Presenting a live 90-minute webinar with interactive Q&A
Tortious Interference With Contracts
and Prospective Business Advantage:
Proving and Defending Claims
Navigating the Complexities of Lawsuits Alleging Intentional and Improper Business Disruption
WEDNESDAY, FEBRUARY 11, 2015
1pm Eastern
|
12pm Central | 11am Mountain
|
10am Pacific
Today’s faculty features:
Aaron D. Hall, CEO & Business Attorney, Thompson Hall Santi Cerny & Katkov, Minneapolis
Zachary G. Newman, Partner, Hahn & Hessen, New York
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Navigating the Complexities of
Lawsuits Alleging Intentional &
Improper Business Disruption
5
Introductions
Zachary G. Newman
Aaron D. Hall
znewman@hahnhessen.com
ahall@ThompsonHall.com
 Hahn & Hessen LLP (New
York)
 Focuses on banking
litigation, commercial
litigation, fiduciary
litigation, breach of
fiduciary duty claims, and
art and antique litigation.
 Represents public and
private companies,
national banking
associations, commercial
lenders, leasing
companies, and hedge
funds in business
litigation throughout the
United States.
 Thompson Hall Santi Cerny & Katkov
(Minneapolis)
 Focuses on business transactions,
business litigation and intellectual
property.
 Counsels company owners in
complex contracts, employment law,
intellectual property, real estate,
estate planning, and taxes, as well as
litigation in these areas.
6
7
Courts generally
recognize three
universal members
of the “tortious
interference family.”
The elements of each
claim are similar but
not identical, and some
of these differences are
in fact more substantive
than linguistic.
8
Tortious Interference
with an Existing Contract
A plaintiff generally must allege:
1. the existence of a contract between the plaintiff and a
third party,
2. the defendant’s knowledge of the contract,
3. the defendant’s intentional inducement of the third
party to breach or otherwise render performance
impossible, and
4. damages to the plaintiff.
9
The plaintiff must allege actual knowledge, as
generally “objective standards like implied
knowledge or constructive knowledge are
insufficient.”
DBS Constr., Inc. v. New Equip. Leasing, Inc.,
2011 U.S. Dist. LEXIS 32681, at *11 (N.D. Ind.
Mar. 28, 2011).
10
Tortious Interference with
Business Relations
Obvious distinction between this claim and its sister
claim is that it is not necessary to establish the existence
of any actual contract between the parties.
Cole v. Homier Distrib. Co. Inc., 599 F.3d 856, 861
(8th Cir. 2010) (applying Missouri law).
11
A claimant must only show that:
1. it had a business relationship with a third party
and the breaching party knew of that relationship
and
2. intentionally interfered with it,
3. the breaching party acted solely out of malice or
used improper or illegal means that amounted to a
crime or independent tort, and
4. the breaching party’s interference caused injury to
the relationship with the third party.
12
What exactly qualifies
as a “business relationship”
13
A business relationship is “‘something less than
a contractual right, something more than a
mere hope’ [and] exists only when there is a
reasonable probability that a contract will arise
from the parties’ current dealings.”
Alvord-Polk, Inc. v. F. Schumacher & Co., 37 F.3d 996, 1015 (3d Cir.
1994) (quoting Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198,
209, 412 A.2d 466, 471 (Pa. 1979))
14
Tortious Interference
with an “Economic Advantage”
If NO valid contract exists and the
ability to establish a business
relationship is MURKY, some
jurisdictions may recognize a cause
of action for tortious interference
with an “economic advantage.”
15
A claimant generally must show
1. an existing reasonable expectation or reasonable expectation of
economic benefit or advantage;
2. the defendant’s knowledge of that expectancy;
3. The defendant’s wrongful, intentional interference with that
expectancy;
4. the reasonable probability that the claimant would have received
the anticipated economic benefit in the absence of the defendant’s
interference; and damages resulting from the defendant’s
interference.
Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1167 (3d Cir. 1993)
16
A valid business expectancy is one in which there
is a reasonable likelihood or probability that the
expectancy will come to fruition; mere wishful
thinking is not sufficient to support a claim.
First Public Corp. v. Parfet, 246 Mich. App. 182, 199, 631
N.W.2d 785 (Mich. Ct. App. 2001), vacated in part on other
grounds, 468 Mich. 101, 658 N.W.2d 477 (Mich. 2003)
Trepel v. Pontiac Osteopathic Hosp., 135 Mich. App. 361, 377,
354 N.W.2d 341 (Mich. Ct. App. 1984)
17
What’s Protected?
Historical Relationships
Course of Dealing
 a customer relationship as
 “a regular course of similar
 a protectable right because the
prior dealings suggests
 a valid business expectancy.”
Slone v. Purina Mills, Inc.,
 927 S.W.2d 358, 370 (Mo. Ct.
App. 1996).
relationship existed for close to
 20 years, even though every year
the customer offered its
business
 to all bidders. Conoco, Inc. v.
Inman Oil Co. Inc., 774 F.2d
 895, 907 (8th Cir. 1985)
(applying Missouri law).
According
18
Independent Tortious or Wrongful Conduct
19
What distinguishes legitimate competitive
economic activity—something that is protected in our
freemarket system—from actionable interference?
The act must be tortious, meaning that
the plaintiff “must plead and prove at
least some improper motive or improper
means.”
Generally requires proof “the defendant
was guilty of fraud, misrepresentation,
intimidation or molestation or that the
defendant acted maliciously.”
Golembeski v. Metichewan Grange No. 190, 20 Conn. App.
699, 702, 569 A.2d 1157 (Conn. App. Ct. 1990)
Blake v. Levy, 191 Conn. 257, 261, 464 A.2d 52 (Conn.
1983)
A plaintiff must also show actual loss
“resulting from the improper
interference with the contract; the tort is
not complete unless there has been
actual damages suffered.”
Most courts require this conduct to
be “knowing” or “intentional”— mere
negligence will not suffice.
Appleton v. Bd. of Educ. of Town of Stonington, 254 Conn.
205, 213, 757 A.2d 1059 (Conn. 2000)
White Plains Coat & Apron Co., Inc. v Cintas Corp., 8
N.Y.3d 422, 426, 867 N.E.2d 381, 835 N.Y.S.2d 530
(N.Y. 2007)
20
Examples of (Wrongful) Conduct







Improper
Misuse of confidential
information
Defamation
Unethical conduct
Bribery or fraud
Unfounded litigation
Sharp business practices
Unfair competition
Not Improper
 Interference after the
underlying contract
expired
 Relying upon personal
knowledge and memory
to reconstitute customer
lists
 Exercise of a lawful right
(e.g., foreclosing on UCC
lien)
21
Practical Advice:
Proving Improper Conduct
Factors are analyzed in determining if the defendant’s conduct was
improper:





The nature of the defendant’s conduct;
Defendant’s motive;
The interests of plaintiff with which defendant’s conduct interferes;
The interests which defendant seeks to advance;
The social interests in balancing defendant’s freedom to act against
the contractual interests of plaintiff;
 The “proximity or remoteness” of the conduct relative to the
interference claimed by plaintiff;
 The relations between plaintiff and defendant.
22
Not Every Act That
Disturbs A Contract Or
Business Expectancy
Is Actionable
Courts encourage
competition and
frown upon a litigant’s
attempt to stifle
competition or to
promote one’s self
interest
23
Angry Client
or Angry Court
PRACTICE TIPS WHEN DRAFTING OR
PRESENTING
THE CLAIMS
 Wrong versus free competition (is
client using the claim to prevent the
loss of customers)
 Fairness versus resentment
 Feel & taste of the wrongful conduct
alleged
 Managing client expectations &
client’s desire to disparage
counterparty
24
Initial Strategy
Plaintiff’s Tasks
Defendant’s Tasks
 Choosing state court versus
 Availability of counterclaims
 Whether to move to dismiss –
federal court based on pleading
detail standards
 Extent of damages alleged and
concern over “opening the door
to broad financial discovery”
 Avoiding inferences or
conclusions that the conduct
complained of was motivated by
economic choices – the “hook”
 Seeking provisional remedies
capitalize upon state’s
nuances
 Capitalize on courts’ strong
predisposition to permit
competitive behavior
 Stipulated to injunctive relief
and avoiding immediate
 Broad and invasive discovery
requests
25
How Different Can
The States’ Laws Be?
 Under Arizona law, an officer of a corporation cannot, as a
matter of law, interfere with the corporation’s contracts.
Southern Union Co. v. S.W. Gas Corp., 165 F. Supp. 2d 1010,
1038 (D. Ariz. 2001)
 Some states have even addressed the viability of the cause
of action if the contract at issue is terminable at will.
 Virginia: Duggin v. Adams, 234 Va. 221, 226, 360 S.E.2d 832,
836 (Va. 1987) (permitting such claims provided allegations
support improper means)
 New York: New Stadium, LLC v Greenpoint-Goldman Corp.,
No. 600493/05, 2010 NY Slip Op 30869U, *11–12 (N.Y. Sup. Ct.
Apr. 12, 2010) (only permitting such claims when improper
means are specifically alleged, as there is no assurance of
future performance in at-will contracts that can be
terminated at any time)
26
How Different Can
The States’ Laws Be (Continued)?
 New Jersey:
 A plaintiff survived a motion to dismiss when the court found it
had a “reasonable expectation” to continue its sales of products to
its existing customers and distributors and to sell its products to
other members of the trade.
 The court protected the plaintiff from the steps undertaken by
the defendant to wrongfully undermine the plaintiff’s business
expectations. Graco, Inc. v. PMC Global, Inc., 2009 U.S. Dist.
LEXIS 26845, at *69–70 (D. N.J. Mar. 31, 2009)
 Texas:
 Court refused to “recognize a cause of action by an insured
against his insurer for tortious interference with the insured’s
relationship with his attorney arising out of the insured’s
handling of the defense of a third party claim ....” Taylor v. Allstate
Ins. Co., 2011 Tex. App. LEXIS 2418, at *20 (Tex. Ct. App. Mar. 31,
2011)
27
SPECIFICITY
Some courts have taken a more lenient
approach, permitting claims to go forward
even if the plaintiff cannot identify any
specific customer or contract that was lost.

Floorgraphics, Inc., 2006 U.S. Dist. LEXIS 70834, at *18–19
(plaintiff need not identify specific lost business opportunities)
Other courts, however, have dismissed
pleadings that do not contain adequate and
specific allegations identifying the actual
customers or contracts that were lost as a
result of the alleged tortious conduct.

Soaring Helmet Corp. v. Nanal, Inc., 2011 U.S. Dist. LEXIS 262, at
*21 (W.D. Wash. Jan. 3, 2011)
28
Commercial Disputes





Competitive businesses
Former employees
Borrowers and guarantors
Recoup lost business
Bolster unfair competition and breach of non-compete
covenant cases
 Landlord-tenant disputes
 Misuse of Inside or Confidential Information
 Dissemination of false, misleading, or malicious
information to the plaintiff’s existing and prospective
clients
29
Lending Disputes
 Rise in tortious interference claims in commercial and
residential lending disputes.
 Are these claims creating issues for lenders?
 Are these claims worthwhile to pursue for borrowers
and guarantors?
 What should you be considering …
30
Tale of Two Cities – You Decide
Torres v. The Steel Network, Inc., 2009 NCBC 19 (N.C. Super. Ct. July 27, 2009)
In Support of MTD
Here, the Complaint shows on its face that the
purported actions of the Bank were not
motivated by malice but instead by the justifiable
protection of its pre-existing contractual and
proprietary interests …
the Complaint fails to allege that the Bank used
any improper means to protect its legitimate
business interest … The Complaint does not
allege that the Bank did not have the contractual
right to call the Bank Note in the event of a
violation of its terms.
Exercising, or threatening to exercise, one’s rights
under a pre-existing contract cannot possibly be
considered the use of improper means to
interfere with a third-party’s contract.
In Opposition of MTD
Bank of America frames its actions – demanding that one of its
customers breach a four million dollar contract with a third party
who had no relation at all to the Bank – as business as usual; just
the normal and wholly justified acts of a company looking out for
its own interests.
But this is not business as usual, rather it is precisely the sort of
conduct that the tort of tortious interference with contract was
meant to protect against; protecting one’s own interest at the
deliberate expense of another.
Bank of America deliberately and without justification induced
The Steel Network, Inc. to breach its $3,968,750.00 contract with
Plaintiff Michael Torres, causing Mr. Torres catastrophic damage.
The Bank contends that because it is essentially in competition
with every individual or company that contracts with its
customers, it is therefore justified in inducing the termination of
any of its customers’ valid contracts so long as terminating those
contracts benefits the Bank.
This contention is absurd – the Bank’s conduct was not justified,
the Plaintiff has more than adequately pled his claim for tortious
interference with contract, and Bank of America’s motion to
dismiss that claim should be denied.
31
Lending Disputes
& Tortious Interference Claims
Borrower’s Perspective
 Focus on the conduct being
alleged
 Lender’s typically have fee
recovery provisions and the costs
incurred for the lender and the
prosecution of the claim may
outweigh the benefit of
prosecuting the claim
 The claim could be viewed
outside of jury waivers and
forum selection clauses
 Extent of damages could be
widened with these economic
tort claims
Lender’s Perspective
 A lender must only establish that its
conduct was motivated by
“legitimate business purposes”
rather than malice or a
“disinterested malevolence.”
Bilimoria Computer Sys., LLC v.
America Online, Inc., 829 N.E.2d
150, 157 (Ind. Ct. App. 2005)
 A lender’s concern for managing
pledged collateral and security
interests can also constitute a
legitimate business concern
 Lender’s refusal to permit
subordinate liens will not rise to the
level to support tortious interfence
claims
32
Spoiled Party?
Highland Capital Mgmt. L.P. v. UBS Securities, LLC
(In re Lyondell Chemical Co.), 505 B.R. 409 (S.D.N.Y. 2014)
 A hedge fund sued an investment bank for tortious interference because it




was excluded from participation in exit financing for a debtor.
The bankruptcy court granted the investment banker’s motion to dismiss
for failure to state a claim, and the hedge fund appealed.
As a defense, UBS asserted an absolute privilege to decide who it wanted
to deal with.
The court agreed, noting that state law “states that the privilege with
whom to deal ‘exists regardless of the actor’s motive for refusing to enter
business relations with the other and even though the sole motive was a
desire to harm the other.’”
The “refusal to maintain trade relations with any individual is an inherent
right which every person may exercise lawfully, for reasons he deems
sufficient and for no reason whatever, and it is immaterial whether such
refusal is based on reason or is the result of mere caprice, prejudice or
malice.”
33
The Far Reach of Tortious Interference Claims
34
Agent and E’ee Liability
Possible Liability
No Liability
 A claim may be sustained “if the
agent did not act legitimately within
 Courts typically dismiss tortious
the scope of his duty but used the
corporate power improperly for
personal gain.”
 An agent can be charged with
tortious interference if he or she
“acts against the best interests of the
principal or acts solely for his own
benefit.”
Metcoff v. Lebovics, 123 Conn. App. 512, 521, 2
A.3d 942, 948 (Conn. App. Ct. 2010)
Welch v. Bancorp Mgmt. Advisors, Inc., 296 Or.
208, 216, 675 P.2d 172, 178–79 (Or. 1983)
interference claims against
agents upon proof that the agent
was “acting legitimately within
the scope of his authority.”
 The presumption against
holding an agent liable for such
claims is strong, and “even if the
agent is acting with ‘mixed
motives’ [it] will usually garner a
dismissal.”
Wellington Systems, Inc. v. Redding Group, Inc., 49
Conn. App. 152, 168, 714 A.2d 21 (Conn. App. Ct. 1998)
Fioriglio v. City of Atl. City, 996 F. Supp. 379, 392
(D. N.J. 1998), aff’d, 185 F.3d 861 (3d Cir. 1999)
35
Agents & Employees – Continued
 Even a “managing officer of a corporation, including
one with the authority to hire and fire, [can be] subject
to liability for intentional interference in the same way
as any other corporate employee if the officer acts
without any purpose to serve the employer, but
solely with improper motives or purposes.”
 Boers v. Payline Sys., Inc., 141 Or. App. 238, 243, 918 P.2d 432, 436 (Or. Ct.
App. 1996)
 Employees and agents are not immune from tortious
interference claims.
36
Practice Tip
 Consider the impact of naming agents and employees:
 Financial ability to defend and/or pay judgment
 Can it be interpreted as a bullying tactic?
 Will it be portrayed as a bullying tactic?
 Will it delay the case (motions to dismiss; additional
counsel; protracted discovery)?
 Consider that the employee/agent may retain separate
counsel and be entitled to additional document
discovery and depositions.
 Insurance and indemnity triggers
37
Can a negligent standard be applied
to this intentional tort family?
38
39
 Many states do not recognize “negligent interference with economic relationship”
claims (such as California).
 Many of these states do recognize however negligent interference with a prospective
economic advantage as a claim.
 In California, for example, to be liable for negligent interference with a prospective
economic advantage, defendant must owe plaintiff a specific duty of care.
 Courts balance various factors to determine whether a duty exists.
 the extent to which the transaction was intended to affect the plaintiff,
 the foreseeability of harm to him,
 the degree of certainty that the plaintiff suffered injury,
 the closeness of the connection between the defendant's conduct and the injury
suffered,
 the moral blame attached to the defendant's conduct, and
 the policy of preventing future harm.
 No a very popular or wildly successful claim.
40
Practical Applications and Case Results
41
However, in Czech Beer Importers, Inc. v. C. Haven
Imports, LLC, Case No. 04 Civ. 2270 (RCC), 2005
U.S. Dist. LEXIS 12310 (S.D.N.Y. June 22, 2005),
Judge Richard Conway Casey denied the
defendant’s motion to dismiss plaintiff’s tortious
interference with contract and tortious
interference with prospective economic advantage
claims, holding that plaintiff pled all of the
required elements.
42
43
Compensatory & Punitive Damages
44
Compensatory Damages:
Run of the mill?
 Economic tort of recovery
 Direct damages
 Lost profits
 Damages for uncompleted projects or unshipped orders –
unperformed contracts
 Destruction of business
 Damage to business reputation
45
Supreme Court of Virginia
COLLELO v. GEOGRAPHIC SERVICES, INC.
Nos. 101411, 101421 (January 13, 2012)
Riley testified that she agreed with GSI's determination that the
cost to develop its trade secret was about $3 .3 million.
Clawson valued GSI, with its trade secrets and confidential
information intact, at just over $34.1 million.
Riley indicated that this sum represented an “actual loss to GSI”
in that “the value [of GSI's trade secret had] decreased because
of Boeing's use of the trade secret.”
Second, Clawson valued GSI, when considering the risk of loss to
its projected cash flow as a result of its trade secrets and
confidential information not being intact, at about $29.7 million—
resulting in a loss to GSI's overall value of around $4.3 million.
Yet, Riley did not testify as to the actual value of GSI's trade
secret or the actual diminution in value of either GSI's trade
secret or GSI, itself, as a result of the defendants' actions.
Moreover, Riley admitted that there was no evidence of Boeing
taking any contracts away from GSI.
The insufficiency of the testimony of both Clawson and Riley as
evidence of actual loss to GSI allegedly caused by the defendants
is reinforced by the testimony of GSI's operations manager,
Jennifer Lopatin.
Lopatin admitted that GSI could not “point to any money,
whether it's a million or half a million, that was actually lost in
terms of a contract or any actual money.”
In short, she stated, GSI “ha[d not] actually lost [any] money.”
GSI offered the testimony of two expert witnesses regarding
damages incurred by GSI as a result of the defendants' actions
but, significantly, Clawson's testimony was offered only for GSI's
claims under the Trade Secrets Act, and Riley's testimony was
competent only to establish GSI's claims under the Trade Secrets
Act.
Accordingly, after viewing the evidence on appeal in the light
most favorable to GSI, we hold that the evidence was insufficient
to: (1) prove, with any reasonable certainty, the amount of
damages incurred as a result of Collelo's alleged breach of
contract; and (2) prove that GSI incurred damages as a result of
Autometric's and/or Boeing's tortious interference with a
contract.
As a result, we hold that the trial court did not err in striking GSI's
breach of contract and tortious interference with a contract
claims.
46
Punitive Damages
 Still must meet prevailing





egregious standard
Actual malice; recklessness
to demonstrate a conscious
disregard of the party
High hurdle
Not often awarded
Question the utility and
downside of asserting
Not typically covered by
insurance
Empire Trucking v. Reading Anthracite Coal
71 A.3d 923 (June 21, 2013)
No precise formula for determining if a
defendant's conduct is improper for purposes of
a tortious interference claim. Case-by-case
analysis is needed.
“[C]entral inquiry" in that regard is "whether
the defendant's conduct is sanctioned by the
rules of the game which society has adopted.”
Conduct went beyond the rules of the game.
The defendant lied, saying that payment was en
route when it was not. It lied to the
subcontractors about payment. It drove the
subcontractors to it to the other party’s
detriment.
The court refused to conclude that the alleged
legitimate ends justified its improper means. A
party, when pursuing a legitimate interest, still
must abide by the rules of the game.
$2 million punitive award upheld.
47
Thank You
Communication of information by, in, to or through this seminar and its materials, and
your participation in this seminar (1) is not provided in the course of and does not create
or constitute an attorney-client relationship, (2) is not intended as a solicitation, (3) is not
intended to convey or constitute legal advice, and (4) is not a substitute for obtaining
legal advice from a qualified, retained attorney. You should not act upon any such
information without first seeking qualified professional counsel on your specific matter.
48