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

Jeremy Weltman Uncategorized

Our last IC post began exploring the business litigation tort of interference with contractual or business relations. As previously noted, 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.

We say “began to explore” because there are a number of elements to proving an interference with contractual or business relations claim. In our June 23 post, we focused on the first element; e.g., whether a contract or advantageous business relationship existed.  This post will turn to the second and third elements of the claim: whether the defendant knowingly induced the third party or the plaintiff to break the contract or end the business relationship; and, whether the defendant’s interference was by improper motive or means. Check back for future IC posts as we return to discuss the final element of this business tort – resulting harm from the interference.

The Knowledge Element

The plaintiff in an interference with contractual or business relations case must prove that the defendant actually knew of the existence of the contract or business relationship between the plaintiff and the third party. See G.S. Enters., Inc. v. Falmouth Marine, Inc., 410 Mass. 262, 272 (1991). The defendant’s knowledge is critical. Defendants cannot be held to have tortiously interfered with something they knew nothing about or reasonably believed was not in existence. However, a defendant may not hide behind its intentional and willful ignorance of the existence of a contract or relationship. It must act reasonably in that regard. See Ryan, Elliott & Co. v. Leggat, McCall & Werner, Inc., 8 Mass. App. Ct. 686 (1979) (no knowledge of contract where defendant reasonably relied on representation that no binding contract existed). Knowledge may be found if, “under the circumstances and facts available to the defendant, the defendant should have known of the existence of the contractual agreement between the plaintiff and the other party.” Keene Lumber Co. v. Leventhal, 165 F.2d 815, 821 (1st Cir. 1948). In practice, unless a defendant readily admits to having this knowledge, it will be necessary to develop other evidence to establish this element such as the defendant’s internal memoranda and other business documents, as well as third-party witnesses with knowledge of the defendant’s business.

Improper Motive or Means

In general, a business enterprise does not act improperly when it intentionally interferes with or disrupts a competitor’s contractual relationship (or prospective business relationship) so long as the defendant’s conduct was fair, and reasonable under the circumstances.  Restatement (Second) of Torts § 767, cmt. j (1979).

In determining whether a defendant acted improperly in interfering with a plaintiff’s contractual relation, the finder of fact is asked to weigh both the defendant’s motive and the means the defendant used to allegedly interfere. See Cavicchi v. Koski, 67 Mass. App. Ct. 654, 658 (2006) (explaining that “improper conduct ‘may include ulterior motive (e.g., wishing to do injury) or wrongful means (e.g., deceit or economic coercion)’”). The plaintiff need only establish either improper means or improper motive, not both, to sustain a claim of tortious interference.

In standard civil Jury Instructions given to a jury at the end of a trial where the Plaintiff has alleged interference with contractual or business relations, the jury is told to consider the following factors in deciding whether the motive or the means was improper:

  1. the nature of the defendant’s conduct,
  2. the defendant’s motive,
  3. the interests of the other with which the defendant’s conduct interferes,
  4. the interests the defendant sought to advance,
  5. the social interests in protecting the freedom of the defendant and the contractual interests of the other,
  6. the proximity or remoteness of the defendant’s conduct to the interference, and
  7. the relations between the parties.

While these factors are not determinative on their own and should be considered in light of the specific circumstances, these are the guideposts used to determine whether motive or means were improper in any particular case.

Notably, the standard civil jury instructions also state that a fact finder may not find that the defendant acted for an improper purpose if it is determined that the pressure was a reasonable way to accomplish the defendant’s objective.  In other words, mere persuasion or even limited economic pressure is not enough to constitute an improper means of interfering with a competitor’s prospective business relationship.

With respect to a defendant’s motive, the law permits a party to act in a way that promotes his/her own legitimate business interests. Pursuit of a legitimate financial interest, in and of itself, is not an improper motive. Rather, the plaintiff must prove that a defendant acted in such a way that his/her improper motive or means was “spiteful or malignant toward the plaintiff and unrelated to any legitimate competition or business interest of its own.” Psy-Ed Corp. v. Klein, 459 Mass. 697, 716 (2011).

Where these cases are so fact-specific, and the harm such interference presents is imminent, it is important 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. 1

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