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Interrogatories:
Interference with Business Relations Existence of contract, defendant’s knowledge, interfering acts or conduct, causation, damages. by Kevin R. Culhane Excerpted from Model Interrogatories
This chapter presents interrogatories for use when the
plaintiff claims that defendant’s conduct wrongfully interfered with
plaintiff’s business relations. The chapter addresses two related
but conceptually distinct torts represented by claims that defendant’s
conduct (1) wrongfully interfered with plaintiff’s existing
contractual relationship, either by inducing a breach of contract or
rendering plaintiff’s performance more difficult or burdensome; and (2)
wrongfully interfered with the plaintiff’s prospective economic
advantage. This chapter presents interrogatories for use by both
plaintiffs and defendants keyed to the essential elements of the
parties’ liability and damage claims, followed by interrogatories for
use by both parties addressing the available defenses. Because the contours of these business torts are
subject to ongoing judicial development, careful attention must be paid
to the statutory and case law of your jurisdiction regarding the
elements of the claims and related defenses. Nevertheless, several
generalizations are in order regarding those causes of action that
provide redress for interference with business relations. The first of these is that, in general, the
current trend of the case law affords heightened protection to business
relationships that have been consummated as existing contracts, and
correspondingly less protection when a defendant interferes with a
prospective relationship. As an example, the privilege for
fair competition (addressed in sections dealing with applicable defenses
below) rarely provides a recognized justification for inducing the
breach of an existing contract, but frequently constitutes a complete
defense to claims for interference with prospective economic advantage.
Indeed, some courts have held that liability for inducing breach of an
existing contract may be predicated upon the fact of inducement itself,
whereas conduct giving rise to liability for interference with
prospective economic advantage must be wrongful by some measure
other than the fact of interference. (See Della Penna v.
Toyota Motor Sales USA, 11 Cal.4th 376 (1995).) A second necessary observation relates to the fact
that, where the necessary elements are proven, interference with
contractual relations constitutes a tort. Since tort
damages are recoverable, the courts have attempted to carefully define
the range of potential defendants in interference cases to insure that
the liability of the contracting parties themselves is limited to
damages available for breach of contract. This has led to a
complex body of law that focuses on whether the defendant is in fact a
“stranger” to the existing contractual relationship. Thirdly, it should be noted that in many cases the
wrongful conduct establishes other independently actionable torts, such
as defamation, fraudulent misrepresentation, etc. Of course, the
plaintiff may elect to frame his complaint upon any theory supported by
the facts. Accordingly, interrogatories contained in other
chapters in this book may also be used in business interference cases. Finally, and perhaps most fundamentally, several
cases have recognized that tort liability for interference with business
relations protects the secure enjoyment of contractual and economic
relations at the expense of a freely competitive economy. (See,
e.g., Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal.3d
1118, 1137 (1990).) Accordingly, some courts have been hesitant to
expand the reach of interference torts, and the recognized defenses
discussed in this chapter are designed to protect legitimate competition
and related values. As will be demonstrated in the sections that
follow, these various policy considerations are reflected in the
elements of both the claims and defenses applicable to interference with
business relations claims. Accordingly, the interrogatories set
forth in this chapter are keyed to explore the parties’ respective
contentions regarding these issues. §2120 Interference with Existing Contractual
Relations – Plaintiff to Defendant As noted in the introductory materials above, liability
may attach for defendant’s wrongful conduct that interferes with an
existing contractual relationship. The interrogatories set
forth in the sections that follow are for use in cases in which the
plaintiff claims that defendant either (1) induced the other party to
breach the existing contract, or (2) prevented plaintiff’s performance
of the contract or rendered such performance more expensive or
burdensome. As with other types of tortious conduct examined
throughout this book, the interrogatories are organized according to the
necessary elements of plaintiff’s proof, including interrogatories for
use by both plaintiffs and defendants on these issues. §2121 Existence of Contract As noted in the introductory materials, a plaintiff
seeking to recover for interference with a contract must demonstrate the
existence of the contract itself. The interrogatories set forth in
this section explore the state of the defendant’s knowledge and
contentions regarding the existing contractual relationship between
plaintiff and the third party. §2121.1 In General
§2121.2 Unenforceable Contract Most jurisdictions will permit liability for
interference with a contract to attach even if the contract is
unenforceable as between the parties. In these jurisdictions, the
fact that the contract may be voidable under the statute of frauds or
for lack of consideration provides no defense to a party who interferes
with the relationship between the parties. (See authorities cited
in Zimmerman v. Bank of
§2121.3 Contracts Subject to Conditions
Precedent Occasionally, a defendant sued for tortious interference
with a contract will contend that liability should not attach because
the contract, although consummated between the parties, is nevertheless
subject to a condition precedent. A common example would be a
merger agreement that is subject to approval by the appropriate
regulatory authorities. In such cases defendants occasionally
contend that in the absence of such regulatory approval plaintiff has no
legally protected interest, but this approach has generally been
rejected by the courts. (See SCEcorp v. Superior Court, 3
Cal.4th 673 (1992); see also Prosser & Keaton, § 129; and
Restatement 2d, Torts, § 766, Comment f.) Accordingly, the
interrogatories set forth in this section are for use in those
jurisdictions that limit tortious interference with contractual
relations to those instances in which the contract is not subject to any
unfulfilled condition precedent.
§2121.4 Void Contract Even those jurisdictions that allow a tort action for
interference with a contract that is for some reason voidable or
unenforceable as between the parties (such as a contract that does not
comply with the statute of frauds or as to which there is no
consideration) recognize that no action can be stated if the contract is
wholly void. An illegal contract represents the paradigm
example. (See A-Mark Coin Co. v. General Mills, Inc., 148
Cal.App.3d 312 (1983).) Accordingly, the interrogatories set forth
in this section explore the defendant’s contentions regarding any claim
that the subject contract is void for any reason.
§2121.5 Contract Terminable at Will Some jurisdictions deny recovery if the contract which
is the subject of the claimed interference is a contract that is
terminable at the will of one of the parties. (Ulan v. Lucas,
18 Ariz.App. 129 (1972) (500 P.2d 914); Radiology Professional Corp.
v. Trinidad Area Health Assoc., 39 Colo.App.100 (1977) (565 P.2d
952).) Although this rule has been rejected in California (see
Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal.3d 1118,
1128 (1990)), the interrogatories set forth in this section explore the
defendant’s contentions on this point and are for use in
jurisdictions which deny recovery when the contract is terminable at
will.
§2122 Contract Between Plaintiff and a
Third Party The imposition of tort liability for interference with
contractual relations generally requires that the plaintiff demonstrate
the existence of a contractual relationship between a plaintiff and a
person who, with respect to the defendant, is a legitimate “third
party.” This is so because if there is an identity of interest between
the defendant and the other party to the contract, the plaintiff’s claim
for interference with the contractual relationship would in essence be a
suit against the other party to the contract, which could in turn impose
tort liability for what is in essence a breach of contract.
Accordingly, case law has arisen in many jurisdictions addressed to the
question of whether the defendant is truly a “stranger” to the
contractual relationship, or conversely, is simply a representative of
the other contracting party. The interrogatories set forth in the
sections that follow address these issues. §2122.1 Defendant as the Alter Ego of a Party
to the Contract The requirement that a defendant be a stranger to the
existing contractual relationship (and conversely that the plaintiff’s
contractual relationship be with a legitimate third party) has led to a
wide variation in results in the common situation in which a plaintiff
sues a corporate officer or director for interfering with a contract
entered into by the corporation. In this setting, some courts have
precluded recovery where the evidence indicates that the individual
defendant is in fact the alter ego of the corporation, since this means
that there is no legitimate third party and that plaintiff is therefore
attempting to impose tort liability for breach of contract by the
corporation. (See, e.g., Rao v. Rao, 718 F.2d 219, 225 (7th
Cir. 1983); Friedman & Son, Inc. v. Safeway Stores, Inc., 712
P.2d 1128, 1131 (Colo. Ct. App. 1985); Rural Development, Inc. v.
Stone, 700 S.W.2d 661, 667 (Tex. Ct. App. 1985), disapproved on
other grounds in Sterner v. Marathon Oil Co. 767 S.W.2d 686,
690 (Tex. 1989); Giblin v. Murphy, 97 A.D.2d 668 (1983) (469
N.Y.S.2d 211, 214-215); Straynar v. Jack W. Harris Co., 150
Ga.App. 509 (1979) (258 S.E.2d 248, 249-250).) In contrast, some courts have held that a
corporate owner may nevertheless be liable for interfering with the
corporation’s contracts, on the basis that alter ego liability is simply
remedial in nature and does not establish a legal identity of interests
for all purposes. (See, e.g., Webber v. Inland Empire Inv., Inc.,
74 Cal.App.4th 884 (1999); Shapoff v. Scull, 222 Cal.App.3d 1457
(1990), disapproved on other grounds in Applied Equipment
Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503 (1994); Wanland
v. Los Gatos Lodge, Inc., 230 Cal.App.3d 1507 (1991).)
Accordingly, the interrogatories set forth in this section explore the
defendant’s contentions regarding the claim that liability should be
precluded because the defendant is the alter ego of the other party to
the contract.
§2122.2 Conspiracy Claims Against Other
Contracting Party The rule that liability for interference with
contractual relations may only be imposed upon a stranger to the
contractual relationship has also given rise to a confusing array of
decisions on the question of whether the other contracting party
can be held liable for tortious interference on the theory that it
conspired with the third party (as to whom liability may ordinarily
be established). Some jurisdictions allow recovery, recognizing
that while the tort action for interference with contractual relations
cannot be brought against the other contracting party, that party can
nevertheless be liable for conspiring to interfere with the
contractual relationship. (Fox v. Deese, 234 Va. 412 (1987)
(362 S.E.2d 699, 708); Boyles v. Thompson, 585 S.W.2d 821, 836 (Tex.Civ.App.
1979); National Linen Service Corp. v. Clower, 179 Ga. 136 (1934)
(175 S.E. 460, 466); Beverly v. McCullick, 211 Kan. 87 (1973)
(505 P.2d 624); Sorenson v. Chevrolet Motor Co., 171 Minn. 260
(1927) (214 N.W. 754, 764-765, 84 A.L.R. 35).) Other jurisdictions
deny recovery, on the theory that although tort liability may be imposed
upon a non-contracting party, the policy protecting the expectations of
contracting parties preclude any attempt to “end run” the limitations
imposed in contract actions through the expedient of a “conspiracy”
allegation. (See, e.g., Applied Equipment Corp. v. Litton Saudi
Arabia Ltd., 7 Cal.4th 503, 513-514 (1994).) The
interrogatories set forth in this section are for use in those
jurisdictions that allow liability for tortious interference with a
contract against the other party to the contract if that party conspired
with the third party to induce the breach.
§2123 Defendant’s Knowledge of Existing
Contract As set forth in the introductory materials, the
plaintiff must also demonstrate that the defendant was aware of the
existing contract between the plaintiff and the third party at the time
that the defendant engaged in the acts of interference. The
interrogatories set forth in this section explore the state of
defendant’s knowledge on this issue.
§2124 Acts or Conduct Interfering with
Contractual Relations As set forth in the introductory materials, the
plaintiff must also prove that the defendant either (1) induced the
other contracting party to breach the contract, or (2) engaged in
conduct that rendered the plaintiff’s performance more difficult or
burdensome. The interrogatories set forth in the sections that
follow explore these issues. §2124.1 Acts or Conduct Inducing Breach
§2124.2 Conduct Rendering Plaintiff’s
Performance More Difficult As set forth above, liability may attach not only when a
defendant induces the other contracting party to breach the contract,
but also when a defendant’s conduct renders a plaintiff’s performance
more difficult. The interrogatories set forth in this section
address the defendant’s contentions regarding this basis of liability.
§2125 Causation In order to prevail in a claim for tortious interference
with contractual relations, a plaintiff must demonstrate that the
defendant’s conduct was the legal cause of the damage, i.e., caused the
other party to the contract to breach it, or rendered plaintiff’s
performance more difficult. Conversely, a defendant will typically
claim that the other contracting party breached the contract for reasons
wholly independent of the interference, or that plaintiff’s performance
was rendered more difficult for reasons extraneous to defendant’s
conduct. The interrogatories set forth in this section are for use
where causation is disputed in tortious interference cases.
§2126 Damages As in other areas of tort liability, the prevailing
plaintiff must demonstrate that the tortious conduct caused damage.
Moreover, if the conduct can be characterized as oppressive, fraudulent
or malicious, the plaintiff may be entitled to punitive damages.
The interrogatories set forth in the sections that follow explore these
damages issues from the plaintiff’s perspective. §2126.1 Past Economic Losses A plaintiff who successfully demonstrates tortious
interference with contractual relations is entitled to compensatory
damages, including economic losses incurred up to and through the date
of the trial. The interrogatories set forth in this section
address the defendant’s contentions regarding past economic losses.
§2126.2 Future Economic Losses A plaintiff who demonstrates tortious interference with
contractual relations is also entitled to recover future lost profits,
subject to the normal requirement that such losses be reasonably certain
to occur. The interrogatory set forth in this section explores the
defendant’s contentions regarding a future lost profits claim.
§2126.3 Loss of Goodwill The plaintiff who successfully establishes tortious
interference with contractual relations may also claim damages for loss
of business goodwill, provided only that such damages may not duplicate
an award for future lost profits. (See Buxbom v. Smith, 23 Cal.2d
535 (1944).) The interrogatories set forth in this section explore the
defendant’s contentions regarding lost good will claims.
§2126.4 Emotional Distress Damages The right to recover emotional distress damages incident
to financial loss is the subject of ongoing legal debate (see, e.g.,
Merenda v. Superior Court, 3 Cal.App.4th 1 (1992)). A plaintiff
seeking to recover such damages may correctly point out that in most
cases tortious interference with contractual relations is an intentional
tort, and that courts have allowed such damages in intentional tort
cases. (See generally Burgess v. Superior Court, 2 Cal.4th 1064
(1992).) The interrogatories set forth in this section explore
defendant’s contentions regarding emotional distress damages.
§2126.5 Punitive Damages If a defendant’s conduct is accompanied by the requisite
oppression, fraud or malice, (or their equivalents under varying state
formulations) a plaintiff may also seek an award of punitive damages.
Interrogatories for use in such cases, as well as a sample motion
permitting pretrial discovery of a defendant’s financial condition, are
set forth in section 323, et seq.
Kevin R. Culhane is a partner with the law firm
of Hansen, Boyd, Culhane & Watson in |
