“Tortious interference with contractual relations has a long and colorful history.” A “seminal” decision was issued by the English case of Lumley v. Gye (1853), 118 Eng. Rep. 749, where a third party was held liable for “maliciously” inducing an opera singer to break her exclusive contract with a theater owner. The first Illinois case was Doremus v. Hennessey, 176 Ill. 608 (1898), where laundries were induced to violate contracts with a laundry office because its proprietor refused to engage in a price-fixing conspiracy. See the more extended history in Swager v. Couri, 77 Ill. 2d 173 (1979).
The tort today has a broader reach than opera singers and laundry services. It can impact any business contract and the tort has expanded—with some guardrails—to relationships existing without a contract. But while the tort’s reach has grown, the courts have had some difficulty applying it consistently because the tort exists at the juncture of the policies of fair play and competition.
To win a case of tortious interference with a contract, you must prove that you had a valid contract, that the defendant (wrongdoer) knew about the contract, that the defendant intentionally and without justification induced the breach of that contract, causing damages. The clash of the principles of competition and fair play meet at the element of “intentionally and without justification.”
Interference has been considered unjustified when the defendant used fraud, deceit, or misrepresentations, applied economic pressure without a legitimate business purpose, acted out of spite or hatred, violated some statute, regulation, court order, or fiduciary duty, stole confidential information, or issued threats of personal injury or property damage. Acting out of spite or hatred (or “maliciously” as in the opera singer case) is the most problematic element because some businesses hate their competitors but shouldn’t be forbidden from competing. If a customer gets stolen, that’s capitalism, so the argument goes. The right to break a contract (and pay damages for its breach) is as fundamental as the right to make a contract. The party that broke the contract should have to pay those damages, not a stranger to the contract. But the courts don’t always see it that way. So if you have a contract to supply 100,000 nails per year for ten years and another nails supplier induces your contract partner to terminate your contract, you might have an action against the other supplier, and not just your ex-customer.
The strength of a tortious interference action improves if the other supplier lied about your company (“they are about to go bankrupt”) or product quality (“their nails failed in field tests”), if the supplier threatened to boycott the supplier in some other business it had, to hire all its employees away, or to cause physical harm to you or your business. Each case depends on its own facts and the law of the particular state where the businesses are incorporated, where they do business, or where the tortious activities took place.
Before we turn to how to claim damages from tortious interference with contracts, consider the case where there is no contract to interfere with, but there is a relationship, say, between a vendor and a customer, or an employer and her employees. Is that relationship protected? The law will protect a reasonable, identifiable, long-standing, or probable future business relationship from unjustified interference. The nature of the misconduct is the same as for the tortious interference with a contract, but additional proof is required to show that a relationship is identifiable, long-standing, or was likely to blossom into a contract. Tennessee has statutes on these matters, for example, and there are likely to be state by state variations of the requirements. With the exception of the element of a valid contract, the elements of tortious interference with an expectancy are the same or similar to that of tortious interference with a contract: a relationship, knowledge of that relationship by the defendant, unjustified interference, causing the loss of the relationship and resulting damages. Substitute contract for relationship, and you have stated the elements of a tortious interference with contract claim.
For context, here are some examples of tortious interference with an expectancy.
- Competitors Interfering with Negotiations: A competitor who learns that your company is close to finalizing a contract may intentionally spread false statements, misrepresent your capabilities, or pressure the potential customer to abandon the deal.
- Former Employees Soliciting Clients or Leads: If a former employee wrongfully uses confidential information, client lists, or sales pipelines to redirect potential customers to a new employer, this may constitute interference.
- Vendors or Suppliers Undermining Relationships: A supplier may convince a retailer not to finalize a deal with your company, or attempt to push you out of a distribution arrangement that was likely to be renewed.
- Fraudulent Statements About a Company’s Financial Condition: A competitor may tell a customer that your business is unstable, insolvent, under investigation, or incapable of performing the contract, even though the statement is untrue.
- Interference in Employment or Recruitment Opportunities: A competitor may improperly persuade a job candidate, consultant, or executive not to pursue employment with your company for reasons that are deceptive or malicious.
- Interference in Real Estate or Development Deals: Investors or competing bidders may intentionally derail negotiations through misinformation or hidden conflicts.
- A fiduciary (e.g., a lawyer or accountant) might betray you by dissuading people from doing business with you, or disclosing your business secrets to a competitor. Beware of conflict of interest.
These scenarios reflect the broad scope of interference claims. Opportunities exist in nearly every corner of the business world, and bad actors sometimes attempt to exploit them.
When tortious interference disrupts a business expectancy, the harmed company may recover several types of damages. The most common category is lost profits, representing the financial benefit the business would have realized if the anticipated opportunity had materialized. These damages often require expert analysis and financial modeling to quantify properly.
Businesses may also recover consequential damages, which include the additional economic harm caused by the lost opportunity, such as increased costs of replacing the lost deal or losses tied to dependent contracts or future opportunities. If the interference impacts the business’s standing in the industry or undermines its credibility with clients or partners, reputational damages may also be recoverable.
In cases involving intentional, malicious, or fraudulent conduct, courts may award punitive damages to punish and deter wrongful behavior.
Companies sometimes seek injunctive relief, which can include orders preventing the interfering party from contacting clients, misusing confidential information, or continuing the wrongful conduct. Injunctive remedies are especially important when the interference is ongoing or threatens future business.
For more information contact Tom Patterson at tpatterson@pattersonlawfirm.com.
