Conspiracy (civil)
Encyclopedia
A civil conspiracy or collusion
is an agreement between two or more parties to deprive a third party of legal rights or deceive a third party to obtain an illegal objective.
A conspiracy may also refer to a group of people who make an agreement to form a partnership in which each member becomes the agent or partner of every other member and engage in planning or agreeing to commit some act. It is not necessary that the conspirators be involved in all stages of planning or be aware of all details. Any voluntary agreement and some overt act
by one conspirator in furthance of the plan are the main elements necessary to prove a conspiracy. A conspiracy may exist whether legal means are used to accomplish illegal results, or illegal means used to accomplish something legal. "Even when no crime is involved, a civil action for conspiracy may be brought by the persons who were damaged."
In the law of tort, the legal elements necessary to establish a civil conspiracy are substantially the same as for establishing a criminal conspiracy, i.e. there is an agreement between two or more natural person
s to break the law at some time in the future or to achieve a lawful aim by unlawful means. The criminal law often requires one of the conspirators to take an overt step to accomplish the illegal act to demonstrate the reality of their intention to break the law, whereas in a civil conspiracy, an overt act towards accomplishing the wrongful goal may not be required. Etymologically, the term comes from Latin
con- "with, together", and spirare "to breathe".
s against two or more corporation
s. Often joined in the lawsuit as defendant
s are the officers of the companies and outside accountant
s, attorneys
, and similar fiduciaries. In many states, officers and directors of a corporation cannot engage in a conspiracy with the corporation unless acting for their private benefit independent of any benefit to the corporation.
Civil conspiracy law often takes the form of antitrust
lawsuits, usually litigated in federal court
, where the plaintiff
seeks treble damages
for overpayments caused by price-fixing above the market rate. The federal Sherman Antitrust Act
provides both civil and criminal penalties. Other agreements among businesses and their agents for group boycott
s, to monopolize
, and to set predatory prices
with intent to drive a small competitor out of business, would be actionable.
Conspiracies in violation of the federal securities laws such as the Securities Act of 1933
and the Securities Exchange Act of 1934
form another area where intense civil and criminal lawsuits occur over the existence or non-existence of an alleged conspiracy. Both the Securities Exchange Commission (SEC) and the Department of Justice
bring legal actions for conspiracies to violate the securities laws. For example,a regional bank called PNC Financial Services Group Inc. through a subsidiary agreed, in June 2003, to pay $115 million in civil fines and restitution to settle the SEC's allegations of securities fraud. The subsidiary was accused of conspiracy to violate securities laws by transferring $762 million in troubled loans and investments to off-balance-sheet entities in 2001. In that case, the Justice Department deferred prosecution of PNC, citing its cooperation in a related investigation. Similarly, the civil litigation against the tobacco companies to recover health care costs, alleges a conspiracy under the Medical Care Recovery Act, , et seq. (Count One), the Medicare Secondary Payer provisions of Subchapter 18 of the Social Security Act, (b)(2)(B)(ii) & (iii) (Count Two), and the civil provisions of the Racketeer Influenced and Corrupt Organizations ("RICO"), to deceive the American public about the health effects of smoking
.
Often the modern civil law of conspiracy is described in "plain language" jury instructions. The standard California
jury instruction for conspiracy is governed by Rule 2.1050 of the California Rules of Court, The new California jury instructions are designated as the “official instructions for use in the state of California.” It is not mandatory for the California judges to use them; but it is strongly encouraged. Some of the "plain language" California civil instructions about conspiracy read as follows with fictional names placed in the blanks in the jury instruction form:
The facts of each case can vary widely as to exact nature of the underlying scheme. In the above example, a common fact pattern could be that widgets are necessary equipment needed for Smith, Inc. to manufacture its product, and Brown & Associates is a competitor of Smith,Inc.
How the conspirators entice one another into the scheme also varies with each case. One fact pattern for the above example would be Brown & Associates promises Jones, Corp. (the supplier of widgets) to give Jones part of the additional profits that Brown hopes to make if Smith, Inc goes out of business because it lacks the necessary widgets.
, it must be possible to attribute
the relevant employee's or agent's knowledge to the corporation. There are two possible legal approaches:
There is little difficulty when the claim is that the company either conspired with a second company or with at least two natural persons. The requisite knowledge can be attributed under either head as appropriate. But there is a problem under the first heading when fraud
is involved because there is a clash of authority. Lloyd v Grace, Smith & Co. [1912] AC 716 held that a Principal may be liable where the Agent commits a fraud within actual or apparent authority, whereas in In re Hampshire Land Company [1896] 2 Ch 743, it was held that the knowledge and, sometimes, the conduct of an Agent acting fraudulently so as to cause loss to the Principal will not be imputed to the Principal. In theory, vicarious liability may be of more assistance in that it is attributing the wrong done by one (natural) person to another (fictitious) but, in Belmont Finance Corporation v Williams Furniture Ltd [1979] Ch 250, the Hampshire Land agency line of authority was preferred. Belmont, a company in liquidation, sued a number of defendants, including the majority of its own directors, for conspiracy to procure Belmont to buy shares in another company at a gross overvalue. The purpose of this plan was to fund the acquisition of shares in Belmont itself by some of the defendants. Foster J. struck out the claim on the basis that Belmont was itself a party to the conspiracy. On appeal
, Buckley LJ. said:
Because Belmont could only be a party to the conspiracy if knowledge was imputed, the Court of Appeal
insulated it from the knowledge of its directors even though those directors, with that knowledge, made relevant decisions at board meetings and attached the company seal to the relevant documents. To that extent, liability in conspiracy is different from the standard vicarious liability situations in which, say, a company will be deemed to know that vehicles or machinery have not been properly maintained or that a service has been negligently delivered.
Collusion
Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...
is an agreement between two or more parties to deprive a third party of legal rights or deceive a third party to obtain an illegal objective.
A conspiracy may also refer to a group of people who make an agreement to form a partnership in which each member becomes the agent or partner of every other member and engage in planning or agreeing to commit some act. It is not necessary that the conspirators be involved in all stages of planning or be aware of all details. Any voluntary agreement and some overt act
Overt Act
In criminal law, an overt act , an open act, one that can be clearly proved by evidence, and from which criminal intent can be inferred, as opposed to a mere intention in the mind to commit a crime...
by one conspirator in furthance of the plan are the main elements necessary to prove a conspiracy. A conspiracy may exist whether legal means are used to accomplish illegal results, or illegal means used to accomplish something legal. "Even when no crime is involved, a civil action for conspiracy may be brought by the persons who were damaged."
In the law of tort, the legal elements necessary to establish a civil conspiracy are substantially the same as for establishing a criminal conspiracy, i.e. there is an agreement between two or more natural person
Natural person
Variously, in jurisprudence, a natural person is a human being, as opposed to an artificial, legal or juristic person, i.e., an organization that the law treats for some purposes as if it were a person distinct from its members or owner...
s to break the law at some time in the future or to achieve a lawful aim by unlawful means. The criminal law often requires one of the conspirators to take an overt step to accomplish the illegal act to demonstrate the reality of their intention to break the law, whereas in a civil conspiracy, an overt act towards accomplishing the wrongful goal may not be required. Etymologically, the term comes from Latin
Latin
Latin is an Italic language originally spoken in Latium and Ancient Rome. It, along with most European languages, is a descendant of the ancient Proto-Indo-European language. Although it is considered a dead language, a number of scholars and members of the Christian clergy speak it fluently, and...
con- "with, together", and spirare "to breathe".
Civil conspiracy in United States business litigation
Business litigation often involves the use of conspiracy lawsuitLawsuit
A lawsuit or "suit in law" is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...
s against two or more corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
s. Often joined in the lawsuit as defendant
Defendant
A defendant or defender is any party who is required to answer the complaint of a plaintiff or pursuer in a civil lawsuit before a court, or any party who has been formally charged or accused of violating a criminal statute...
s are the officers of the companies and outside accountant
Accountant
An accountant is a practitioner of accountancy or accounting , which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.The Big Four auditors are the largest...
s, attorneys
Lawyer
A lawyer, according to Black's Law Dictionary, is "a person learned in the law; as an attorney, counsel or solicitor; a person who is practicing law." Law is the system of rules of conduct established by the sovereign government of a society to correct wrongs, maintain the stability of political...
, and similar fiduciaries. In many states, officers and directors of a corporation cannot engage in a conspiracy with the corporation unless acting for their private benefit independent of any benefit to the corporation.
Civil conspiracy law often takes the form of antitrust
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
lawsuits, usually litigated in federal court
United States district court
The United States district courts are the general trial courts of the United States federal court system. Both civil and criminal cases are filed in the district court, which is a court of law, equity, and admiralty. There is a United States bankruptcy court associated with each United States...
, where the plaintiff
Plaintiff
A plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...
seeks treble damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...
for overpayments caused by price-fixing above the market rate. The federal Sherman Antitrust Act
Sherman Antitrust Act
The Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
provides both civil and criminal penalties. Other agreements among businesses and their agents for group boycott
Group boycott
In competition law, a group boycott is a type of secondary boycott in which two or more competitors in a relevant market refuse to conduct business with a firm unless the firm agrees to cease doing business with an actual or potential competitor of the firms conducting the boycott...
s, to monopolize
Monopolization
The term monopolization refers to an offense under Section 2 of the American Sherman Antitrust Act, passed in 1890. Section 2 states that any person "who shall monopolize . ....
, and to set predatory prices
Predatory pricing
In business and economics, predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices...
with intent to drive a small competitor out of business, would be actionable.
Conspiracies in violation of the federal securities laws such as the Securities Act of 1933
Securities Act of 1933
Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...
and the Securities Exchange Act of 1934
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
form another area where intense civil and criminal lawsuits occur over the existence or non-existence of an alleged conspiracy. Both the Securities Exchange Commission (SEC) and the Department of Justice
United States Department of Justice
The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...
bring legal actions for conspiracies to violate the securities laws. For example,a regional bank called PNC Financial Services Group Inc. through a subsidiary agreed, in June 2003, to pay $115 million in civil fines and restitution to settle the SEC's allegations of securities fraud. The subsidiary was accused of conspiracy to violate securities laws by transferring $762 million in troubled loans and investments to off-balance-sheet entities in 2001. In that case, the Justice Department deferred prosecution of PNC, citing its cooperation in a related investigation. Similarly, the civil litigation against the tobacco companies to recover health care costs, alleges a conspiracy under the Medical Care Recovery Act, , et seq. (Count One), the Medicare Secondary Payer provisions of Subchapter 18 of the Social Security Act, (b)(2)(B)(ii) & (iii) (Count Two), and the civil provisions of the Racketeer Influenced and Corrupt Organizations ("RICO"), to deceive the American public about the health effects of smoking
Tobacco smoking
Tobacco smoking is the practice where tobacco is burned and the resulting smoke is inhaled. The practice may have begun as early as 5000–3000 BCE. Tobacco was introduced to Eurasia in the late 16th century where it followed common trade routes...
.
Often the modern civil law of conspiracy is described in "plain language" jury instructions. The standard California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
jury instruction for conspiracy is governed by Rule 2.1050 of the California Rules of Court, The new California jury instructions are designated as the “official instructions for use in the state of California.” It is not mandatory for the California judges to use them; but it is strongly encouraged. Some of the "plain language" California civil instructions about conspiracy read as follows with fictional names placed in the blanks in the jury instruction form:
California "Plain Language" jury instructions on conspiracy: essential factual elements
A conspiracy is an agreement between two or more persons to commit a wrongful act.
Such an agreement may be made orally or in writing or implied by the conduct of the parties.
Plaintiff Smith, Inc., claims that it was harmed by Defendant Jones Corp. for refusing to sell widgets to Plaintiff Smith, Inc. with intent to unreasonably injure competition and that Defendant Brown & Associates is also liable for the harm because it was part of the conspiracy with Jones Corp. to unreasonably injure competition under the California antitrust laws.
The facts of each case can vary widely as to exact nature of the underlying scheme. In the above example, a common fact pattern could be that widgets are necessary equipment needed for Smith, Inc. to manufacture its product, and Brown & Associates is a competitor of Smith,Inc.
How the conspirators entice one another into the scheme also varies with each case. One fact pattern for the above example would be Brown & Associates promises Jones, Corp. (the supplier of widgets) to give Jones part of the additional profits that Brown hopes to make if Smith, Inc goes out of business because it lacks the necessary widgets.
English law
The tort of conspiracy requires there to be knowledge of the relevant circumstances and of the agreement made. Thus, as a precondition to corporate liabilityCorporate liability
In criminal law, corporate liability determines the extent to which a corporation as a legal person can be liable for the acts and omissions of the natural persons it employs...
, it must be possible to attribute
Imputation (law)
In law, the principle of imputation or attribution underpins the concept that ignorantia juris non excusat—ignorance of the law does not excuse. All laws are published and available for study in all developed states...
the relevant employee's or agent's knowledge to the corporation. There are two possible legal approaches:
- as a matter of agency lawAgency (law)The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another to create a legal relationship with a third party...
, the acts and omissions constituting the alleged conspiracy must have been carried out within the actual or ostensible authority of the agent; or - as a matter of vicarious liabilityVicarious liabilityVicarious liability is a form of strict, secondary liability that arises under the common law doctrine of agency – respondeat superior – the responsibility of the superior for the acts of their subordinate, or, in a broader sense, the responsibility of any third party that had the "right, ability...
the acts and omissions must have been carried out in and during the course of the employment.
There is little difficulty when the claim is that the company either conspired with a second company or with at least two natural persons. The requisite knowledge can be attributed under either head as appropriate. But there is a problem under the first heading when fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
is involved because there is a clash of authority. Lloyd v Grace, Smith & Co. [1912] AC 716 held that a Principal may be liable where the Agent commits a fraud within actual or apparent authority, whereas in In re Hampshire Land Company [1896] 2 Ch 743, it was held that the knowledge and, sometimes, the conduct of an Agent acting fraudulently so as to cause loss to the Principal will not be imputed to the Principal. In theory, vicarious liability may be of more assistance in that it is attributing the wrong done by one (natural) person to another (fictitious) but, in Belmont Finance Corporation v Williams Furniture Ltd [1979] Ch 250, the Hampshire Land agency line of authority was preferred. Belmont, a company in liquidation, sued a number of defendants, including the majority of its own directors, for conspiracy to procure Belmont to buy shares in another company at a gross overvalue. The purpose of this plan was to fund the acquisition of shares in Belmont itself by some of the defendants. Foster J. struck out the claim on the basis that Belmont was itself a party to the conspiracy. On appeal
Appeal
An appeal is a petition for review of a case that has been decided by a court of law. The petition is made to a higher court for the purpose of overturning the lower court's decision....
, Buckley LJ. said:
- But in my view knowledge should not be imputed to the company, for the essence of the arrangements was to deprive the company improperly of a large part of its assets. As I have said, the company was a victim of the conspiracy. I think it would be irrational to treat the directors, who were allegedly parties to the conspiracy, notionally as having transmitted this knowledge to the company.
Because Belmont could only be a party to the conspiracy if knowledge was imputed, the Court of Appeal
Court of Appeal of England and Wales
The Court of Appeal of England and Wales is the second most senior court in the English legal system, with only the Supreme Court of the United Kingdom above it...
insulated it from the knowledge of its directors even though those directors, with that knowledge, made relevant decisions at board meetings and attached the company seal to the relevant documents. To that extent, liability in conspiracy is different from the standard vicarious liability situations in which, say, a company will be deemed to know that vehicles or machinery have not been properly maintained or that a service has been negligently delivered.