author: R.S. Smith, J. Graffeo, J. (concurring).

text:
    [818 NE2d 1100, 785 NYS2d 359]
    Carvel Corporation, Appellant, v Elizabeth A. Noonan et al., Respondents, et al., Defendants, et al., Special Masters.
    Argued September 8, 2004;
    decided October 14, 2004

      POINTS OF COUNSEL

      Gibson, Dunn & Crutcher LLP, New York City (Mitchell A. Karlan, Marshall King, David Arroyo, Michelle Craven and Michael Passante of counsel), for appellant.
    I. Under applicable standards for a claim of tortious interference with prospective economic relations, the evidence of the franchisor’s conduct in each of the three trials on review in these consolidated appeals did not permit a jury finding in favor of the franchisee. (Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382; Apple Records v Capitol Records, 137 AD2d 50; Boscorale Operating v Nautica Apparel, 298 AD2d 330; Polar Intl. Brokerage Corp. v Richman, 291 AD2d 219; Collins v E-Magine, LLC, 291 AD2d 350; Sommer v Federal Signal Corp., 79 NY2d 540; Purchasing Assoc. v Weitz, 13 NY2d 267; Camp Cr. Hospitality Inns, Inc. v Sheraton Franchise Corp., 139 F3d 1396; Williams v Barkley, 165 NY 48; Musman v Modern Deb, 56 AD2d 752.) II. Public harm is required for a punitive damages claim by a franchisee against its franchisor for tortious interference with the franchisee’s prospective economic relations with its customers. (Walker v Sheldon, 10 NY2d 401; Rocanova v Equitable Life Assur. Socy., 83 NY2d 603; New York Univ. v Continental Ins. Co., 87 NY2d 308; Home Ins. Co. v American Home Prods. Corp., 75 NY2d 196; Prozeralik v Capital Cities Communications, 82 NY2d 466; Cooper Indus., Inc. v Leatherman Tool Group, Inc., 532 US 424; Garrity v Lyle Stuart, Inc., 40 NY2d 354; Koufakis v Carvel, 425 F2d 892; Honda Motor Co., Ltd. v Oberg, 512 US 415; BMW of N. Am., Inc. v Gore, 517 US 559.)

      Duane Morris LLP, Philadelphia, Pennsylvania (J. Manly Parks, Wayne A. Mack and James H. Steigerwald of counsel), and Aegis J. Frumento, New York City, for respondents.
    I. Under applicable standards for a claim of tortious interference with prospective economic relations, the evidence of the franchisor’s conduct in each of the three trials on review in these consolidated appeals permitted a jury finding in favor of the franchisee. (Federal Waste Paper Corp. v Garment Ctr. Capitol, 268 App Div 230, 294 NY 714; Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183; Jews for Jesus Inc. v Jewish Community Relations Council of N.Y., Inc., 968 F2d 286; Bogoni v Friedlander, 197 AD2d 281; Alexander & Alexander v Fritzen, 68 NY2d 968; NBT Bancorp v Fleet/Norstar Fin. Group, 87 NY2d 614; Pagliaccio v Holborn Corp., 289 AD2d 85; Harden, S.P.A. v Commodore Elecs., 90 AD2d 733; Coleman & Morris v Pisciotta, 279 App Div 656; A.S. Rampell, Inc. v Hyster Co., 3 NY2d 369.) II. Public harm is not required for a punitive damages claim by a franchisee against its franchisor for tortious interference with the franchisee’s prospective economic relations with its customers. (H & R Indus., Inc. v Kirshner, 899 F Supp 995; New York Univ. v Continental Ins. Co., 87 NY2d 308; Rocanova v Equitable Life Assur. Socy., 83 NY2d 603; Blank v Baronowski, 959 F Supp 172; Sauer v Xerox Corp., 95 F Supp 2d 125; Queenie, Ltd. v Nygard Intl., 204 F Supp 2d 601, 321 F3d 282; Buchwald & Assoc. v Rich, 281 AD2d 329; Walker v Sheldon, 10 NY2d 401; Giblin v Murphy, 73 NY2d 769; Rochelle Assoc. v Fleet Bank of N.Y., 230 AD2d 605.)

      Boies, Schiller & Flexner LLP, Albany (George F. Carpinello of counsel), for Caesars Entertainment, Inc., amicus curiae.
    I. New York law, in its current state, does not provide sufficient guidance as to the bounds of legitimate competition. (Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183; A.S. Rampell, Inc. v Hyster Co., 3 NY2d 369; Duane Jones Co. v Burke, 306 NY 172; Rice v Manley, 66 NY 82; Livoti v Elston, 52 AD2d 444; Gold Medal Farms v Rutland County Coop. Creamery, 9 AD2d 473; Lurie v New Amsterdam Cas. Co., 270 NY 379; NBT Bancorp v Fleet/Norstar Fin. Group, 87 NY2d 614.) II. “Wrongful means” should be defined as illegal or independently tortious conduct. (National Data Payment Sys., Inc. v Meridian Bank, 212 F3d 849; Speakers of Sport, Inc. v ProServ, Inc., 178 F3d 862; DP-Tek, Inc. v AT & T Global Info. Solutions Co., 100 F3d 828; Amerinet, Inc. v Xerox Corp., 972 F2d 1483; Great Escape, Inc. v Union City Body Co., Inc., 791 F2d 532; Conoco Inc. v Inman Oil Co., Inc., 774 F2d 895; MLI Indus, v New York

      State Urban Dev. Corp., 205 AD2d 998; Union Car Adv. Co. v Collier, 263 NY 386.) III. The “wrongful means” test should apply even where defendant is not technically a “competitor” of plaintiff. IV Tortious interference should be actionable only when directed at the third party in plaintiffs business relationship. (G.K.A. Beverage Corp. v Honickman, 55 F3d 762; Piccoli A/S v Calvin Klein Jeanswear Co., 19 F Supp 2d 157; Marilyn Miglin, Inc. v Gottex Indus., Inc., 790 F Supp 1245; Feeley v Whitman Corp., 65 F Supp 2d 164; Volvo N. Am. Corp. v Men’s Intl. Professional Tennis Council, 857 F2d 55.) V Motive should not be relevant on a claim for tortious interference with prospective economic relations where defendant’s actions are intended to advance its own economic interests. (Beardsley v Kilmer, 236 NY 80; Biber Bros. News Co. v New York Evening Post, 144 Misc 405; Forken v CIGNA Corp., 234 AD2d 992; Quail Ridge Assoc. v Chemical Bank, 162 AD2d 917; Terry v Dairymen’s League Coop. Assn., 2 AD2d 494; Reinforce, Inc. v Birney, 308 NY 164; Burns Jackson Miller Summit & Spitzer v Lindner, 59 NY2d 314; Squire Records v Vanguard Rec. Socy., 25 AD2d 190, 19 NY2d 797; Impastato v Heilman Enters., 147 AD2d 788.) VI. “Economic pressure” should not be a basis for finding of wrongful means, unless such economic pressure violates antitrust laws or other well-established tort principles. (NBT Bancorp, v Fleet/Norstar Fin. Group, 87 NY2d 614; Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183; New York Univ. v Continental Ins. Co., 87 NY2d 308; Rocanova v Equitable Life Assur. Socy., 83 NY2d 603; Catskill Dev., L.L.C. v Park Place Entertainment Corp., 217 F Supp 2d 423.) VII. Applying the proposed standard to the Carvel actions should result in dismissal.

      Proskauer Rose LLP, New York City (Dale A. Schreiber and Nancy Kilson of counsel), for Independent Franchisees of Weight Watchers International, Inc., amicus curiae.
    I. Franchisees, like other contracting parties in New York, should be able to assert tort claims in appropriate cases. (Apple Records v Capital Records, 137 AD2d 50; A.S. Rampell, Inc. v Hyster Co., 3 NY2d 369; Collins v E-Magine, LLC, 291 AD2d 350; Boscorale Operating v Nautica Apparel, 298 AD2d 330; North Shore Bottling Co. v Schmidt & Sons, 22 NY2d 171; New York Univ. v Continental Ins. Co., 87 NY2d 308; Rich v New York Cent. & Hudson Riv. R.R. Co., 87 NY 382; Albemarle Theatre v Bayberry Realty Corp., 27 AD2d 172; Sommer v Federal Signal Corp., 79 NY2d 540.) II. Franchisors should not be free from liability for any conduct motivated by economic self-interest, nor should the “wrongful means” standard apply to franchisors. (Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183; NBT Bancorp v Fleet/Norstar Fin. Group, 87 NY2d 614; Mobil Oil Corp. v Rubenfeld, 48 AD2d 428, 40 NY2d 936.)

      Law Offices of Michael B. Wolk, P.C., New York City (Michael B. Wolk, Edmund F. Wolk, Peter J. Rossi and Michael E. Morrison of counsel), for Inverraz Group, amicus curiae.
    I. This Court has indicated that the Restatements (Second) of Torts’ doctrinal approach is consistent with New York law in the tortious interference realm. (Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183.) II. The historical development, and common-law evolution, of a claim for tortious interference with prospective business relations indicates that this Court should reject most, if not all, of the “policy arguments” advanced in Carvel Corporation’s brief and in appellant’s amicus brief. (Devlin v United States, 352 F3d 525; Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183; Browning v Clinton, 292 F3d 235; Rich v New York Cent. & Hudson Riv. R.R. Co., 87 NY 382; North Shore Bottling Co. v Schmidt & Sons, 22 NY2d 171; Albemarle Theatre v Bayberry Realty Corp., 27 AD2d 172; S & S Hotel Ventures Ltd. Partnership v 777 S.H. Corp., 108 AD2d 351; Credit Agricole Indosuez v Rossiyskiy Kredit Bank, 94 NY2d 541.) III. Under New York law, an adjudication of a claim for tortious interference with prospective business relations involves the application of a three-part, shifting burden of proof that imposes different pleading and proof obligations on the parties at different stages of the case. (Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183; NBT Bancorp, v Fleet/Norstar Fin. Group, 87 NY2d 614; A.S. Rampell, Inc. v Hyster Co., 3 NY2d 369; Alexander & Alexander v Fritzen, 68 NY2d 968; Scutti Enters., LLC v Park Place Entertainment Corp., 322 F3d 211; S & S Hotel Ventures Ltd. Partnership v 777 S.H. Corp., 108 AD2d 351; Albemarle Theatre v Bayberry Realty Corp., 27 AD2d 172; Felsen v Sole Cafe Mfg. Corp., 24 NY2d 682; Bogoni v Friedlander, 197 AD2d 281; Unionport Shoes v Parkchester S. Condominium, 205 AD2d 385.) IV There is no compelling policy reason for vacating a jury’s award of punitive damages against a defendant, such as Carvel Corporation, whom a jury has found independently liable, in tort, for willfully violating an independent societally-imposed duty because of the happenstance that, under the circumstances, defendant’s intentionally tortious conduct also violated a privately-imposed contractual duty between the parties. (Giblin v Murphy, 73 NY2d 769; Rocanova v Equitable Life Assur. Socy., 83 NY2d 603; Buchwald & Assoc. v Rich, 281 AD2d 329; Queenie, Ltd. v Nygard Intl., 321 F3d 282; Rich v New York Cent. & Hudson Riv. R.R. Co., 87 NY 382; North Shore Bottling Co. v Schmidt & Sons, 22 NY2d 171; Albemarle Theatre v Bayberry Realty Corp., 27 AD2d 172; S & S Hotel Ventures Ltd. Partnership v 777 S.H. Corp., 108 AD2d 351; Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183; New York Univ. v Continental Ins. Co., 87 NY2d 308.)
   OPINION OF THE COURT

R.S. Smith, J.

Several franchisees of Carvel Corporation sued it in federal court, complaining of the distribution of Carvel’s products through supermarkets that competed with the franchisees. Juries awarded damages to three of the franchisees on tort and contract claims, and Carvel appealed to the United States Court of Appeals for the Second Circuit. That court has certified to us the question of whether the franchisees have a valid tort claim for “interference with prospective economic relations.” We hold that they do not.

The Facts

Until the early 1990’s, Carvel ice cream was distributed only through franchised stores, and Carvel had repeatedly told its franchisees it had no plans to sell through supermarkets. A decline in Carvel’s fortunes caused it to change its mind, however, and Carvel adopted a “supermarket program.” The program called for sales to supermarkets by Carvel itself and by those franchisees that chose to participate in the program— which required franchisees to pay substantial license fees and to upgrade their stores. Most franchisees chose not to participate. From 1993 to 2000, the supermarket program grew rapidly, while many franchised stores went out of business.

The franchisees assert that Carvel’s supermarket program was harmful to them in itself, and that the details of the program’s implementation made things worse. Among their grievances are that Carvel sold to supermarkets at bargain prices; that it issued coupons to customers that Carvel would redeem from supermarkets but not from franchisees; and that those coupons were printed on bags that Carvel required franchisees to use in their stores. They contend that, as their expert witness testified, Carvel’s supermarket program was not “consistent with the customary practices and standards in the franchise industry.”

The franchisees’ claims, both in contract and. tort, are illuminated by their written agreements with Carvel. Those agreements were of two types. The earlier agreements, known as “Type A,” included a specific restriction on Carvel’s rights to compete with its franchisees, providing that Carvel “will not establish or license another person to establish a Carvel Store” within a quarter mile of the franchisee’s store on the same street. The Type A agreements contained other language, including a reference to “a unique system for the production, distribution and merchandising of Carvel products,” that the franchisees interpret as prohibiting Carvel from implementing its supermarket program.

The later, “Type B,” agreements also contained the “unique system” language, but not the quarter-mile restriction. They provided that the license granted to the franchisee was “nonexclusive,” and that Carvel “in its sole and absolute discretion” could license other Carvel stores and could sell its products “through the same or different delivery systems or other distribution channels.” The franchisees who signed Type B agreements had all received, before they signed the agreements, an offering circular saying that Carvel was free to sell through ‘ ‘supermarkets. ’ ’

Of the three franchisees whose cases are now before us, two, Marsella and the Noonans, signed Type A agreements; the third, Giampapa, signed Type B. Each agreement contains a New York choice of law clause, and it is not disputed that New York law governs both the contract and tort claims.

The two franchisees who signed Type A agreements were allowed to go to juries on claims that Carvel “breached its franchise agreement” with them. One of them, the Noonans, got a favorable verdict on that claim. All three of the franchisees went to juries on claims that Carvel “breached the implied covenant of good faith and fair dealing” and “tortiously interfered with the [franchisee’s] existing or prospective business relations,” and all three got favorable verdicts on those two claims. Only the verdicts for tortious interference with business relations are now our concern.

The Certified Questions

The Second Circuit Court of Appeals certified the following two questions to us:

1. “Under applicable standards for a claim of tortious interference with prospective economic relations, did the evidence of the franchisor’s conduct in each of the three trials on review in these consolidated appeals permit a jury finding in favor of the franchisee?” (350 F3d 6, 23 [2003].)
2. “Is public harm required for a punitive damages claim by a franchisee against its franchisor for tortious interference with the franchisee’s prospective economic relations with its customers?” (Id. at 26.)

We answer the first question “no.” This answer renders the second question academic.

Discussion

The franchisees’ tort claim is that Carvel unlawfully interfered with the relationships between the franchisees and their customers. The franchisees do not claim that the customers had binding contracts that Carvel induced them to breach; they allege only that, by implementing its supermarket program, Carvel induced the customers not to buy Carvel products from the franchisees. The juries have found that Carvel did so induce customers, and the question for us is whether that inducement was tortious interference under New York law. We conclude that it was not because Carvel’s conduct, which did not constitute a crime or an independent tort and was not aimed solely at harming franchisees, was also not the sort of egregious wrongdoing that might support a tortious interference claim in the absence of such an independently unlawful act or evil motive.

We have recognized that inducing breach of a binding agreement and interfering with a nonbinding “economic relation” can both be torts, but that the elements of the two torts are not the same. Our leading cases, as the Second Circuit Court of Appeals noted, are Guard-Life Corp. v S. Parker Hardware Mfg. Corp. (50 NY2d 183 [1980]) and NET Bancorp Inc. v Fleet/Norstar Fin. Group, Inc. (87 NY2d 614 [1996]). We said in NET, summarizing what we had held in Guard-Life.

“[T]he degree of protection available to a plaintiff for a competitor’s tortious interference with contract is defined by the nature of the plaintiffs enforceable legal rights. Thus, where there is an existing, enforceable contract and a defendant’s deliberate interference results in a breach of that contract, a plaintiff may recover damages for tortious interference with contractual relations even if the defendant was engaged in lawful behavior. Where there has been no breach of an existing contract, but only interference with prospective contract rights, however, plaintiff must show more culpable conduct on the part of the defendant.” (87 NY2d at 621 [citations omitted].)

By saying in NBT that a defendant who induced the breach of a binding contract could be liable “even if the defendant was engaged in lawful behavior,” we implied that the same was not ordinarily true where the plaintiff complained only of “interference with prospective contract rights.” This applies equally if not a fortiori, here, where the franchisees complain of interference not with “contract rights” but only with existing or prospective economic relations.

Under NBT, where a suit is based on interference with a nonbinding relationship, the plaintiff must show that defendant’s conduct was not “lawful” but “more culpable.” The implication is that, as a general rule, the defendant’s conduct must amount to a crime or an independent tort. Conduct that is not criminal or tortious will generally be “lawful” and thus insufficiently “culpable” to create liability for interference with prospective contracts or other nonbinding economic relations.

Since the franchisees have not shown that Carvel’s conduct was criminal or independently tortious, they cannot recover unless an exception to the general rule is applicable. Such an exception has been recognized where a defendant engages in conduct “for the sole purpose of inflicting intentional harm on plaintiffs” (NBT Bancorp, Inc. v Fleet/Norstar Fin. Group, Inc., 215 AD2d 990, 990 [3d Dept 1995], affd 87 NY2d 614 [1996]), but that exception clearly does not apply here. It is undisputed that Carvel’s motive in interfering with the franchisees’ relationships with their customers was normal economic self-interest; Carvel wanted to reverse a period of business declines and make itself more profitable. It was not acting solely to hurt the franchisees; indeed, one of the franchisees’ prize pieces of evidence is a statement by a Carvel executive, in colorful terms, that he was completely indifferent to the franchisees’ fate.

We did not decide in Guard-Life or NBT, and we do not decide today, whether any other exception to the general rule exists— whether there can ever be other instances of conduct which, though not a crime or tort in itself, was so “culpable,” to use NBT’s word, that it could be the basis for a claim of tortious interference with economic relations. That is a question we leave for another day, because no such egregious conduct was shown here.

The sort of “more culpable” conduct we had in mind in NBT was described in Guard-Life, where we referred to a Restatement section dealing with the issue of when a business competitor may recover against another for “tortious interference.” Where no binding contract is interfered with, and there is no “unlawful restraint of trade,” the Restatement provides that the competitor will not be liable so long as “the means employed are not wrongful.” (Guard-Life, 50 NY2d at 191, summarizing Restatement [Second] of Torts § 768.) Continuing to draw on the Restatement, we added in Guard-Life-.

“ Wrongful means’ include physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure; they do not, however, include persuasion alone although it is knowingly directed at interference with the contract ([Restatement (Second) of Torts] § 768, Comment e; § 767, Comment c).” (Id.)

The Restatement section on which Guard-Life relied refers to actions between business competitors, and the plaintiff and defendant in Guard-Life were competitors in a marketplace. The logic of Guard-Life and NBT does not, however, depend on the parties’ status as competitors. The existence of competition may often be relevant, since it provides an obvious motive for defendant’s interference other than a desire to injure the plaintiff; competition, by definition, interferes with someone else’s economic relations. Where the parties are not competitors, there may be a stronger case that the defendant’s interference with the plaintiffs relationships was motivated by spite. But as long as the defendant is motivated by legitimate economic self-interest, it should not matter if the parties are or are not competitors in the same marketplace. Indeed, in NBT, while we referred to the defendant as the plaintiffs “competitor” (87 NY2d at 617), it is not clear from the opinion whether we meant that they were competitors in their everyday business, or only that they were competing for the particular corporate acquisition that gave rise to the lawsuit.

Thus it is not relevant here whether we characterize Carvel and its franchisees as “competitors.” The question, under Guard-Life and NBT, is whether the “means” employed by Carvel were “wrongful” or “culpable” as we used those terms in those cases. Most of the items in Guard-Life's catalog of “wrongful means” are acts that would be criminal or independently tortious, and most are obviously absent here: Carvel did not drive the franchisees’ customers away by physical violence, or lure them by fraud or misrepresentation, or harass them with meritless litigation (Guard-Life, 50 NY2d at 191).

The franchisees claim that Carvel did use wrongful “economic pressure” (id.), but that argument is ill-founded for two independent reasons.

First, it is ill-founded because the economic pressure that must be shown is not, as the franchisees assume, pressure on the franchisees, but on the franchisees’ customers. As federal courts applying New York law have recognized, conduct constituting tortious interference with business relations is, by definition, conduct directed not at the plaintiff itself, but at the party with which the plaintiff has or seeks to have a relationship. (G.K.A. Beverage Corp. v Honickman, 55 F3d 762, 768 [2d Cir 1995] [claim dismissed because alleged conduct was not directed at plaintiff’s customers]; Fonar Corp. v Magnetic Resonance Plus, Inc., 957 F Supp 477, 482 [SD NY 1997] [“(U)nder New York law, in order for a party to make out a claim for tortious interference with prospective economic advantage, the defendant must . . . direct some activities towards the third party . . .”]; Piccoli A/S v Calvin Klein Jeanswear Co., 19 F Supp 2d 157, 167-168 [SD NY 1998] [claim must fail because “defendants’ alleged conduct concededly was not directed towards any third party with whom Piccoli had an existing or prospective business relationship”].) While economic pressure brought to bear by one contracting party on the other may, on rare occasions, be tortious (see Albemarle Theatre, Inc. v Bayberry Realty Corp., 27 AD2d 172 [1st Dept 1967]; Rich v New York Cent. & Hudson Riv. R.R. Co., 87 NY 382 [1882]), it cannot constitute the tort of interference with economic relations. Here, all Carvel did to the franchisees’ customers was to make Carvel goods available in supermarkets at attractive prices; this, in the language of Guard-Life, was not “pressure” on these third parties but legitimate “persuasion,” and thus tortious interference with economic relations was not established.

The franchisees’ argument is also ill-founded because the Carvel activities they complain of do not amount to the sort of extreme and unfair “economic pressure” that might be “wrongful” under Guard-Life and NBT. The crux of the franchisees’ complaint is that Carvel distributed its products through competitive channels, to an extent and in a way that was inconsistent with the franchisor-franchisee relationship. But the relationship between franchisors and franchisees is a complex one; while cooperative, it does not preclude all competition; and the extent to which competition is allowed should be determined by the contracts between the parties, not by courts or juries seeking after the fact to devise a code of conduct.

The facts of this case illustrate the point. Both the Type A and Type B contracts between Carvel and its franchisees expressly dealt with the question of when competition would be forbidden and when permitted. To the extent that the express words of the contracts failed to prohibit some acts arguably inconsistent with the nature of the relationship, the franchisees could—and did—invoke the implied covenant of good faith and fair dealing. The intervention of tort law to regulate when a franchisor may or may not compete with its franchisees is neither necessary nor useful.

Apart from attacking the supermarket program in general as excessively and destructively competitive, the franchisees also attack the coupon-redemption element of that program as excessive “economic pressure.” The essence of the coupon program was to give customers who used coupons a better price when they shopped in supermarkets. This, like any other form of price competition, should be regulated, if at all, by the franchisor-franchisee contract, not by tort law. The mere institution of a coupon program was not “economic pressure” rising to the level of “wrongful” or “culpable” conduct in the Guard-Life/NBT sense.

The franchisees also claim that, by putting coupons on the bags used by the franchisees—and thus compelling them, in effect, to promote products sold in supermarkets in competition with their own—Carvel went beyond legitimate competitive activity. The evidence of this practice, however, is extremely thin. No such evidence was introduced by either Marsella or Giampapa. John Noonan testified that the Noonans “had to” give their customers bags supplied by Carvel, and that an exhibit counsel showed him, a copy of a bag containing a coupon, looked like “the kind of Carvel bags . . . used in [the Noonans’] Carvel store from time to time.” There was no evidence that the Noonans or any other franchisees complained of having to distribute these bags, or were threatened by Carvel with consequences if they did not do so. There is no evidence of how many bags containing coupons were distributed, or what if any economic impact the coupons derived from bags had on any franchisee. At best for the franchisees, the record shows that the Noonans received some indeterminate number of coupon-bearing bags from Carvel “from time to time” and gave them to customers. This does not come close to showing the kind of “economic pressure” that might support a claim for tortious interference with economic relations—quite apart from the fact that, as explained above, that tort could exist only if the “pressure” were on the customers, not the franchisees.

The franchisees argue that their tort claim is supported by our decision in A.S. Rampell, Inc. v Hyster Co. (3 NY2d 369 [1957]), but Rampell is distinguishable. The defendant in Rampell, a manufacturer, had enticed away not its distributor’s customers, but the distributor’s key employees. The distributor claimed that, because of the “relation of confidence” between it and the manufacturer, the inducement was actionable “since its real purpose was the appropriation by [the manufacturer] of plaintiffs sales organization and good will” (3 NY2d at 375). No similar claim is made here, and our decision upholding the complaint in Rampell does not alter our conclusion in this case.

Accordingly, the first certified question should be answered in the negative and the second not answered as academic.

Graffeo, J. (concurring).

We concur that the first certified question should be answered in the negative because, under the particular facts and circumstances of this case, Carvel’s conduct was not sufficiently improper to support a claim for tortious interference with prospective contractual relations. We write separately, however, because we find that the standard applied by the majority is too restrictive. We would adopt the rule set forth in Restatement (Second) of Torts § 766B, which provides that improper conduct is the appropriate standard in a tortious interference with prospective contractual relations case involving noncompetitors.

The Restatement (Second) of Torts distinguishes between interference by a noncompetitor and interference by a market competitor. Section 766B, applicable to noncompetitors, provides that a defendant “who intentionally and improperly interferes with another’s prospective contractual relation ... is subject to liability to the other for the pecuniary harm resulting from loss of the benefits of the relation.” In contrast, section 768 (1) states that a “competitor” who interferes with another’s prospective contractual relation—where “the relation concerns a matter involved in the competition between the [parties]”—will be liable for such interference only where the interferer employed wrongful means. Thus, the relevant inquiry under the Restatement in determining the applicable standard is whether the interfering party is a market competitor of the plaintiff.

We have previously applied Restatement § 768’s wrongful conduct test in cases involving competitors. In Guard-Life Corp. v S. Parker Hardware Mfg. Corp. (50 NY2d 183 [1980]), we held that where the injured party and interfering party are “business competitors,” the injured party must establish that the interfering party employed wrongful means to state a claim for tortious interference with prospective contractual relations (id. at 190-191, citing Restatement [Second] of Torts § 768). In NBT Bancorp Inc. v Fleet/Norstar Fin. Group, Inc. (87 NY2d 614 [1996]), we relied on Guard-Life in affirming the dismissal of a tortious interference claim by a financial institution against a competing bank, holding that the plaintiff produced insufficient evidence that the defendant employed wrongful means.

Here, Carvel was not a “competitor” of its franchisees within the meaning of the Restatement. Rather, for the purposes of this claim, Carvel and its franchisees were more akin to economic partners, whose relationship contemplated cooperation, mutual promotion of Carvel products and a joint interest in maintaining consumer loyalty. Clearly, the expectations of these parties, particularly the franchisees, differed from that of commercial competitors with no product commonality. Moreover, to the extent that Carvel was technically “competing” with its franchisees for customers, such competition was not true free market competition, since Carvel was in a position of dominance by virtue of its franchisor-franchisee relationship. In this context, we therefore would apply section 766B of the Restatement rather than employ the section 768 wrongful means standard.

The majority concludes otherwise, holding that where a defendant acts in its own economic self-interest, the standard applicable to a tortious interference claim is whether the defendant employed “wrongful means” or committed “egregious wrongdoing.” The majority thus posits that “it is not relevant here whether we characterize Carvel and its franchisees as ‘competitors.’ ” (Majority op at 191.) The relevant inquiry under the Restatement, however, is directed to the nature of the parties’ relationship as competitors or noncompetitors. This issue regarding the interfering party’s economic self-interest is not determinative; rather, where the parties are noncompetitors, economic self-interest under the Restatement is but one of the factors—albeit a significant one—to consider in determining whether the interferer acted improperly.

Section 767 of the Restatement (Second) of Contracts enumerates a variety of factors to consider when evaluating a claim of improper interference:

“(a) the nature of the actor’s conduct,
“(b) the actor’s motive,
“(c) the interests of the other with which the actor’s conduct interferes,
“(d) the interests sought to be advanced by the actor,
“(e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other,
“(f) the proximity or remoteness of the actor’s conduct to the interference and
“(g) the relations between the parties.”

Additionally, commentary to the Restatement categorizes economic pressure as one type of interference that may constitute improper conduct and specifies the factors to analyze:

“The question whether [economic] pressure is proper is answered in the light of the circumstances in which it is exerted, the object sought to be accomplished by the actor, the degree of coercion involved, the extent of the harm that it threatens, the effect upon the neutral parties drawn into the situation, the effects upon competition, and the general reasonableness and appropriateness of this pressure as a means of accomplishing the actor’s objective” (Restatement [Second] of Torts § 767, Comment c).

Although we conclude that the improper conduct standard should apply, we nonetheless concur with the majority holding because, based on the record in this case, the proof of economic pressure engaged in by Carvel does not rise to the level of improper conduct. Reviewing all of the factors listed in section 767, the franchisees’ proof fails to establish that Carvel acted improperly with respect to either the Type A or Type B franchisees. As an initial matter, because the determination of whether economic pressure is improper must be reviewed “in the light of the circumstances in which it is exerted” and section 767 specifies that “the relations between the parties” is a consideration, Carvel’s actions must be analyzed in the context of its contractual agreements with its franchisees.

Type B franchisees, like Giampapa, expressly agreed that Carvel could sell its products “through the same or different delivery systems or other distribution channels,” and a disclosure form clarified that such alternative marketing channels could include “supermarkets.” Because the Type B agreements expressly permitted Carvel’s sale of ice cream cakes to supermarkets, and the franchisees under such contracts had full knowledge that Carvel products could be sold in retail venues other than Carvel stores, such sales do not constitute economic pressure rising to the level of improper conduct sufficient to support a tortious interference claim by the Type B franchisees.

A closer case is presented with respect to the Type A franchisees. The Type A franchise agreements restrict Carvel from licensing other Carvel stores within a quarter of a mile of a franchisee, creating a relatively small sales territory for the franchisee. The agreements also refer to “a unique system for the production, distribution and merchandising of Carvel products.” The franchisees assert that Carvel’s supermarket program is inconsistent with the unique system of Carvel stores envisioned in their agreements and amounted to improper economic pressure. Because Carvel and its franchisees were not operating in an arm’s length environment, “the relations between the parties” factor weighs in the franchisees’ favor.

Balancing each of the factors, however, compels the conclusion that Carvel did not act improperly. Carvel’s conduct in selling ice cream cakes to supermarkets, in and of itself, is not coercive in nature and is not compelling evidence of improper economic pressure. Moreover, Carvel’s supermarket sales were not specifically aimed at inducing particular customers away from the franchisees; such sales were aimed at supermarket customers in general. Additionally, we agree with the majority that the franchisees’ evidence regarding Carvel’s practice of requiring them to use bags with printed coupons redeemable only at supermarkets is vague and insubstantial.

In accordance with section 767, the supermarket program must also be considered in light of Carvel’s motive, as well as the interests Carvel sought to advance through its implementation. As a result of declining sales due to growing competition in the frozen desserts industry, Carvel commissioned a study on its market decline. The study concluded that the creation of a supermarket program “is totally necessary if Carvel is to survive as a brand over the next decade.” Thus, in creating the supermarket program, which Carvel introduced in response to this study, Carvel was legitimately concerned with its future profitability and cannot be said to have been primarily motivated by a desire to interfere with relations between the franchisees and their customers.

Concluding that the franchisees’ claim does not meet the improper conduct standard, we therefore agree that the first certified question should be answered in the negative.

Judges G.B. Smith, Rosenblatt and Read concur with Judge R.S. Smith; Judge Graffeo concurs in result in a separate opinion in which Judge Ciparick concurs; Chief Judge Kaye taking no part.

Following certification of questions by the United States Court of Appeals for the Second Circuit and acceptance of the questions by this Court pursuant to section 500.17 of the Rules of Practice of the Court of Appeals (22 NYCRR 500.17), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified question No. 1 answered in the negative and certified question No. 2 not answered upon the ground that it has been rendered academic.

      . We have defined wrongful means “as representing ‘physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure; they do not, however, include persuasion alone although it is knowingly directed at interference with the contract’ ” (NBT, 87 NY2d at 624, quoting Guard-Life, 50 NY2d at 191).

      . Of course, we agree with the majority that conduct rising to the level of an independent tort or a crime, or conduct aimed solely at harming a plaintiff, would also support a tortious interference claim.

      . In discussing “economic pressure” as wrongful means, the majority limits that theory solely to situations where the defendant directs such pressure at parties with whom the plaintiff seeks a contractual relationship. The majority relies on a number of federal cases in support of this proposition (see G.K.A. Beverage Corp. v Honickman, 55 F3d 762, 768 [2d Cir 1995] [tortious interference claim dismissed because plaintiffs made “no allegations that (the defendants) had any contact with the (plaintiffs’) customers or that (the defendants) tried to convince the customers to make contracts with them rather than the (plaintiffs)”], cert denied 516 US 944 [1995]; Piccoli A/S v Calvin Klein Jeanswear Co., 19 F Supp 2d 157, 167-168 [SD NY 1998] [tortious interference claim dismissed where “the defendants’ alleged conduct concededly was not directed towards any third party with whom (the plaintiff) had an existing or prospective business relationship”]; Fonar Corp. v Magnetic Resonance Plus, Inc., 957 F Supp 477, 482 [SD NY 1997] [quoting Honickman], cert denied sub nom. Domenick v Fonar Corp., 522 US 908 [1997]). These cases suggest that the allegedly interfering party must have some direct contact with the third-party customers, thereby inducing them not to deal with the plaintiffs. In this case, Carvel did have contact with the franchisees’ customers through the supermarket program. But these cases do not hold that “economic pressure” must be exerted on third parties.


source: Caselaw Access Project

author: Ciparick J.

license: Public Domain

text:
    [818 NE2d 1140, 785 NYS2d 399]
    Blue Cross and Blue Shield of New Jersey, Inc., Now Known as Horizon Healthcare Services, Inc., Doing Business as Blue Cross Blue Shield of New Jersey and Others, et al., Respondents, v Philip Morris USA Incorporated et al., Appellants, et al., Defendants.
    Argued September 7, 2004;
    decided October 19, 2004

      POINTS OF COUNSEL

      Arnold & Porter, Washington, D.C. (Murray R. Garnick and David S. Eggert of counsel), for appellants.
    I. General Business Law § 349 incorporates the rule barring direct claims by insurers to recover for injuries caused to their subscribers. (B & F Bldg. Corp. v Liebig, 76 NY2d 689; Associated Gen. Contrs. of Cal., Inc. v California State Council of Carpenters, 459 US 519; Holmes v Securities Inv. Protection Corp., 503 US 258; United States v Standard Oil of Cal., 332 US 301; Laborers Local 17 Health & Benefit Fund v Philip Morris, Inc., 191 F3d 229; Mobile Life Ins. Co. v Brame, 95 US 754; Ferguson v Green Is. Contr. Corp., 36 NY2d 742; Baker v Sterling, 39 NY2d 397; Longo v Butler Equities II, 278 AD2d 97; New Castle Siding Co. v Wolfson, 97 AD2d 501, 63 NY2d 782.) II. General Business Law § 349 requires individualized proof of causation and damages. (Desiano v Warner-Lambert Co., 326 F3d 339; Small v Lorillard Tobacco Co., Inc., 252 AD2d 1; Geiger v American Tobacco Co., 277 AD2d 420; Barnes v American Tobacco Co., 161 F3d 127; Castano v American Tobacco Co., 84 F3d 734; Carnegie v H&R Block, 269 AD2d 145; Eastern States Health & Welfare Fund v Philip Morris Inc., 188 Misc 2d 638; In re Fibreboard Corp., 893 F2d 706; Broussard v Meineke Discount Muffler Shops, Inc., 155 F3d 331.)

      Dewey Ballantine LLP, New York City (Paul J. Bschorr, Joseph Angland, Michael C. Hefter, Robert J. Morrow and Alexander M. Kayne of counsel), for respondent.
    I. Empire Healthchoice, Inc. has standing to assert claims on its own behalf under General Business Law § 349 so long as the violative conduct affects consumers. (Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20; Securitron Magnalock Corp. v Schnabolk, 65 F3d 256; Rooney v Tyson, 91 NY2d 685; Braschi v Stahl Assoc. Co., 74 NY2d 201; Chianese v Meier, 285 AD2d 315; Bingham v New York City Tr. Auth., 99 NY2d 355; Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314; Gaidon v Guardian Life Ins. Co. of Am., 96 NY2d 201; Hanover Shoe, Inc. v United Shoe Mach. Corp., 392 US 481; Karlin v IVF Am., 93 NY2d 282.) II. Use of aggregate proof to establish Empire Health-choice, Inc.’s direct claim under General Business Law § 349 was proper. (Stutman v Chemical Bank, 95 NY2d 24; Small v Lorillard Tobacco Co., Inc., 252 AD2d 1, 94 NY2d 43; Erie R.R. Co. v Tompkins, 304 US 64; Muller v Eno, 14 NY 597; Otto Gerdau Co. v Bowne-Morton Stores, 1 AD2d 581; Bond Elec. Corp. v Gold Seal Elec. Co., 244 App Div 206, 271 NY 461; Merco, Inc. v Schranze, 21 Misc 2d 743; Texpor Traders, Inc. v Trust Co. Bank, 720 F Supp 1100; In re Peterson, 253 US 300; Czarnikow-Rionda Co. v West Mkt. Grocery Co., 21 F2d 309.)

      Herzfeld & Rubin, PC., New York City (Michael Hoenig, Aaron D. Twerski and Miriam Skolnik of counsel), and Hugh F. Young, Jr., Reston, Virginia, for Product Liability Advisory Council, Inc., amicus curiae.
    General Business Law § 349, which requires, inter alia, proof of injury, should not be read as an insurer protection statute permitting insurers to directly assert remote claims based on deceptive practices which do not lead to any loss or injury to the insurers. Rather, the carriers should be limited to pursuing traditional subrogation rights, a claim which Empire Healthchoice, Inc. failed to prove here. (Ollendorff Watch Co. v Pink, 279 NY 32; Medical Malpractice Ins. Assn. v Community Gen. Hosp., 73 AD2d 867; Orient Mut. Ins. Co. v Wright, 23 How [64 US] 401; Great Am. Ins. Co. v United States, 575 F2d 1031; Federal Ins. Co. v Arthur Andersen & Co., 75 NY2d 366; Aetna Life Ins. Co. v Town of Middleport, 124 US 534; Ocean Acc. & Guar. Corp. v Hooker Electrochemical Co., 240 NY 37; Wager v Providence Ins. Co., 150 US 99; Travelers Cas. & Sur. Co. v Certain Underwriters at Lloyd’s of London, 96 NY2d 583; Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20.)

      Eliot Spitzer, Attorney General, New York City (Caitlin J. Hal

      ligan, Thomas G. Conway, Robert H. Easton and Jane M. Azia of counsel), amicus curiae.
    General Business Law § 349 (h) requires only a practical or reasonable connection between a defendant’s unlawful conduct and a plaintiffs injury. (Laborers Local 17 Health & Benefit Fund v Philip Morris, Inc., 191 F3d 229, 528 US 1080; Holmes v Securities Inv. Protection Corp., 503 US 258; Desiano v Warner-Lambert Co., 326 F3d 339; Stutman v Chemical Bank, 95 NY2d 24; New York v Feldman, 210 F Supp 2d 294; Securitron Magnalock Corp. v Schnabolk, 65 F3d 256; Excellus Health Plan, Inc. v Tran, 287 F Supp 2d 167; Gaidon v Guardian Life Ins. Co. of Am., 94 NY2d 330; Small v Lorillard Tobacco Co., Inc., 94 NY2d 43; Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20.)

      Kaye Scholer LLP, New York City (David Klingsberg, Steven Glickstein and Maris Veidemanis of counsel), for Pharmaceutical Research and Manufacturers of America, amicus curiae.
    I. The proposed new derivative cause of action under General Business Law § 349 could produce a “tidal wave of litigation” against pharmaceutical companies. (Ultramares Corp. v Touche, 255 NY 170; McNulty v City of New York, 100 NY2d 227; Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20; Enright v Eli Lilly & Co., 77 NY2d 377; Laborers Local 17 Health & Benefit Fund v Philip Morris, Inc., 191 F3d 229; Stutman v Chemical Bank, 95 NY2d 24; Southern Pac. Co. v Darnell-Taenzer Lbr. Co., 245 US 531; Fisher v Qualico Contr. Corp., 98 NY2d 534; Albala v City of New York, 54 NY2d 269; Matter of Bridgestone/Firestone, Inc., 288 F3d 1012.) II. Eliminating the requirement of individualized proof of harm would compound the problem, giving insurers far greater leverage against pharmaceutical manufacturers than individual product users have. (Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314; Martin v Hacker, 83 NY2d 1; Stutman v Chemical Bank, 95 NY2d 24; In re American Med. Sys., Inc., 75 F3d 1069.)
   OPINION OF THE COURT

Ciparick J.

Plaintiff Empire Blue Cross and Blue Shield is one of several Blue Cross plans to commence this action against defendant tobacco companies alleging that defendants engaged in deceptive practices designed to mislead the public regarding the harmful and addictive properties of cigarette smoking.

The complaint, lodged in the United States District Court for the Eastern District of New York, raised various federal and state claims. By the time of trial, the remaining claims consisted of direct and subrogated actions for violations of the federal Racketeer Influenced and Corrupt Organizations Act (RICO) (18 USC § 1962), direct and subrogated actions for engaging in deceptive business practices in violation of New York General Business Law § 349, and a subrogation claim for common-law fraud.

The jury determined that Empire had proven its section 349 claims against defendant tobacco companies (with the exception of defendant British American Tobacco Co., Ltd.), and awarded Empire $17,782,702 on its direct action and $11,829,784 on its subrogated action. After the verdict, defendants moved for judgment as a matter of law (see Fed Rules Civ Pro rule 50 [b]). The District Court denied the motion, finding that Empire’s injury was not too remote to allow recovery under section 349 and that victims of indirect injuries could recover under the statute (see Blue Cross & Blue Shield of N.J., Inc. v Philip Morris, Inc., 178 F Supp 2d 198, 230-232 [ED NY 2001]).

The United States Court of Appeals for the Second Circuit reversed the portion of the jury award on Empire’s section 349 subrogation claim, because Empire failed to identify individually injured plan members for the purpose of allowing defendants to investigate and defend the action (see Blue Cross & Blue Shield of N.J., Inc. v Philip Morris USA Inc., 344 F3d 211, 217-218 [2003]). The court further found that Empire’s standing to bring an action under section 349 was not affected by the fact that it is not a consumer, and that Empire’s aggregate proof on the issues of causation and damages was legally sufficient— unless individualized proof is required by section 349. The Second Circuit found, however, that there were unresolved issues of New York law that would be determinative of the present appeal, and certified the following questions for this Court’s review:

“1. Are claims by a third party payer of health care costs seeking to recover costs of services provided to subscribers as a result of those subscribers being harmed by a defendant’s or defendants’ violation of N.Y. Gen. Bus. Law § 349 too remote to permit suit under that statute?
“2. If such an action is not too remote to permit suit, is individualized proof of harm to subscribers required when a third party payer of health care costs seeks to recover costs of services provided to subscribers as a result of those subscribers being harmed by a defendant’s or defendants’ violation of N.Y. Gen. Bus. Law § 349?” (344 F3d at 229.)

We accepted certification (100 NY2d 636 [2003]) and answer the first question in the affirmative, rendering the second question academic.

Discussion

General Business Law § 349 is a consumer protection statute designed to protect against “[deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state” (General Business Law § 349 [a]). Though originally intended to be enforced by the Attorney General (see General Business Law § 349 [b]), the statute was amended in 1980 to include a private right of action (L 1980, ch 346). The amendment was intended to afford additional protection for consumers, allowing them to bring suit on their own behalf without relying on the Attorney General for enforcement (see Assembly Mem in Support, Bill Jacket, L 1980, ch 346; see also Mem of Atty Gen, Bill Jacket, L 1980, ch 346 [suggesting that the Attorney General must focus on those cases that have a widespread effect and that the measure would allow individuals to prosecute remaining actions]). Thus, “any person who has been injured by reason of any violation of this section may bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages or fifty dollars, whichever is greater, or both such actions” (General Business Law § 349 [h]).

As we have previously noted, the scope of the statute “is intentionally broad, applying ‘to virtually all economic activity’ ” (Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 324 [2002], quoting Karlin v IVF Am., 93 NY2d 282, 290 [1999]). In order to make out a valid section 349 claim, a plaintiff must allege both a deceptive act or practice directed toward consumers and that such act or practice resulted in actual injury to a plaintiff (see Small v Lorillard Tobacco Co., Inc., 94 NY2d 43, 55-56 [1999]; Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 25-26 [1995]). The deceptive act or practice alleged here is that defendants, knowing that smoking causes cancer, misrepresented the dangers of smoking and engaged in a campaign to encourage consumers to smoke. Plaintiff further alleges that, as a consequence, medical costs increased, resulting in actual damages to plaintiff insurers who bore such costs.

Under common law, an insurer or other third-party payer of medical expenditures may not recover derivatively for injuries suffered by its insured. Rather, the insurer’s sole remedy is in equitable subrogation. “Subrogation is the principle by which an insurer, having paid losses of its insured, is placed in the position of its insured so that it may recover from the third party legally responsible for the loss” (Winkelmann v Excelsior Ins. Co., 85 NY2d 577, 581 [1995] [citations omitted]; see also Allstate Ins. Co. v Stein, 1 NY3d 416 [2004]; Great Am. Ins. Co. v United States, 575 F2d 1031, 1033 [2d Cir 1978] [“There is not a single reported case in American jurisprudence . . . which holds that upon an insurance carrier’s payment to its insured, the insurer becomes vested with a claim arising out of an implied contract of indemnity with the tortfeasor who caused the damage necessitating payment by the carrier to the insured. On the contrary, the authorities and the cases unanimously hold that the insurer’s recovery is premised exclusively upon subrogation”]).

Nevertheless, plaintiff argues that, in enacting General Business Law § 349, the Legislature intended to abrogate the common-law rule and permit recovery for derivative injuries. But neither the text of the statute nor the legislative history reflect an intent by the Legislature to authorize insurers to bring their own direct (nonsubrogated) actions based upon injuries to their insureds. “It is axiomatic concerning legislative enactments in derogation of common law, and especially those creating liability where none previously existed, that they are deemed to abrogate the common law only to the extent required by the clear import of the statutory language” (Morris v Snappy Car Rental, Inc., 84 NY2d 21, 28 [1994] [citation omitted]).

To be sure, the language of the statute permits recovery by any person injured “by reason of’ a deceptive business practice (§ 349 [h]). But we will not presume an intent to include recovery for derivative injuries within the scope of the statute in the absence of a clear indication of such intent from the Legislature. Indeed, we have warned against “the potential for a tidal wave of litigation against businesses that was not intended by the Legislature” (Oswego, 85 NY2d at 26). Moreover, allowing plaintiff’s claim would effectively eliminate subrogation actions under section 349—a result which nothing in the legislative history shows was ever intended.

In holding that third-party payers cannot recover derivatively under the General Business Law, we recognize that section 349 is a broad, remedial statute and that the provision creating a private right of action employs expansive language. We are also mindful that the Attorney General asks us not to adopt an inflexible rule of proximate causation that would limit the tools and remedies available to protect consumers or undermine the State’s power to redress deceptive consumer practices. In concluding that derivative actions are barred, we do not agree with plaintiff that precluding recovery here will necessarily limit the scope of section 349 to only consumers, in contravention of the statute’s plain language permitting recovery by any person injured “by reason of’ any violation (see e.g. Securitron Magnalock Corp. v Schnabolk, 65 F3d 256, 264 [2d Cir 1995], cert denied 516 US 1114 [1996] [allowing a corporation to use section 349 to halt a competitor’s deceptive consumer practices]; Mem of Atty Gen, Bill Jacket, L 1980, ch 346 [“a business itself will be able to use the private right of action against another business engaged in deceptive practices and thereby obtain increased legal protection”]).

Plaintiff, in arguing that proximate cause is not required under General Business Law § 349 and that plaintiff should as a result prevail, confuses the concept of indirect injury with causation. An injury is indirect or derivative when the loss arises solely as a result of injuries sustained by another party. Although Empire actually paid the costs incurred by its subscribers, its claims are nonetheless indirect because the losses it experienced arose wholly as a result of smoking related illnesses suffered by those subscribers.

The cases cited by plaintiff are not to the contrary. For example, in Catania v 124 In-To-Go, Corp. (287 AD2d 476, 477 [2d Dept 2001], lv dismissed 97 NY2d 699 [2002]), the plaintiff— permitted to sue a tavern owner under the Dram Shop Act— was the party directly injured in an assault by an intoxicated person (see General Obligations Law § 11-101). But no third party was allowed to sue derivatively to recover moneys expended to treat that injury.

Of course, it is beyond dispute that section 349 (h) permits an actually (nonderivatively) injured party to sue a tortfeasor. We hold simply that what is required is that the party actually injured be the one to bring suit. Empire was not directly injured in this sense.

What plaintiff characterizes as an issue of causation is better viewed as a question of standing. Properly framed, the issue is not whether the deceptive practice is a sufficient cause of the plaintiffs injury, but what types of injuries are cognizable under the statute. Plaintiffs injuries are not. We therefore hold that a third-party payer has no standing to bring an action under General Business Law § 349 because its claims are too remote. In so holding, we do not leave plaintiff without remedy. As an insurer, Empire’s traditional common-law remedy to recover excess amounts paid on behalf of an insured, arising from the misconduct of a third party, is an action in equitable subrogation.

We further reject Empire’s argument that in view of the collateral source rule of CPLR 4545 (c), the effect of our decision is to immunize the tobacco companies from liability. The rule was enacted in 1986 in order to prevent duplicate recoveries for, among other things, costs of medical care (see Fisher v Qualico Contr. Corp., 98 NY2d 534, 538-539 [2002]). This statute does not alter Empire’s traditional remedy because “a defendant still may be held responsible in subrogation” (Fisher, 98 NY2d at 540). Although a subrogation action may be difficult for plaintiffs to prove—as they would be required to establish the elements of each subscriber’s claim—it is the only remedy available to them. Insurers cannot sidestep their traditional remedy of subrogation and sue directly for derivative injuries using a statute that creates a cause of action for a person directly injured.

Accordingly, the first certified question should be answered in the affirmative and the second certified question not answered upon the ground that it has been rendered academic.

Chief Judge Kaye and Judges G.B. Smith, Rosenblatt, Graffeo, Read and R.S. Smith concur.

Following certification of questions by the United States Court of Appeals for the Second Circuit and acceptance of the questions by this Court pursuant to section 500.17 of the Rules of Practice of the Court of Appeals (22 NYCRR 500.17), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified question No. 1 answered in the affirmative and certified question No. 2 not answered upon the ground that it has been rendered academic.

      . The United States District Court ordered Empire’s claims to be tried first, separate from the claims of the other Blue Cross plans (see Blue Cross & Blue Shield of N.J., Inc. v Philip Morris, Inc., 113 F Supp 2d 345, 353 [ED NY 2000]). Thus, only Empire’s claims are at issue for purposes of this appeal.

      . The District Court subsequently awarded plaintiff attorneys’ fees in the amount of $37,841,054.22 (see Blue Cross & Blue Shield of N.J., Inc. v Philip Morris, Inc., 190 F Supp 2d 407, 429 [ED NY 2002]).

      . We are thus in agreement with A. O. Fox Mem. Hosp. v American Tobacco Co., Inc. (302 AD2d 413, 414 [2d Dept 2003]) and Eastern States Health & Welfare Fund v Philip Morris, Inc. (188 Misc 2d 638, 646-647 [Sup Ct, NY County 2000]), which held that the plaintiffs’ claims for deceptive trade practices were too remote to allow recovery because they were derivative of the harm to their patients/members. This outcome is also in accord with several other courts that recognize a remoteness bar to recovery under their state consumer protection statutes (see e.g. Ganim v Smith & Wesson Corp., 258 Conn 313, 372-373, 780 A2d 98, 133-134 [2001]; Oregon Laborers-Empls. Health & Welfare Trust Fund v Philip Morris Inc., 185 F3d 957, 968 [9th Cir 1999]; compare Group Health Plan, Inc. v Philip Morris Inc., 621 NW2d 2, 9-10 [Minn 2001]).