intentional interference with business relationships 03.09...business relationships • “[a]...

Intentional Interference with Business R l ti hi i T Relationships in Tennessee:

An Overview, Update, and Litigation Tips

Thomas W. Shumate IVwww.kaygriffin.comyg

www.tennesseenoncompetelaw.com615-690-2466

History y

• a/k/a Interference with Prospective Economic AdvantageAdvantage

• Only recently recognized in TN • Only recently recognized in TN

• Restatement (Second) of Torts, Section 766B Restatement (Second) of Torts, Section 766B provides a history of the tort going back to 1356

© Thomas W. Shumate IV 2014www.tennesseenoncompetelaw.com615-690-2466

Hutton v. Watters, 179 S W 134 (Tenn 1915)179 S.W. 134 (Tenn. 1915)

• In 1915, Tenn. S.Ct. first articulated the principle that a defendant should be held responsible for that a defendant should be held responsible for interfering in the noncontractual business relationships of a plaintiff with motives or relationships of a plaintiff with motives or means contrary to those used to further lawful competitive business practices.


Hutton v. Watters, 179 S W 134 (Tenn 1915)179 S.W. 134 (Tenn. 1915)

• “Every one has the right to establish and conduct a lawful business, and is entitled to the a lawful business, and is entitled to the protection of organized society, through its courts, whenever that right is unlawfully i d d S h i ht i ti th i i f invaded. Such right existing, the commission of an actionable wrong is established against any one who is shown to have intentionally one who is shown to have intentionally interfered with it, without justifiable cause or excuse.”


Decades of Uncertaintyy

• For next 80 years, Tennessee courts neither expressly adopted nor rejected the tort until the expressly adopted nor rejected the tort until the Tennessee Supreme Court’s Nelson decision.

• Trau-Med decision provides good summary of this period.p


Nelson v. Martin, 958 S W 2d 643 (Tenn 1997)958 S.W.2d 643 (Tenn. 1997)

• Noted Legislature had not enacted a statutory cause • Found that tort is inconsistent with the principles of p p

free competition in business relationships in the marketplace

• of action, so it had to be part of the common law of this State

• Policy reasons supporting action for interference with contracts did not apply since societal interest in the integrity of contract was not threatened


the integrity of contract was not threatened

Nelson v. Martin -Important TakeawaysImportant Takeaways

• The elements considered by the Court were not as restrictive as those ultimately adopted by as restrictive as those ultimately adopted by Tenn. S. Ct. in Trau-Med

• Elements of proposed tort did not contain a requirement that the plaintiff prove improper q p p p pmotive or means


Trau-Med of America, Inc. v. Allstate Ins. Co 71 S W 3d 691 (Tenn 2002)Co., 71 S.W.3d 691 (Tenn. 2002)

• Less than 5 years later, Tenn. S.Ct. reversed itself and officially recognized the tortitself and officially recognized the tort

• Trial court dismissed claim on Rule 12 02(6) • Trial court dismissed claim on Rule 12.02(6) Motion to Dismiss, so no discussion of whether allegations were supported by proofg pp y p


Trau-Med –Policy ConsiderationsPolicy Considerations

• Discussed fear that interference could be actionable based on proof that defendant’s actionable based on proof that defendant s intentional act resulted in a plaintiff’s economic injuryinjury


Trau-Med –Policy Considerations (Cont )Policy Considerations (Cont.)

• “Our primary concern in Nelson was that, because this tort extends beyond situations in which there this tort extends beyond situations in which there exists a valid contractual relationship, it could potentially infringe upon the principle of free competition by holding liable those individuals engaged in legitimate business practices.”

• Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 699 (Tenn. 2002)


9 , 99 ( )

Made Elements More Onerous to Protect Proper CompetitionProtect Proper Competition

• “With its decision, Tennessee joined a majority of jurisdictions to have "restructured the elements of jthe tort to add the requirement of proof of improper conduct extending beyond the bounds of doing business in a freely competitive economy " Id at business in a freely competitive economy. Id. at 700.

• Patterson v. Methodist Healthcare-Memphis Hosps., 2010 Tenn. App. LEXIS 78 (Tenn. Ct. App. Feb. 2, 2010)


, )

Elements

• 1. Existing business relationship with specific third parties or prospective relationship with third parties or prospective relationship with identifiable class of third persons;

• 2. Defendant’s knowledge of that relationship 2. Defendant s knowledge of that relationship and not a mere awareness of the plaintiff’s business dealings in general;

• 3. Defendant’s intent to cause the breach or termination of the business relationship;


Elements (Cont.)( )

• 4. Defendant’s improper motive or improper means; andimproper means; and

• 5. Damages resulting from the interference


Trau-Med –Drew Line Between Fair and Improper CompetitionDrew Line Between Fair and Improper Competition

• The theory of the tort of interference, it is said, is that the law draws a line beyond which no member of the community may go in intentionally intermeddling with the business affairs of go in intentionally intermeddling with the business affairs of others; that if acts of which complaint is made do not rest on some legitimate interest, or if there is sharp dealing or overreaching or other conduct below the behavior of fair men i il l i d h i l h ld b d d d similarly situated, the ensuing loss should be redressed; and

that the line of demarcation between permissible behavior and interference reflects the ethical standards of the community.community.

• Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 700-701 (Tenn. 2002)


Analysis of Elementsy


Trau-Med, n. 4 –Extremely Broad Class of RelationshipsExtremely Broad Class of Relationships

• § 766B comment c of the Restatement (Second) of Torts:

• The relations protected against intentional interference by the rule stated in this Section include any prospective contractual relations, except those leading to contracts to marry, if the potential contract would be of pecuniary value to the plaintiff. potential contract would be of pecuniary value to the plaintiff. Included are interferences with the prospect of obtaining employment or employees, the opportunity of selling or buying land or chattels or services, and any other relations leading to potentially profitable contracts Interference with the exercise by potentially profitable contracts. Interference with the exercise by a third party of an option to renew or extend a contract with the plaintiff is also included. Also included is interference with a continuing business or other customary relationship not amounting to a formal contract


amounting to a formal contract.

Formal Contract Need Not Be Intended

§ 766B comment c of the Restatement (Second) of Torts:

• The expression, prospective contractual relation, is not used in this Section in a strict, technical sense. It ,is not necessary that the prospective relation be expected to be reduced to a formal, binding contract. It may include prospective quasi-contractual or y p p qother restitutionary rights or even the voluntary conferring of commercial benefits in recognition of a moral obligation.


Existing vs. Prospective Business RelationshipsBusiness Relationships

• “[A] plaintiff in Tennessee needs to identify specific third parties for an existing relationship specific third parties for an existing relationship but only a class of third persons for prospectivebusiness relationships.” PPG Industries, Inc. v. business relationships. PPG Industries, Inc. v. Payne, 2012 U.S. Dist. LEXIS 70359 (E.D. Tenn. 2012)


Intent and Purposep• “The interference with the other's prospective

contractual relation is intentional if the actor contractual relation is intentional if the actor desires to bring it about or if he knows that the interference is certain or substantially certain to

lt f hi ti ”occur as a result of his action.”

• Restatement 2d of Torts Section 766 B • Restatement 2d of Torts, Section 766 B, comment d.


Improper Motivep p• It is clear that a determination of whether a defendant

acted "improperly" or possessed an "improper" motive is d d t th ti l f t d i t f dependent on the particular facts and circumstances of a given case, and as a result, a precise, all-encompassing definition of the term "improper" is neither possible nor helpful However with regard to improper motive we helpful. However, with regard to improper motive, we require that the plaintiff demonstrate that the defendant's predominant purpose was to injure the plaintiff. p



Cannot Infringe on Fair Competition

• “[T]he tort of intentional interference with business relationships 'should not be interpreted business relationships should not be interpreted in such a way as to prohibit or undermine the ability to contract freely and engage in ability to contract freely and engage in competition.'“ Watson's Carpet & Floor Covering, Inc. v. McCormick, 247 S.W.3d 169 (Tenn. Ct. App. 2007)).


Desire to Benefit Financiallyy

• Defendant’s motivation to benefit itself financially will not establish an improper financially will not establish an improper motive. National Fitness Center, Inc. v. Atlanta Fitness, Inc., 902 F.Supp.2d 1098(E.D. Fitness, Inc., 902 F.Supp.2d 1098(E.D. Tenn.2012).


Improper Motive or Meansp p

• Even if motive was proper, can still recover if the means was impropermeans was improper


Improper Meansp p• [I]n the attempt to provide further guidance, we cite the following

methods as some examples of improper interference: those means that are illegal or independently tortious, such as violations of that are illegal or independently tortious, such as violations of statutes, regulations, or recognized common-law rules, see id. at 308; violence, threats or intimidation, bribery, unfounded litigation, fraud, misrepresentation or deceit, defamation, duress, undue influence, misuse of inside or confidential information, or breach of influence, misuse of inside or confidential information, or breach of a fiduciary relationship, (citation omitted) and those methods that violate an established standard of a trade or profession, or otherwise involve unethical conduct, such as sharp dealing, overreaching, or unfair competition, (citation omitted).unfair competition, (citation omitted).



Direct vs. Indirect Interference

• The factors to be considered in determining whether an interference is improper are stated in § 767. One of them is the actor's motive and another is the interest sought to be advanced by him. Together and another is the interest sought to be advanced by him. Together these factors mean that the actor's purpose is of substantial significance. If he had no desire to effectuate the interference by his action but knew that it would be a mere incidental result of conduct he was engaging in for another purpose, the interference may be he was engaging in for another purpose, the interference may be found to be not improper. Other factors come into play here, however, particularly the nature of the actor's conduct. If the means used is innately wrongful, predatory in character, a purpose to produce the interference may not be necessary. On the other hand, produce the interference may not be necessary. On the other hand, if the sole purpose of the actor is to vent his ill will, the interference may be improper although the means are less blameworthy.

• Restatement 2d of Torts Section 766B comment d© Thomas W. Shumate IV 2014www.tennesseenoncompetelaw.com615-690-2466

• Restatement 2d of Torts, Section 766B, comment d.

Proximate Causation• “A bushel of common-law claims remain. Medison offers

no distinctions between the laws of the various states d hi h it t th l i l th under which it asserts these claims, so we analyze them

under general common-law principles. Medison asserts claims for trade disparagement and tortious interference with business relations Those claims require proof of with business relations. Those claims require proof of causation, see Restatement (Second) of Torts §§ 623A, 766B, and thus fail for the same reasons its statutory trade-disparagement claims did.” (emphasis added)p g ( p )

• Medison Am., Inc. v. Preferred Med. Sys.. LLC, 357 Fed. Appx. 656, 663 (6th Cir. Tenn. 2009)


pp

Damagesg

• Compensatory Damages▫ Pecuniary Loss / Lost Profits▫ Pecuniary Loss / Lost Profits Must prove existence of lost profits but not exact

proof of amount of damagesp g▫ Consequential Damages▫ Emotional Distress or Actual Harm to Reputation

• Punitive Damages (intentional act)


Interference Must Prohibit/Terminate Business RelationshipBusiness Relationship

• “A defendant faces potential liability for intentional interference with business intentional interference with business relationships only when the interference causes a third person to discontinue a business

l ti hi t f i f t i i t relationship or to refrain from entering into a prospective business relationship.”

• Brown v. CVS Pharm., L.L.C., 2013 U.S. Dist. LEXIS 146025, 29-30 (M.D. Tenn. Oct. 9, 2013)


Tort CousinsTortious Interference with Business Relations Tortious Interference with Contract

• Young tort • Old tort• Young tort• Common law based• Does not require enforceable

contract

• Old tort• Common law and statutory

causes of action• Requires enforceable contractcontract

• Plaintiff has much higher burden due to improper motive and means

• Requires enforceable contract• Plaintiff must only prove

malice (willful violation, not ill will or spite)motive and means

requirement• Damages can include punitives

will or spite)• Damages can include punitives

and treble damages

Privilege of Competitiong p• Defense to Improper Motive

• Not a Defense to Improper Means• Not a Defense to Improper Means

• Not a Defense to Interference with Contract Claims:

▫ “[B]usiness competition is no defense to a claim for inducement of breach of an ▫ [B]usiness competition is no defense to a claim for inducement of breach of an existing contract. Conversely, in the tortious-interference context, business competition may be a defense, as the Tennessee Supreme Court has long held that, in the absence of an actual contract, a competitor is privileged to attempt to advance its own business interests at the expense of a competitor's, so long as the method of such competition is not improper ” method of such competition is not improper.

▫ Freeman Mgmt. Corp. v. Shurgard Storage Ctrs., LLC, 461 F. Supp. 2d 629, 640 (M.D. Tenn. 2006)


Three Year Statute of Limitations

• Tennessee courts would apply § 28-3-105's three-year limitations period to both statutor and common la claims limitations period to both statutory and common-law claims for tortious interference with contract, business relationship, or employment. See Carruthers Ready-Mix, Inc. v. Cement Masons Local Union No. 520, 779 F.2d 320, 323-25 (6th Cir. 5 , 779 3 , 3 3 5 (1985)

• Stratton v. Wommack, 230 Fed. Appx. 491, 495 (6th Cir. Tenn 2007); see also Smith v Rosenthal Collins Group LLC Tenn. 2007); see also, Smith v. Rosenthal Collins Group, LLC, 340 F. Supp. 2d 860, 863-64 (W.D. Tenn. 2004) (applying Tennessee Code Annotated § 28-3-105 for state law claims for tortious interference with a business relationship).


p)

Interference in the Employment Context Employment Context

• Recommended reading: Bob Lype, A Murky Intersection Between Employment Law and Intersection Between Employment Law and ‘Business Torts’, 38 Tenn. B.J. 27 (2002).


Interference in the Employment Context (Cont ) Employment Context (Cont.)

• TN has long recognized action for intentional interference with employment relationsinterference with employment relations

• Employment contract not required, employment at-will will sufficeat will will suffice

• Even at-will employee has a property right in continued employmentp y

• Interference must be without justifiable means (= motive and means)


Interference in the Employment Context (Cont ) Employment Context (Cont.)

• Tortfeasor must stand as third parties to the employment relationship

• This does not mean that tortfeasor must be an “outsider”; can be supervisor, officer, co-worker, etc.; p , , ,

• Courts look at whether the tortfeasor’s actions “were motivated substantially by malice or his own motivated substantially by malice or his own personal interests rather than in furtherance of his employer’s interests.” Lyne v. Price, 2002 Tenn. App. LEXIS 461 (W.S. Ct. App. 2002)


pp 4 ( pp )

Case Law Updatep


Stratienko v. Chattanooga-Hamilton Co. Hospital, 2013 Tenn App LEXIS 7552013 Tenn. App. LEXIS 755

• Plaintiff alleged that Hospital interfered with his patient relationships following fight with co-patient relationships following fight with coworker

• Sole issue tried was Plaintiffs’ interference claim

Failed to support any of the elements at trial• Failed to support any of the elements at trial

• Damages expert was obliterated on cross© Thomas W. Shumate IV 2014www.tennesseenoncompetelaw.com615-690-2466

Damages expert was obliterated on cross

Brown v. Brookdale Senior Living, Inc., 2011 Tenn App LEXIS 6902011 Tenn. App. LEXIS 690

• Caregiver claimed assisted living facility interference with her patient relationships by interference with her patient relationships by making her leave the premises

• Claim dismissed on summary judgment

• Plaintiff could not prove improper motive or means


Harris v. Gaylord Entertainment, 2013 Tenn App LEXIS 820Tenn. App. LEXIS 820

• Self-proclaimed “country-music historian, ethnomusicologist, media personality, and journalist”alleged companies hosting media events interfered with her relationships with musicians media events interfered with her relationships with musicians by refusing to issue her press credentials to defendant’s events

• Trial court granted defendants’ Motion to Dismissa cou t g a ted de e da ts ot o to s ss

• Ct. App. Affirmed. Plaintiff could not show that defendants had an obligation to extend credentials, so she could not prove th d i d d t i tithe were denied due to an improper motive.


Fiore v. Smith, 2013 U.S. Dist. LEXIS 156567 (E D Tenn Jan 15 2013)(E.D. Tenn. Jan. 15, 2013)

• Trucker alleged interference by TN Hwy Patrol officerofficer

• District court granted Motion to Dismiss

• Trucker could not show that officer had more than mere awareness of business dealings intent than mere awareness of business dealings, intent to breach his business dealings, or that telephone call rose to level of improper means


p p p

Brown v. CVS Pharmacy, LLC, 2013 U S Dist LEXIS 1460252013 U.S. Dist. LEXIS 146025

• Physician alleged that various pharmacies interfered with her patient relationshipsinterfered with her patient relationships

• Claims dismissed on summary judgment

• No proof that pharmacies sought to injure her, intended to cause the breach or termination of intended to cause the breach or termination of her relationships, or damages


Patterson v. Methodist Healthcare-Memphis Hospitals, 2010 Tenn. App. LEXIS

78• Two doctors alleged interference with their

employment and patient relationships after they employment and patient relationships after they were forced to relinquish hospital privileges

• Focused on improper motive and means

• Doctors couldn’t show that Hospital’s predominate purpose was to injure them


Watson’s Carpet and Floor Covering, Inc., 247 S W 3d 169 (M S Ct App 2007)247 S.W.3d 169 (M.S. Ct. App. 2007)

• Great discussion of balancing protection against improper interference with freedom of improper interference with freedom of competition


Litigation Tipsg p


Pleading Standardg• Applied heightened pleading standard applicable to fraud-

based claims. Personal Computer Sys., Inc. v. Central Knox, Inc 2012 U S Dist LEXIS 46035 2012 WL 1108245 at *3 Inc., 2012 U.S. Dist. LEXIS 46035, 2012 WL 1108245 at 3 (E.D. Tenn. March 30, 212),

• Other courts have applied Rule 8 pleading standard. Price's Ot e cou ts ave app ed u e 8 p ead g sta da d. ice s Collision Ctr., LLC v. Progressive Haw. Ins. Corp., 2013 U.S. Dist. LEXIS 154225, 10-11 (M.D. Tenn. Oct. 28, 2013); Freeman Mgmt. Corp. v. Shurgard Storage Ctrs, LLC, 461 F. Supp 2d 629 642 (M D Tenn 2006; )Curry v D J Transp Supp.2d 629, 642 (M.D. Tenn. 2006; )Curry v. D.J. Transp., Inc., 2010 U.S. Dist. LEXIS 82687(E.D. Tenn. Aug. 6, 2010); Ellipsis v. Colorworks, Inc., 329 F. Supp.2d 962, 969 (W.D. Tenn. 2004)


Pleading – Limited to Non-Contractual Relationships?Relationships?

• Restatement (Second) of Torts Section 766B cmt. a; Lick Branch Unit, LLC v. Reed, 2014 U.S. Dist.

S 6 ( b ) LEXIS 16259, 44-45 (E.D. Tenn. Feb. 10, 2014) (dismissed claim where complaint alleged relationship was contractual); Crouch v. Pepperidge F I F d A 6 6 (6th Ci T Farm, Inc., 424 Fed. Appx. 456, 461 (6th Cir. Tenn. 2011)

• But see, American National Property and Casualty Co. v. Campbell Ins. Inc., 2011 U.S. Dist. LEXIS 68704 (M.D. Tenn. 2011).


Beware of Preemptionp

Claim not necessarily preempted by TUTSA • Claim not necessarily preempted by TUTSA. Melville Capital, LLC v. Tenn. Commerce Bank, 2011 U.S. Dist. LEXIS 149349, 22-24 (M.D. 2011 U.S. Dist. LEXIS 149349, 22 24 (M.D. Tenn. Dec. 29, 2011)

• Conflicting opinions in ERISA cases


Uphill Burden on Plaintiffsp• Vast majority of cases involved plaintiffs losing

on Rule 12 and 56 motionson Rule 12 and 56 motions

• Be realistic about your case and avoid unrealistic clients

Avoid “shotgun” allegations• Avoid shotgun allegations

• Focus on whether there is proof of “direct” © Thomas W. Shumate IV 2014www.tennesseenoncompetelaw.com615-690-2466

Focus on whether there is proof of direct interference

Put Proof of Improper Motive and Means Into EvidenceMeans Into Evidence

• Plaintiffs shouldn’t rely solely on allegations in complaint or their own affidavitscomplaint or their own affidavits

• Burden on plaintiffs to prove defendant’s intent and improper motive or means

Inferences to be drawn from evidence must be • Inferences to be drawn from evidence must be reasonable, particularly those related to intent to injure


j

Suits Between Competitorsp

• Focus on improper means rather than motive

• But don’t focus on improper means to the exclusion of damages PPG Industries Inc v exclusion of damages. PPG Industries, Inc. v. Payne, 2012 U.S. Dist. LEXIS 70359 (E.D. Tenn. 2012))


Refusal to Deal Privilegeg• [T]he tort of intentional interference with business relationships "should

not be interpreted in such a way as to prohibit or undermine the ability to contract freely and engage in competition." (citation omitted). We noted y g g p ( )that "[i]t is a principle of long standing in Tennessee that the 'general rule [is] that a person engaged in business may, at his election, and without good reason, refuse to deal with some other person.'" (citations omitted) "In other words, in Tennessee, a person has the freedom or unfettered discretion to do business or not to do business with whomever he or she discretion to do business or not to do business with whomever he or she chooses for any reason that does not violate the law."

• Patterson v. Methodist Healthcare-Memphis Hosps., 2010 Tenn. App. LEXIS 78 35-36 (Tenn Ct App Feb 2 2010)LEXIS 78, 35-36 (Tenn. Ct. App. Feb. 2, 2010)

• Adopted Restatement (First) of Torts, Section 762 (1939)


Q & AQ & A• Thank you for attending this presentation. If

you have any questions feel free to contact me you have any questions, feel free to contact me at: [email protected]


intentional interference with business relationships 03.09...business relationships • “[a]...

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