What is Commercial Litigation?

Commercial Litigation is the process used to resolve legal disputes arising from business transactions and relationships. As an area of law, commercial litigation encompasses a wide range of issues including business torts, antitrust claims, and intellectual property disputes. These claims typically arise out of breaches of contract, disputes over products and services, and financial disagreements. Because California encompasses such a wide variety of commercial business, understanding how commercial litigation disputes arise and are generally addressed is crucial to navigating these claims. 

What is Commercial Litigation?

“Commercial activity” is the regular course of commercial conduct or a particular commercial transaction or act, as determined by the nature of the conduct or transaction instead of its purpose. 

Commercial litigation involves legal disputes that are integral to business transactions and the basis for recovery, such as breach of contract claims, breach of fiduciary duty, and conversion. 

Breaches of Commercial Contracts

In the context of breaches of contract, commercial litigation generally involves disputes where one party alleges the other failed to fulfill their contractual obligations. In these cases, the primary goal is to obtain remedies for the breach. 

Types of Claims to Allege a Breach

Disputes involving breaches of commercial contracts are typically governed by the contract’s specific terms and obligations. Thus, breaches of commercial contract disputes arise in many ways ranging from the contract’s own terms to an involved party’s actions. The nature of the dispute sometimes influences the availability of claims a plaintiff can bring to remedy the breach. For example, plaintiffs can sue for anticipatory breach of commercial contracts when the breaching party positively repudiates, or renounces, the contract through their acts or statements evidencing either their refusal or inability to substantially perform the contract’s essential terms. (Mission Beverage Co. v. Pabst Brewing Co., LLC, (2017) 15 Cal.App.5th 686.) 

 In certain circumstances, courts may refuse to enforce a contract entirely, if it is unconscionable. If the contract is enforceable except for an unconscionable clause, courts may opt to enforce the contract without the affected clause. (Civ. Code, § 1670.5.) And, in other circumstances, parties may seek declaratory relief to resolve commercial contract disputes preemptively or to select their desired litigation forum. (Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC, (2010) 191 Cal.App.4th 357.) 

Available Remedies

Courts regularly defer to the legislature when making significant policy judgments that will affect commercial relationships, including determining what remedies are appropriate in breaches of commercial contracts. (Harris v. Atlantic Richfield Co., (1993) 14 Cal.App.4th 70.) Accordingly, there are several different ways to remedy breaches of commercial contracts.

Courts traditionally award compensatory damages, to make the non-breaching party whole again, without punishing the breaching party. Because predictability is crucial in these circumstances, California law does not allow courts to award general or punitive damages for breach of commercial contracts, as a general rule. (Harris v. Atlantic Richfield Co., 14 Cal.App.4th at 77.) This means that parties who breach commercial contracts must only pay contract damages, so the law does not inquire about the breaching party’s motives such as whether they acted in good faith leading up to the breach. (Rattagan v. Uber Technologies, Inc., (2024) 17 Cal.5th 1.) Instead, California law provides the measure of damages a non-breaching party can recover is limited to the losses that were reasonably foreseen by the parties. (Quigley v. Pet, Inc., (1984) 162 Cal.App.3d 877, 887.) 

Like punitive damages, courts are incredibly wary of applying tort remedies to commercial contracts because tort remedies could potentially lead to every breach of contract becoming a punitive damages claim. (Harris v. Atlantic Richfield Co., 14 Cal.App.4th at 81-2.) In fact, courts consider extending tort remedies to commercial contracts an aggressive deviation from traditional contract law, which does not consider the breach’s motive. (Ibid. at 82.) Therefore, courts avoid awarding punitive damages as a means of ensuring commercial predictability and stability.

Fiduciary Duties in Commercial Litigation

In commercial litigations, asserting a breach of fiduciary duty claim requires proving three key elements: (1) the existence of a fiduciary relationship; (2) breach of that fiduciary duty; and (3) that the breach caused damages. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., (1998) 68 Cal.App.4th 445.) 

1. Existence of a Fiduciary Relationship

Fiduciary relationships form in certain legally recognized relationships like between attorneys and clients, principals and agents, and corporate officers and corporations. (Oakland Raiders v. National Football League, (2005) 131 Cal.App.4th 621.) In these relationships, the fiduciary must prioritize the beneficiary’s best interests by managing the relationship’s subject matter with due care, by providing regular and accurate accountings, and ensuring the beneficiary is fully informed. (Ibid.) 

2. Breach of Fiduciary Duty

Breaches of fiduciary duty happen when fiduciaries fail to act in the beneficiary’s best interests. Fiduciaries fail to act in the beneficiary’s best interest when they engage in acts of self-dealing or other acts contrary to their duties. For example, fiduciaries breach their duty of loyalty when they sell shares solely for their personal benefit without considering the beneficiary’s interest. (Uzyel v. Kadisha, (2010) 188 Cal.App.4th 866.) Depending on the circumstances, breaches of fiduciary duties can also be based on fraud or negligence. (Knutson v. Foster, (2018) 25 Cal.App.5th 1075.) 

3. Damages

Plaintiffs must also show the breach of fiduciary duty caused damages. Damages can include financial harm or other losses directly caused by the fiduciary’s actions. (Hasso v. Hapke, (2014) 227 Cal.App.4th 107.) Plaintiffs can generally choose the type of relief they want to recover, such as traditional damages or equitable remedies like disgorgement of profits. (Center for Healthcare Education and Research, Inc. v. International Congress for Joint Reconstruction, Inc., (2020) 57 Cal.App.5th 1108.) 

Conversion 

Conversion is a strict liability, intentional tort, that arises when one party wrongfully exercises control over another party’s tangible or intangible property. Conversion claims must prove three elements: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by wrongful act or disposition of the plaintiff’s property rights; and (3) resulting damages. (Duke v. Superior Court, (2017) 18 Cal.App.5th 490.) 

1. Plaintiff’s Ownership or Right to Possession

To satisfy the first element, Plaintiffs must demonstrate their ownership or right to possess the property at the time of conversion. (Welco Electronics, Inc. v. Mora, (2014) 223 Cal.App.4th 202.) In some cases, plaintiffs can bring conversion claims involving money if the claim pertains to a specific, identifiable sum. But defendant’s mere failure to pay money owed under a contract does not qualify as conversion. (Voris v. Lampert, (2019) 7 Cal.5th 1141.) 

2. Defendant’s Wrongful Act or Disposition

The second element requires defendant to have committed a wrongful act or disposed of the property in a manner inconsistent with plaintiff’s property rights. This includes defendant’s unauthorized assumption of control or ownership of the property or application of the property to their own use. (Hartford Financial Corp. v. Burns, (2014) 223 Cal.App.4th 202.) Because conversion is an intentional tort, the defendant must knowingly or intentionally commit the act. Wrongful intent is not, however, necessary because conversion is also a strict liability tort. (Multani v. Knight, (2018) 23 Cal.App.5th 837.) As such, defendant’s intent, good faith, or lack of knowledge is immaterial to the claim because conversion is a naturally tortious act. (Greif v. Sanin, (2022) 74 Cal.App.5th 412.) 

3. Damages

Lastly, plaintiff must suffer damages resulting from the conversion. Courts typically include the property’s value at the time of conversion, interest from that time, and compensation for time and money spent in recovering the property in damages awards. (Myers v. Stephens, (1965 223 Cal.App.2d 104; Civ. Code, § 3336.) 

What is an Example? 

For example, “Shawn” owns a software development firm. Four months ago, Shawn’s firm contracted with “Julie’s” online retail business to sell their products online. Shawn and Julie’s contract requires Shawn’s company to develop an e-commerce platform for Julie’s company within six months. Now, four months into the contract, Shawn’s company delivered a partially functional platform to Julie’s company. Specifically, Shawn’s company delivered a platform that fails to meet several key requirements outlined in the contractual agreement. 

As a result, Julie’s company sues Shawn’s company for breach of contract, seeking damages for lost revenue and the cost of fixing the issues Shawn’s company caused, and hires a new company to finish the job. Shawn’s company defends itself by claiming the issues were caused by delays and technical difficulties beyond their control. Before going to trial Shawn and Julie’s companies participate in a mediation to resolve the dispute quickly. If the companies do not settle in mediation, their case will go to trial. 

Conclusion

The Underwood Law Firm has a team of experienced lawyers who can help guide you through complicated legal matters and help you pursue solutions like partition to ensure you recover the entirety of what you are legally entitled to. We are here to help.