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Tortious Interference – The Triangular Tort

Tortious interference has broad applications in civil disputes involving employment relationships and commercial transactions, yet it may be an unfamiliar concept to most non-lawyers and is little studied even in law school. “Tortious” is an adjective describing conduct for which an actor is subject to civil liability under the law of torts. A tort is a wrongful act or injury creating a legal claim. (The word is derived from the Latin for “twisted” or wrong.) Torts are generally considered distinct from contract based claims, but torts and contracts intersect in many ways. “Interference” can mean blocking, causing the breach of, or preventing the performance of a contract or business relationship. Tortious interference therefore requires three parties – two parties to a contract or other relationship and a third party interfering with that relationship. This triangular dynamic means a one-dimensional dispute solely between parties to a contract cannot give rise to a tortious interference claim.
There are several types of possible “tortious interference” claims under the law of various states including interference with contract, interference with business relations, interference with prospective economic advantage, negligent interference and interference with inheritance, among others. Some commentators place them into two broad categories: contractual relationships, whether or not they involve business; and business relationships or activities, whether or not they involve a contract.

Tortious interference can be traced back to English common law at least as far back as the case of Lumley v. Gye (1853) 2 El. & Bl. 216, 118 Eng. Rep. 749. In that case, Lumley had an exclusive contract for a famous singer to perform at his venue in London. Gye induced the singer to break the contract and instead sing for his establishment by offering more money. Lumley was allowed to sue Gye for damages. In modern American law the simple act of outbidding another venue might not actually be considered tortious, although Lumley would certainly have a viable breach of contract claim against the singer. Importantly, however, the Lumley decision was based on even older English law regarding masters and servants. American courts thus limited the tort to service and employment contracts for many years. Although many tortious interference claims still arise in employment relationships, the tort has now expanded to apply to virtually any business or commercial relationship.

One of the first reported cases of tortious interference law being applied in the United States arose in the Massachusetts case of Walker v. Cronin, 107 Mass. 555 (1871). In that case, the plaintiffs alleged that the defendant unlawfully and without justifiable cause, molested, obstructed and hindered the plaintiffs from carrying on their business of manufacture and sale of boots and shoes by persuading and inducing a large number of persons who were in the employment of the plaintiffs, and others who were about to enter into their employment, to leave and abandon the employment of the plaintiffs. The Massachusetts Court held, without delving into the specifics, that the allegations sufficiently set forth (1) intentional and willful acts (2) calculated to cause damage to the plaintiffs in their lawful business, (3) done with the unlawful purpose to cause such damage and loss, without right or justifiable cause on the part of the defendant, and (4) with actual damage and loss resulting. In modern day law, we might characterize these allegations as an example of “raiding” the workforce of a competitor, although most states do not recognize “raiding” as a viable claim unless tied to an otherwise wrongful act or breach of contract.

Elements of a Claim
Various states set forth different requirements for a claim of tortious interference. In Minnesota, the claim of tortious interference with contract requires:

  • The existence of a contract;
  • The alleged wrongdoer’s knowledge of the contract;
  • Intentional procurement of its breach;
  • No justification; and
  • Damages.

Kallok v. Medtronic, Inc., 573 N.W.2d 356, 362 (Minn. 1998). According to the Restatement (Second) of Torts, § 766, a non-binding scholarly treatise relied often on by courts, tortious interference with a third-party contract laws means that:

  • One who intentionally and improperly interferes with the performance of a contract (except a contract to marry);
  • between another and a third person;
  • by inducing or otherwise causing the third person not to perform the contract;
  • is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.

Under California law, a tortious interference with contract claim requires the plaintiff to show:

  • The existence of a contract between plaintiff and third party;
  • That the defendant knew of the contract;
  • That the defendant intended to disrupt the performance of the contract;
  • That the defendant’s conduct prevented performance or made the performance more expensive or difficult;
  • That the plaintiff was harmed;
  • And that the defendant’s conduct was a substantial factor in causing the plaintiff’s harm.

California Civil Jury Instructions, CACI No. 2201.
The Restatement and some courts distinguish a sub-set of claims for intentional interference with another’s performance of his own contract, as opposed to interfering with the performance of the third party (like the singer in Gye). The restatement defines this situation as:

  • The existence of a contract between the plaintiff and a third party;
  • actual or constructive knowledge of the contract by the defendant;
  • intentional and improper acts by the defendant inducing the plaintiff to breach the contract with the third party or causing performance of the contract to be more expensive or burdensome; and
  • damages suffered by the plaintiff as a direct result of the defendant’s actions.

Restatement (Second) of Torts § 766A, See also, Shafir v. Steele, 431 Mass. 365, 727 N.E.2d 1140 (2000).
Tortious Interference with Prospective Business Advantage
Tortious interference may arise even when the parties have not yet entered into a binding contract. This is known as tortious interference with a prospective economic advantage. The Minnesota Supreme Court has held that to recover for tortious interference with prospective economic advantage, a plaintiff must prove the following five elements:

  • The existence of a reasonable expectation of economic advantage;
  • The defendant’s knowledge of that expectation of economic advantage;
  • That the defendant intentionally interfered with the plaintiffs’ reasonable expectation of economic advantage, and the intentional interference with either independently tortious or in violation of a state or federal statute or regulation;
  • That in the absence of the wrongful act of the defendant it is reasonably probable that the plaintiff would have realized and economic advantage or benefit; and
  • That the plaintiff sustained damages.

Gieseke v. IDCA, Inc., 844 N.W.2d 210, 219 (Minn. 2014) (relying on the Restatement (Second) of Torts § 766(B)). Gieseke involved long-standing disputes between brothers with competing businesses. Although the Court explicitly reaffirmed that “tortious interference with prospective economic advantage is a viable claim in Minnesota” (id. at 212) and “wrongful interference with the formation of a contract is no less actionable than a wrongful interference with an existing contract” (id. at 213), it reversed judgment in favor of the plaintiff because he failed to identify and third parties with whom he had a reasonable expectation of a future economic relationship and failed to prove damages.
A claim for tortious interference with prospective economic advantage under California law requires:

  • An economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff;
  • That the defendant had knowledge of the relationship;
  • Intentional acts on the part of the defendant designed to disrupt the relationship;
  • Actual disruption of the relationship; and
  • Economic harm to the plaintiff proximately caused by the acts of the defendant.

Buckaloo v. Johnson, 14 Cal.3d 815 (1975). At least one California court has held that a plaintiff must prove the defendant’s conduct was “wrongful by some legal measure other than the fact of interference itself.” Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal. 4th 376 (1995).
Negligent Interference
Negligent interference with prospective economic advantage is not a recognized claim in most states. See, e.g., Peterson v. Zerr, 477 N.W.2d 230 (N.D. 1991), Witte Transportation Co. v. Murphy Motor Freight Lines, Inc., 193 N.W.2d 148 (Minn. 1971), Alvord and Swift v. Stewart M. Muller Construction Co., Inc., 46 N.Y.2d 276, 281 (1978). In California, however, at least one court allowed the claim, defined as and requiring the plaintiff to show the following:

  • An economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff;
  • The defendant knew of the relationship and was aware or should have been aware that it must act with due care or risk interfering with the relationship;
  • The defendant was negligent;
  • Such negligence caused damage to the plaintiff (the relationship was actually interfered with or disrupted).

North American Chemical Co. v. Superior Court, 59 Cal. App. 4th 764, 786 (1997).

What is “Improper”?
A viable tortious interference claim requires an improper act. The question of what is wrongful or improper is complicated and fact-specific. Originally, interference claims were limited to cases of violence, intimidation, fraud, or defamation, most of which were separately actionable as torts in and of themselves. For example, if Party C causes Party A to breach its contract with Party B by sabotaging Party A’s delivery of goods or making untrue statements that the goods have been contaminated, a court would likely see that behavior as wrongful because it is outside the bounds of fair competition. Depending on the facts, Party A could also sue for defamation or trespass to chattel. A claim of tortious interference, however, captures both the consequence and the motive of the wrongful act in a more holistic way. For example, trespass to chattel might only allow recovery of the value of the goods, whereas a tortious interference claim might allow Party A to seek the lost value of the contract with Party B.

The Restatement uses the word “improper” and explains that that term includes, but is not limited to, “malice.” Malice, also known as “ill will,” is not required under the Restatement, but malice can be used as strong evidence of impropriety or intent. In response to a claim that an action is improper, a defendant can assert “justification.” Justification includes but is not limited to, the legal concept of “privilege,” but these distinctions are not always clear. What is improper or justified can be based on consideration of the “varying ethical standards of the community, and especially the standards of business ethics [in that community]” 45 Am. Jur. 2d Interference Section 1.

Filing a lawsuit usually is usually not considered a wrongful act because parties have a privilege to avail themselves of the protection of the courts to seek redress or assert legal claims. In Cohen v. Battaglia, 296 Kan. 542, 293 P.3d 752 (2013), however, the Kansas Supreme Court found an exception to that rule. In that case, a holder of promissory note objected to a pending transaction and filed a lawsuit in Missouri to block it, and sent a copy of the lawsuit to the parties’ counsel. Defendants filed their own action in Kansas, alleging that the litigation had no purpose other than to interfere with the sale transactions. The lower courts held that tortious interference claim failed because defendant was “asserting a legally protected interest” and by sending the lawsuit papers was providing “truthful information.” The Kansas Supreme Court reversed, holding that while the existence of the lawsuit was true, the allegations had yet to be proven.

Potential Damages
Plaintiffs asserting a tortious interference claim might claim economic losses including lost profits; equitable remedies (in the form of an injunction); attorney fees (as damages); and, sometimes, punitive damages, depending on the nature and severity of the improper act.
In Minnesota, damages can, in certain circumstances, be “limited to those that might have been recovered for a breach of the contract itself.” Storage Tech. Corp. v. Cisco Sys., Inc., 2003 WL 22231544, at *2 (D. Minn. Sept. 25, 2003), affirmed 395 F.3d 921 (8th Cir. 2005). Damages must be proven to a reasonable certainty and recovery or “speculative, remote or conjectural damages is not allowed.” Id. Double recovery of breach of contract damages is not allowed. Id.

In St Jude Medical S.C., Inc. v. Biosense Webster, Inc., 8181 F.3d 785, however, the Eighth Circuit Court of Appeals clarified its decision in Storage Tech, noting, “Minnesota law allows damages that would not be available in a suit on the contract itself,” and held that in Biosense the district court, “correctly concluded that St. Jude could recover damages for lost profits based on Biosense’s tortious interference.” Id. at 790.
In Kallok v. Medtronic, Inc., 573 N.W.2d 356, 363 (Minn. 1998), the Minnesota Supreme Court expansively held that damages may be recovered for “all harm, past, present, and prospective, legally caused by the tort.” It even held that attorney fees may be available if a new employer’s tortious interference thrusts a former employer into litigation with a third party (the former employee). In that case, the attorneys’ fees incurred in successfully enforcing the non-compete contract were considered damages in an exception to the “American Rule” that each side bears its own attorney’s fees in the absence of a fee-shifting statute.

In theory, injunctive relief may be available against defendants in a tortious interference claim, so long as plaintiff otherwise meets the standard for injunctive relief. See, e.g. Cherne Industrial, Inc. v. Grounds & Associates, Inc., 278 N.W.2d 81 (Minn. 1979) and Young v. Meyer, LEXIS 380, *3 (Minn. Ct. App. Apr. 4, 1989) (unpublished opinion) (referring to injunctive relief in cases also involving companion claims for breach of non-compete agreements).

Because tortious interference claims almost always involve an allegation of intentional improper conduct, it is not uncommon for plaintiffs to seek punitive damages, but being allowed to claim punitive damages is by no means a given. “Even though liability and punitive damages contain the common elements of willfulness, a finding of liability for compensatory damages does not dictate an award of punitive damages.” Bankers Multiple Line Ins. Co. v. Farish, 464 So.2d 530, 533 (Fla. 1985) In Florida, for example, the main criteria for punitive damages are “(1) whether the interference was justified, and (2) the nature, extent and enormity of the wrong.” Hospital Corp. of Lake Worth v. Romaguera, 511 So.2d 559, 561 (Fla. 4th DCA 1986). That court held that, “to sustain a claim for punitive damages, the tort must be committed in an outrageous manner or with fraud, malice, wantonness or oppression.” Id. at 564. In Minnesota, a plaintiff must present the court with “clear and convincing evidence that the acts of the defendant showed deliberate disregard for the rights or safety of others” in order to even ask for punitive damages at trial. Minn. Stat. § 549.20.

Defenses to Tortious Interference Claims
Potential affirmative defenses to a tortious interference claim include fair competition, truth, justification, privilege, and advice of counsel. Other potential defenses include (1) the principle that you cannot interfere with your own contract (i.e. the lack of a triangle); (2) that the underlying contract was invalid or there was no contract; (3) that no breach of the contract occurred (and its performance was not frustrated or hindered); (4) that the defendant lacked knowledge of the contract; (5) lack of causation between the act and the breach; (6) lack of a separate underlying wrongful act such as fraud or defamation; and (7) lack of damages.

Truth is almost always a good defense, whether to claim of defamation, fraud, or tortious interference. The First Amendment protects spiteful, yet truthful statements made by individuals. See C.R. Bard, Inc. v. Worldtronics Corp., 561 A.2d 694, 235 N.J. Super. 168 (1989) (“Defendant’s motive is not relevant to the determinations of this case… It is not improper to give truthful information to a customer about someone else’s product, and this is so even if the purpose is to interfere with an existing or prospective contractual relationship.”) See also Restatement (Second) of Torts § 772 (“One who intentionally causes a third person not to perform a contract or not to enter into a prospective contractual relation with another does not interfere improperly with the other’s contractual relation, by giving the third person (a) truthful information, or (b) honest advice within the scope of a request for the advice.”)

The Minnesota case of Moore v. Hoff, 821 N.W.2d 591 (Minn. Ct. App. 2012) is a good case study. The plaintiff sued a blogger known as “Johnny Northside” for defamation and interference with prospective advantage. The jury specifically found that the statements in the blog post were true and therefore ruled against the plaintiff on the defamation claim. But the jury ruled in favor of plaintiff on the interference claim, awarding him $60,000. The Minnesota Court of Appeals reversed, holding that plaintiff could not establish claim for interference based on publishing true statements on a blog.

“Fair competition” is also often raised as a defense. In Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711 (Tex. 2001), for example, plaintiffs asked Wal-Mart to amend the easement on tract of land it owned so that plaintiffs could finance and purchase tract to build a food store. A Wal-Mart manager said it would provide the amendment, but before it was completed, another Wal-Mart manager swooped in to purchase the property for a new Wal-Mart store. A jury awarded Plaintiffs $1 million in lost profits and $500,000 in punitive damages on plaintiff’s interference claim. The Texas Supreme Court reversed the verdict, noting, “In an economic system founded upon the principle of free competition, competitors should not be liable in tort for seeking a legitimate business advantage.”
It is axiomatic, that, “[a]bsent a contract, there can be no tortious interference [with contract.]” Hartmann v. Northern Services, Inc., No. C1-96-135, 1996 WL 438810 (Minn. Ct. App. 1996) at *3, citing Glass Serv. Co. v. State Farm Mut. Auto. Ins. Co., 530 N.W.2d 867 (Minn. Ct. App. 1995). The defense of an invalid contract was successfully applied in DeMoisey v. Ostermiller, No. 2014-CV-001827, 2016 WL 2609321 (Ky. 2016). In DeMoisey, an attorney sued another lawyer for tortious interference with contractual relations for providing advice and representation to lawyer’s former client, the Kentucky Court of Appeals dismissed the claim because the alleged underlying oral contingency fee agreement was invalid under Kentucky’s rules of professional responsibility and held that a voidable contract can support a claim for tortious interference with contact whereas a void contract cannot.
Even the advice of counsel that a contract is not enforceable can be a defense to the impropriety element of a tortious interference claim. In Sysdyne Corp. v. Rousslang, 860 N.W.2d 347 (Minn. 2015), the Minnesota Supreme Court held that the advice of an outside attorney opining that the non-compete agreement of potential hire was not enforceable was considered a justification defense sufficient to defeat a claim for tortious interference against the new employer, even though the non-compete was found to be enforceable at trial. Sysdyne may have the practical effect of limiting interference claims in Minnesota under Kallok v. Medtronic (discussed above) against a company that knowingly hires a candidate with a non-compete, so long as the company can show that it received advice from a lawyer that the non-compete agreement was invalid. Similarly, lack of actual knowledge of non-compete agreement was a defense to tortious interference claim against the hiring defendant in Acclaim Sys., Inc. v. Infosys, Ltd, No. 16-1770 (3rd Cir. Jan. 19. 2017).
Finally, in Silverhorse Racing, LLC v. Ford Motor Company, No. 6:16-CV-0053, 2017 WL 397555 (M.D. Fla. Jan. 30, 2017), a U.S. District Judge in Florida held that the 56-year old “Noerr-Pennington Doctrine” was a defense to a tortious interference claim where Ford Motor Company sent demand letters to third parties alleging trademark infringement. The Noerr-Pennington doctrine, the Court held, derives from the First Amendment’s guarantee of “the right of the people… to petition the Government for a redress of grievances.” Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 135 (1961); United Mine Workers v. Pennington, 381 U.S. 657, 670 (1965).

Tortious Interference in Employment Law
There are several ways a tortious interference claim arise in the employment context:

  • An employee might sue a former employer or third-party for causing him to be fired, for example by defaming him.
  • A former employee might attempt to sue his manager or supervisor for wrongful termination.
  • A former employer might attempt to sue the new employer of a former employee for inducing the breach of a non-compete or other restrictive covenant, or possibly for interfering with an at-will employment relationship by raiding or inducing a breach of duty of loyalty even in the absence of a restrictive covenant.
  • A former employer might sue a former employee for inducing the breach of a contract with its customers, vendors, or other employees.
  • A former employee might attempt to sue a former employer for preventing him from being hired by wrongfully or falsely claiming an enforceable restrictive covenant exists.

The Ohio Court of Appeals recently and succinctly articulated the triangular requirement of interference claims as they intersect with employment law:

“There are three players in a tortious interference claim: the plaintiff, the defendant, and a third-party employer. The employer being sued cannot the third party in this type of claim.”

Hester v. Case Western Reserve University, No. 105515, 2017 WL 123318 (Ohio Ct. App. Jan. 12, 2017.)
Because one cannot interfere with its own contract, an employer cannot be sued for tortious interference by its former employee. Sometimes, however, former employees attempt to sue their former boss individually, alleging that the former boss fired them out of personal animosity. As a practical matter these claims are exceedingly difficult to win, but as a technical matter of pleading they may state a cognizable claim. In Minnesota, a company officer, agent, or employee is privileged to interfere with or cause a breach of another employee’s employment contract with the company, if that person acts in good faith, whether competently or not, believing that his actions are in furtherance of the company’s business.” Nordling v. N. States Power Co., 478 N.W.2d 498, 505 (Minn. 1991). “This privilege may be lost, however, if the defendant’s actions are predominately motivated by malice and bad faith, that is, by personal ill-will, spite, hostility or a deliberate intent to harm the plaintiff employee.” Id. See also Boers v. Payline Sys., Inc., 141 Or. App. 238, 243 (Or. Ct. App. 1996).

Tortious interference claims can arise whenever there is a triangle involving two parties to a contact or other business relationship and a third-party attempting to interfere or hinder that relationship. The claim is elastic enough to be applied to a variety of fact patterns but it is subject to many defenses as well.

Trepanier MacGillis Battina, P.A. is a civil litigation law firm located in Minneapolis, Minnesota. Their attorneys can be reached at 612.455.0500.