The Innovators’ Counsel: Fiduciary Duty Claims – Interference with Contractual or Business Relations, Vol. 1

Jeremy Weltman Uncategorized

In early April, IC explored the business tort know as a “freeze-out.” (April 6, 2015 IC post). Another claim that is often asserted in business litigation is interference with contractual or business relations. Interference with business relations and interference with contractual relations are actually two separate torts (distinguished below). Such claims typically arise in the context of business competition; e.g., where one party who has been unsuccessful in retaining or winning a third party’s business alleges improper interference by the successful competitor.  In the area of business competition, tortious interference claims are often accompanied by other “unfair competition” torts such as claims under Chapter 93A (aka the Consumer Protection Statute) and breach of fiduciary duty.

How Do I Know If Interference with Contractual or Business Relations Has Occurred?

In order to establish a claim for intentional interference with contractual or business relations, the plaintiff must prove the following:

  1. The plaintiff had a contract or advantageous business relationship with a third party; and,
  2. The defendant knowingly induced the third party or the plaintiff to break that contract or end the business relationship; and,
  3. The defendant’s interference was improper in motive or means; and,
  4. The plaintiff was harmed by the defendant’s actions.

There are many complex sub-issues that arise under each element. For this reason, this post will focus only on the first element, e.g., whether a contract or advantageous business relationship existed. Check back for future IC posts as we return to discuss the other three elements.

Did a Contract or Advantageous Business Relationship Exist?

There are two types of relationships between parties that the law protects from wrongful interference: a contractual relationship (interference with contract) and a business relationship or contemplated contract of economic benefit (interference with business relations). To meet his/her burden of proof to establish a claim of interference, the plaintiff must prove that one of these relationships existed.

(a) Existence of a Contract

The contract may be oral or written, express or implied, provided that it meets all of the requirements for an enforceable contract. There is an abundance of case law defining what the necessary requirements are for an enforceable contract. While the existence of a contract is typically a question of fact for the jury (generally meaning that the case will have to go to trial to resolve the issue) the court can decide the question if “the evidence consists only of writings, or is uncontroverted.” Am. Private Line Servs., Inc. v. E. Microwave, Inc., 980 F.2d 33, 35 (1st Cir. 1992).

(b) Existence of a Business Relationship

In the absence of a contract, a plaintiff may establish a claim of interference with business relations by showing that it had a business relationship or a contemplated contract for economic benefit with a third party. To demonstrate an existing business relationship, the plaintiff need not show that the relationship was formalized in any way, that there was a binding contract, or even that the business relationship was reduced to writing. See Powers v. Leno, 24 Mass. App. Ct. 381, 385 (1987). Whether a business relationship exists is a highly fact-dependent question.

In many instances, plaintiffs satisfy this requirement by showing the existence of a prospective business relationship between the parties, a “probable future business relationship from which there is a reasonable expectancy of financial benefit.” Owen v. Williams, 322 Mass. 356, 361-62 (1948). For example, where parties are negotiating over a contract but have not yet reached a complete agreement, that fact may be sufficient to establish a prospective business relationship. See Adcom Prods. v. Konica Bus. Machs. USA, Inc., 41 Mass. App. Ct. 104 (1996) (where the plaintiff was competing with a third party for a contract, there was “ample evidence of . . . a contemplated contract for economic benefit” to establish a prima facie case); Am. Private Line Servs., Inc. v. E. Microwave, Inc., 980 F.2d 33, 36 (1st Cir. 1992)  (where parties were engaged in “negotiations in anticipation of a future purchase and sale agreement,” an advantageous business relationship was established). Of course, the plaintiff’s expectation of getting the contract or the business must be reasonable. Id.

Where these cases are so fact-specific, and the harm such interference presents is imminent, it is helpful to speak with an experienced business litigation attorney as soon as there is even a hint of interference with a contract or an advantageous business relation. Doing so at an early stage could prove quite beneficial as preliminary measures could be taken to “enjoin” (meaning to order the interferer to immediately cease their illegal actions) the interference before it completely destroys the benefit of the contract or business relationship.

Read More:

The Innovators’ Counsel: Fiduciary Duty Claims – Interference with Contractual or Business Relations, Vol. 2

The Innovator’s Counsel: Fiduciary Duty Claims – The “Freeze Out”