doing some reading about a different incident for my doctoral research. That particular incident was resolved on a non-legal basis so didn’t provide any light on the legal arguments involved. )
Acme, Inc. exports dumplings found to be tainted. As publicity about the tainted dumplings spreads, the public finds their appetite for dumplings diminished. Baxter, Inc. and Carlyle, Inc. find that their sale of dumplings to the public drop 15%. Do Baxter and Carlyle have claims against Acme for selling tainted dumplings?
I think that’s your hypothetical.
Any claim would have to arise out of tort law, since there’s no contract here. The couple of claims that come to mind initially are negligence and negligent interference with prospective business advantage (I think intentional interference with prospective business advantage fails because that tort requires a showing that Acme exported tainted dumplings with the explicit intent that doing so would interfere with B and C’s sale of dumplings).
Negligence is duty, breach, causation, damages. Negligent interference is more complicated, per the California pattern jury instruction, but the key there is the wrongfulness of the conduct. Your OP suggests that the Chinese company “knowingly” exported tainted dumplings, but I think that it might be hard to prove that.
So problems: causation and measure of damages. You’d have to show that the cause of market drop in sales was Acme’s exportation of tainted dumplings rather than media coverage of same which panicked the public, or some other change in people’s tastes. And is it fair to measure damages by drop in market share? Courts tend not to like doing that as it feels speculative.
Anyway, not really an answer, but my thoughts on the issue.
In general, non-logical or hysterical over-reactions by people are justifiably attributed to others.
This is true even when there is a more direct tort. For example, “My neighbors cat scratched me in their front yard, which so terrified me that I had nightmares every night and couldn’t sleep and so I lost my job, plus I had to spend thousands installing steel bars on my windows to make sure the cat couldn’t break into my house and attack me at night…” That is a hysterical over-reaction to a cat scratch, and the cat owner can’t be held liable for your hysteria.
In your example, you are saying that Acme should be liable to its’ competitors Baxter & Carlyle because of the hysteria of the public. Not likely to happen. Acme had no contract with Baxter or Carlyle, and it was the public reaction (or over-reaction) that harmed them. Acme can’t be held responsible for the action of the public.
I think this is absolutely the correct way to analyze the question. However, I would be truly startled to see a common law court find that an exporter of goods to a specific market has a duty of care to co-competitor exporters of similar goods to the same market.
As the pattern instructions note:
With the duty element being absent here, no cause of action for negligence lies, quite apart from proximate causation and damages (although these pose significant issues as well).
Sure, but the issue then becomes one of fairness: if Acme knowingly exported tainted dumplings to depress the market, so as to run B and C out of business, then you’d be in unfair competition territory. So while I agree with you, I’d add the caveat that courts are very likely to find that companies do have a duty to their competitors to “play fair.” Agree that under the circumstances set forth in the OP, it’s unlikely that unfair competition law comes into play, but an argument could be made, under the right circumstances.