DEVELOPING TORT – INTENTIONAL INTERFERENCE WITH CONTRACTUAL RELATIONS

INTENTIONAL INTERFERENCE WITH CONTRACTUAL RELATIONS

At common law, a defendant is liable to pay damages in tort for actions intended to interfere with the plaintiff’s contractual relations with a third party.

In an intentional interference claim, the burden is on the plaintiff to prove the elements of the claim rather than on the defendant to prove that its acts were justified. To prevail on the claim, plaintiff must prove four elements: (1) that a valid contract existed, (2) that defendant had knowledge of the contract, (3) that defendant acted intentionally and improperly,  and (4) that plaintiff was injured by the defendant’s actionsUnited Truck Leasing Corp. v. Geltman, 406 Mass. 811, 812, 551 N.E.2d 20 n. 6 (Mass. 1990).

See also tortious interference.

 

Shafir v. Steele Recognizes New Tort of Intentional Interference with Plaintiff’s Own Contractual Performance

January 1, 2001

by Leigh-Ann M. Patterson

by Leigh-Ann M. Patterson

This article first appeared in the Boston Bar Journal in the January/February 2001 issue.

I. Introduction

In a case of first impression (Shafir v. Steele, 431 Mass. 365 (2000)), the Supreme Judicial Court recognized §766A of the Restatement (Second) of Torts (the “Restatement”), which imposes liability for conduct which intentionally interferes with a plaintiff’s own contractual performance. Prior to Shafir, the Massachusettscourts had recognized only one of two Restatement formulations of the tort of intentional interference with contractual performance. In Shafir, the second formulation was squarely adopted, significantly broadening the scope of potential liability for wrongfully interfering with others’ economic rights.

II. Factual Background: A Case of Bad News for a Newspaper

In Shafir, a newspaper owner intentionally and wrongfully interfered with another business person’s contract to buy the newspaper’s building by threatening her with a frivolous, but damaging, lawsuit if she did not back out of the deal. The newspaper owner was Defendant Duane A. Steele (“Steele”) and his newspaper, published by the Provincetown Advocate News Corporation, was called The Advocate. In 1993, Steele’s newspaper was experiencing financial difficulties and defaulted on its loan and mortgage with Shawmut Bank (“Shawmut”).

Shawmut and Steele worked out a loan restructuring agreement, whereunder Shawmut would foreclose on the mortgaged property, but Steele’s children would tender a bid of at least $175,000 at the foreclosure sale. They also agreed that if a third party happened to outbid Steele’s children, Shawmut could accept the third party’s bid and their work-out agreement would become null and void. To Steele’s chagrin, that is exactly what happened.

Frances Shafir (“Shafir”), a local business woman who owned a nearby theater, outbid Steele’s children with an offer of $240,000. Shafir signed a purchase and sale on the spot and tendered a $10,000 deposit. Distraught over the thought of anyone other than his children owning the property, Steele decided to “persuade” Shafir not to go through with the purchase.

Just hours after the foreclosure sale, Steele paid Shafir a “menacing” visit and let her know he was troubled by what had happened. Two days later, he published an editorial in The Advocate, falsely accusing Shafir of outbidding his children as revenge for an article he had once published that was critical of the theater she owned.1 Three days later, he demanded a meeting with Shafir and her real estate agent, Patricia Shultz (“Shultz”), so that he could show them “papers” that would give them a glimpse of “what they were in for” if Shafir went through with the purchase.

These “papers” turned out to be a Complaint that Steele threatened to file against Shafir and Shultz. The Complaint had been prepared by Steele’s lawyer and alleged that both women committed fraud, extortion, and malicious interference with Steele’s work-out agreement with Shawmut. When Shafir and Shultz read the Complaint, they knew the charges were crimes and described their reactions as being terror, shock, astonishment, bewilderment, and then (later) outrage and anger. At trial, Steele admitted that he had no factual basis for any of the charges he threatened to bring against Shafir and Shultz.

Frightened and intimidated by Steele’s harassment, Shafir told Shawmut she did not want to go through with the purchase.2 Shawmut declared Shafir in breach of their agreement, retained her deposit, and reserved its right to recover additional costs and expenses occasioned by her breach. Shawmut then sold the property to Steele’s children for $175,000. It did not pursue Shafir for the deficit or any related costs or expenses.

Subsequently, Shafir sued Steele for defamation and intentionally interfering with her contract with Shawmut. At trial, the jury returned a verdict in favor of Shafir on both counts. Steele appealed, claiming the trial judge erred in denying his motion for a directed verdict and motion for judgment notwithstanding the verdict on the interference claim, because: (1) Shafir failed to prove that Steele induced a third party (rather than herself) to breach a contract, and (2) the jury instructions and special verdict form were flawed because they incorporated the elements of §766A of the Restatement, which Steele claimed was “not the law of Massachusetts.” On appeal, the Supreme Judicial Court affirmed the lower court’s ruling and expressly recognized the tort of intentional interference with a plaintiff’s own contractual performance.

III. Historical Development of Tort of Intentional Interference

1. Origin of Tort Grounded in English System of Serfdom

 

Curiously enough, the modern day tort of intentional interference has its roots in a 14th century English statute which was passed in response to a labor shortage caused by the plague. Designed to reinforce the English system of serfdom, the statute prohibited agricultural workers from quitting their jobs and accepting work elsewhere.3 The statute also provided that any employer who hired such an agricultural worker would be held liable.4

Over time, English courts extended this principle beyond agricultural workers to other types of employees, as demonstrated by the classic case of Lumley v. Gye,5wherein the defendant persuaded an opera singer to breach her employment contract with the plaintiff opera house, defendant’s competitor. According to modern day scholars, this line of cases “converted a contract right between A and B into a property right that binds everyone who knows of the contract.”In short, this tort recognized the principle that a person’s business is property that is entitled to protection from harm by any one who is not acting in the exercise of a right, such as the right to compete for business.

2. Historical Development of Tort

 

Historically, liability for tortious interference first developed in cases of intentional interference “by violence, fraud or defamation—conduct that was essentially tortious in its nature, either to the third party or to the injured party.”Over time, liability was expanded to situations where a defendant’s conduct was not prima facie “tortious” in the traditional sense (i.e., the conduct would not support an independent basis of tort liability, such as for defamation or copyright infringement), but it nevertheless resulted in economic harm to a plaintiff. With this expansion came a remedy for situations wherein a defendant had committed stand-alone economic harm to plaintiff’s business or prospective contractual relations without engaging in any other type of tortious conduct.

An historical discussion of this tort necessitates the mentioning of two importantMassachusetts cases, Carew v. Rutherford and Walker v. Cronin, which laid the foundation for this tort in Massachusetts.

The case of Carew v. Rutherford, 106 Mass. 1 (1870), is significant because it represents the first time the Massachusetts courts fully embraced the concept of a prima facie tort of interference. In Carew, a plaintiff carrying on a stonecutting business brought claims of extortion and conspiracy against a defendant Journeymen’s Association on the grounds that the latter extorted the plaintiff to pay $500 by threatening to induce craftsmen to leave plaintiff’s employment. The Court reasoned that the defendant’s conduct was analogous to wrongful interference by firing a gun or threatening baseless litigation to scare off customers. The Court opined that:

“[o]ne of the aims of the common law has always been to protect every person against the wrongful acts of every other person, whether committed alone or in combination with others; and it has provided an action for injuries done by disturbing a person in the enjoyment of any right or privilege which he has.” Id.at 10.

The Court opined that “as new methods of doing injury to others are invented in modern times the same principles must be applied to them.” Id. at 11.

One year later in Walker v. Cronin, 107 Mass. 555 (1871), a case generally regarded as the seminal American case on tortious interference, the Massachusetts courts squarely adopted the tort of intentional interference. In Walker, the Court was presented with the issue of “whether it is actionable for one person to entice another to refuse to perform a contract made with a third, where no relation of master and servant exists.” Id. at 561. There, plaintiff shoemakers alleged that the defendant had unlawfully and without justification prevented plaintiffs from carrying on their business by willfully inducing employees to leave plaintiffs’ employment. As a result of the defendant’s conduct, plaintiffs “lost the services of said persons, and the profits and advantages they would otherwise have made and received therefrom, and were put to large expenses to procure other suitable workmen and suffered losses in their said business.” Id. at 562.

Relying on the Carew concept of a prima facie tort, the Walker Court noted that “[t]he intentional causing of such loss to another, without justifiable cause, and with the malicious purpose to inflict it, is of itself a wrong.” Id. Discussing the parameters of this tort in the context of the facts of this case, the Court held that:

“every one has an equal right to employ workmen in his business or service; and if, by the exercise of this right in such manner as he may see fit, persons are induced to leave their employment elsewhere, no wrong is done to him whose employment they leave, unless a contract exists by which such other person has a legal right to the further continuance of their services. If such a contract exists, one who knowingly and intentionally procures it to be violated may be held liable for the wrong, although he did it for the purpose of promoting his own business.” Id. at 563-564.

The doctrinal basis for the Court’s decision appeared to be that “in all cases, where a man has a temporal loss, or damage by the wrong of another, he may have an action upon the case to be repaired in damages.” Id. at 562. In addition to the elements of wrongful interference and loss, the Court required a showing of intent and lack of justification. Id. With that, the tort of intentional interference was born inMassachusetts.

3. Modern Expansion of the Tort

 

Out of the Walker case and its progeny developed the modern doctrine of intentional interference. The Restatement (Second) of Torts contains two formulations of this tort. The first appears in §766 of the Restatement, which provides:

“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.”

This formulation represents the traditional version of the tort which imposes liability upon a defendant for inducing breach by a plaintiff’s promisor, such as when a defendant intentionally and without justification induces a plaintiff’s employee to breach an employment contract and come to work for that defendant. It appears that every jurisdiction except Louisiana has recognized this version of the tort of interference. 8

The second form of this tort appears in §766A of the Restatement (Second) of Torts, which provides:

“One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person, by preventing the other from performing the contract or causing his performance to be more expensive or burdensome, is subject to liability to the other for the pecuniary loss resulting to him.”

Comment c to this Section explains that while §766 and §766A both impose liability for interference with receiving the fruits of a contract, they differ in the means by which the interference is caused.

“Under §766, the plaintiff’s interest in obtaining performance of the contract is interfered with directly. Under this Section [§766A] the interference is indirect, in that the plaintiff is unable to obtain performance of the contract by the third person because he [the plaintiff] has been prevented from performing his part of the contract and thus from assuring himself of receiving the performance by the third person.”9

The Reporters’ Notes to §766A indicate that this “Section is new [but] was tacitly presented in §766 of the first Restatement.” “An unlawful interference with a person in the performance of his contract with a third person is as much a legal wrong as an unlawful inducement of a breach of that contract by a third person.” 10 Although the Restatement indicates this form of the tort “is now consistently recognized” (§766A, comment b), jurisdictions appear to be split on the issue.11

IV. Massachusetts’ Adoption of §766A in Shafir v. Steele

In Shafir v. Steele, 431 Mass. 365 (2000), the Supreme Judicial Court considered whether to adopt the second form of the tort of intentional interference set forth in §766A of the Restatement. At the outset, the Court rejected Steele’s argument that §766A did not reflect the law of Massachusetts. The Court noted that it had previously recognized and embraced the first form of this tort represented by §766 of the Restatement, and that “the only difference between the torts described in §766 … and §766A is that, under §766, the tortious conduct causes the third person not to perform, whereas §766A involves interference preventing the plaintiff from performing his own part of the contract.” Id. at 369. The Court could discern no principled reason not to accept both forms of this tort.

Further, relying upon Anzalone v. Massachusetts Bay Transportation Authority, 403 Mass. 119 (1998), the Court reasoned that prior precedent had already laid a foundation for adoption of this second form of the tort. The Court noted that inAnzalone it had affirmed dismissal of a complaint alleging tortious interference with the plaintiff’s own performance of his employment contract on the grounds of lack of damages since the “plaintiff was still employed and did not allege loss of any advantage.” Id. at 370.

The Court also cited with approval the Massachusetts district court decision ofBoyle v. Boston Foundation, Inc., 788 F. Supp. 627, 630 (D. Mass. 1992), wherein Judge Nelson opined that the Supreme Judicial Court would, when confronted with the issue, approve of and adopt §766A. In Boyle, the plaintiff had sued her former employer, Boston Foundation, Inc., and former supervisor, Anna Jones, claiming that Jones had “interfered with the contract between Boyle and the Boston Foundation in such a way as to prevent her (Boyle) from performing the contract or causing (Boyle’s) performance to be more burdensome.” Id. at 630. Relying on “a hint in the case of Anzalone … that intentional acts by a supervisor which caused an employee to resign would be sufficient to state a claim of intentional interference,” Judge Nelson held that Boyle’s intentional inference claim was viable underMassachusetts law. Id.

 

As Judge Nelson predicted, it was only a matter of time before the SJC was presented with an appropriate case in which to formally adopt §766A of the Restatement and recognize this second form of tortious interference. The elements of this new tort are:

  1. the existence of a contract between the plaintiff and a third party;
  2. actual or constructive knowledge of the contract by the defendant;
  3. intentional12 and improper13 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
  4. damages suffered by the plaintiff as a direct result of the defendant’s actions.

V. Significance Of This New Tort

The Shafir case is significant not only because it recognized a new tort, but also because it has opened up several new areas of potential exposure for businesses. If the Massachusetts experience is similar to that of other states, we are likely to see the emergence of the following types of litigation premised upon §766A liability:

1. In the Context of a Breach

  1. Tortious Inducement to Breach—Richard Plattner v. State Farm Mut. Automobile Ins., 812 P.2d 1129 (Ariz. 1991) (court recognizing viability of claim by attorney against opposing party for interfering with attorney’s relationship with his client); cf. Yankee Network v. Gibbs, 295 Mass. 56 (1936) (fraudulently inducing plaintiff to break his contract).
  2. Depriving Plaintiff of Labor to Perform Contract—Pacific Typesetting Co. v. Int’l Typographical Union, 125 Wash. 273, 216 P. 358 (1923) (defendant union coerced employees to strike in order to render it impossible for plaintiff employer to complete its printing contracts with other companies); i>Lichter v. Fulcher, 22 Tenn. App. 670, 125 S.W.2d 501 (1938).
  3. Depriving Plaintiff of Materials Needed to Perform Contract—Coonis v. Rogers, 429 S.W.2d 709 (Mo. 1968) (putting sugar in gas tank of competitor’s truck to prevent its use).
  4. Harassment by Co-Workers14—Eserhut v. Seister, 52 Wn. App. 515, 762 P.2d 6 (Wash. App. 1988) (coemployees could be held liable for intentionally interfering with a business relationship); Lewis v. Oregon Beauty Supply Co., 302 Or. 616, 733 P.2d 430 (1987) (defendant son of employer held liable to plaintiff employee who quit as a result of defendant’s harassment); Kyriazi v. Western Elec. Co., 461 F. Supp. 894 (D.N.J. 1978) (defendant employees held liable for harassment of plaintiff employee who left).
  5. Excluding Plaintiff From Place Where Contract to be Performed—Mumford v. ITT Commercial Fin. Corp., 858 P.2d 1041 (1993 Utah App.) (defendant barred plaintiff from premises and prevented him from repairing his equipment, causing him to breach his contract with a third party; court recognized viability of §766A claim); Kelly v. St. Vincent Hospital, 692 P.2d 1350 (N.M. 1984) (plaintiff doctor sued hospital for intentionally interfering with his contracts with his patients by terminating his staff privileges for failing to obtain malpractice insurance; no liability found because hospital had legitimate business need for requiring malpractice insurance and no improper means used to deny access); White v. Massee, 202 Iowa 1304, 211 N.W. 839 (1927).
  6. Impending Plaintiff’s Access Thereby Preventing Performance—Southwestern Bell Tel. Co. v. John Carlo Texas, Inc., 843 S.W.2d 470 (Tex. 1992) (defendant phone company failed to move its cables and poles for a street widening project; when contractor failed to complete project on time, it sued phone company, claiming it was cause of contractor’s breach; case remanded for new trial on issue of whether intentional failure to move cables and poles was done for the purpose of interfering with contractor’s performance of contract).

2. In the Context of a Non-Breach Where Performance Made More Burdensome or Expensive to Plaintiff

  1. Damaging Plaintiff’s Work—Piedmont Cotton Mills v. H.W. Ivey Constr. Co., 109 Ga. App. 876, 137 S.E.2nd 528 (1964) (plaintiff general contractor under contract to build office building, parking lot and bridge; defendant liable for intentionally tearing bridge down with tractor); Cue v. Breland, 78 Miss. 864, 29 So. 850 (1901) (plaintiff hired by town to maintain road for period of time; defendant intentionally damaged road, impeded drainage, etc.; basis of liability recognized); Southern Ry. Co. v. Chambers, 126 Ga. 404, 55 S.E. 37 (1906) (defendant’s conduct retarded performance of contractual duties); McNary v. Chamberlain, 34 Conn. 384, 91 Am. Dec. 732 (1867) (plaintiff hired to build bridge and maintain it for five years; defendant intentionally damaged bridge and increased plaintiff’s cost of maintenance).

Although §766A has been criticized by some as being too broad and likely to inhibit competition between businesses, Massachusetts precedent does not suggest this will be the Massachusetts experience. In short, pure, clean competition between businesses is not likely to give rise to potential exposure under a §766A theory15 . As the Massachusetts Appeals Court noted five years ago, “[f]or competition and for the rough and tumble of the world of commerce, there is tolerance, even though the fallout of that rough and tumble is damage to one of the competitors.” Melo-Tone Vending, Inc. v. Sherry, Inc., 39 Mass. App. Ct. 315, 319 (1995). This decision recognizes that it is quite appropriate to “lure a customer away from someone with whom it has been doing business by means of better product, service or prices.” Id. It is only when competition is coupled with intimidation, fraud, threats of physical harm, civil suits, or criminal prosecution, as occurred in the Shafir case, that the line between pure competition and wrongful interference is crossed. In the wake ofShafir, that line may be a costly one to cross.

Conclusion

The Shafir case is significant because it created a new tort and opened up several new areas of potential exposure for businesses. If the Massachusetts experience is similar to that of other states, we are likely to see the emergence of litigation predicated upon a variety of different §766A fact patterns.


1. Steele’s editorial stated: “We don’t know why [Shafir] … bought the Advocate Building … [I]n any case, the freedom of this newspaper is not for sale—at any price.” 431 Mass. at 367 n.4 (omissions in original).

2. Id. at 367-368. Shafir’s attorney sent a letter to Shawmut which outlined the harassment and intimidation by Steele and indicated that if Shafir closed the deal with Shawmut she “believed she would be facing litigation, harassment in the newspaper, and a tenant (i.e., the defendant [Steele]) who was unlikely to leave willingly or to pay any rent.” Id. at 368 n.5. Shafir requested Shawmut return her $10,000 deposit, which it declined to do.

3. The Ordinance of Labourers, 23 Edw. III (1349).

4. 3 Bl. Com. 142.

5. 2 El. & Bl. 216, 118 Eng. Rep. 749 (1853).

6. Dan B. Dobbs, The Law of Torts §447, at 1264 (2000).

7. Restatement (Second) of Torts §776, comment c at 8.

8. See Lagarde v. Allstate Ins. Co., 515 So.2d 1147 (La.App. 1987).

9. Restatement (Second) of Torts §766A, comment c at 18.

10. Morris v. Blume, 55 N.Y. S.2d 196, 199 (1945), aff’d mem. 269 A.D. 832, 56 N.Y.S.2d 414.

11. See Dobbs, supra, at §448, at 1269-1270 (collecting cases).

12. The “intent” necessary for this tort is defined in §8A of the Restatement (Second) of Torts. Interference is intentional “if the actor desires to bring it about or if he knows that the interference is certain or substantially certain to occur as a result of his action.” §766A, comment e.

13. “The factors to be considered in determining whether an interference is improper are stated in §767.” §766A, comment e. The issue of impropriety can be very fact-intensive. Under the Restatement, impropriety turns on the nature of the defendant’s conduct, his motives, the proximity of his actions to the harm, and his relationship to the plaintiff. Restatement (Second) of Torts §776(a), (b), (f), (g).

14. Caveat: Massachusetts has recognized a supervisor’s privilege from claims of intentional interference where the supervisor’s conduct is related to the supervisor’s employment and not motivated by personal malice. See Benson v. Norwood Dodge Sales, Inc., 12 Mass. L. Rptr. No. 6 (Oct. 23, 2000) (Brady, J.) for the most recentMassachusetts case discussing this privilege.

15. On this point, the SJC made the following observation in 1871: “Everyone has a right to enjoy the fruits and advantages of his own enterprise, industry, skill and credit. He has no right to be protected against competition; but he has a right to be free from malicious and wanton interference, disturbance or annoyance. If disturbance or loss come as result of competition, [it is not actionable]. But if it come from the merely wanton or malicious acts of others, without the justification of competition or the service of any interest or lawful purpose, it then stands upon a different footing, and falls within the principle of the authorities first referred to.”Walker v. Cronin, 107 Mass. at 564.


The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require and further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative.

 

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