Every day in business you compete for clients, employees, services, resources, and, ultimately, profits. In an ultra-competitive business world even the most successful loses a key customer, client or prospect that we have locked up. When that happens we perform a deep dive into the relationship, what could have been done better, revisit communications and events to determine what happened. Occasionally, the postmortem reveals that a third-party -former partner, employee or vendor- may have shared information or made comments to adversely impact either an existing contract or a prospective business relationship.
There are two principle business torts recognized in Texas relating to interference with business or contractual relationships. On the one hand, Texas recognizes a tort for interference with existing contractual relations.[1] Texas also recognizes a tort for interference with prospective business or contractual relationships.[2] Each tort has its own burdens of proof and defenses (though some overlap). To the extent possible, this post provides guidance on what is required to prove either tort in a Texas courtroom.
Tortious interference with prospective business relations
To prevail on a claim that someone interfered with your prospective contractual or business relationship is no easy task, often requiring more that the showing necessary for an existing contract. A plaintiff must establish that (1) there was a reasonable probability that the plaintiff would have entered into a business relationship with a third party; (2) the defendant either acted with a conscious desire to prevent the relationship from occurring or knew the interference was certain or substantially certain to occur as a result of the conduct; (3) the defendant’s conduct was independently tortious or unlawful; (4) the interference proximately caused the plaintiff injury; and (5) the plaintiff suffered actual damage or loss as a result.[3] If not obvious, the critical difference is the requirement that the defendant’s conduct must constitute an independent tort.[4]
An “independent tort” may arise in any number of ways. For instance, when someone lies about your business (defamation/libel) preventing a 3party from entering a contractual or business relationship with you. Another example is when someone, let’s call them a former employee, steals your prospect list and quits. Shortly thereafter the same prospect calls you up to cancel contracts that were about to close. Unfortunately, the cheese has been moved and someone needs to pay.
These claims are not easy to prove, and many lawyers struggle to comprehend the specific requirements. One especially challenging element is the jurisprudential requirement that the defendant’s conduct be independently tortious (or unlawful). Anyone that has run their own business knows that competition can be severe, and the competition may not always act with honor. But courts have spoken on this issue clearly and conduct which is merely “sharp” or perceived as “unfair competition” is not actionable as tortious interference.[5] Other intentional torts are a good place to start when it comes to the underlying tortious conduct. Trespass can support a claim for tortious interference.[6] So can defamation. A plaintiff must show that defendant committed a crime or another tort, and that is sometimes a hurdle that plaintiffs find impossible. Other examples of this kind of tortious act include making fraudulent statements made to third parties, committing a physical assault on prospective customers, or organizing an illegal boycott.
In these cases, you must prove that the defendant interfered with a reasonably probable contract, meaning one that would have been entered into but for the interference.[7] In other words, if the chances of a contract being executed are low, there is no “interest” to tortiously interfere with in the first place. A plaintiff does not have to prove that the contract would have “certainly be made but for the interreference,” but does need to show that negotiations have gone far beyond pure speculation.[8]
Tortious Interference with Contract
Texas has long recognized a claim for interference with contractual relations. The concept seeks to right the wrong of intentional acts by a person to frustrate the purpose of another’s contract with a 3rd party. The claim covers all intentional invasions of contractual relations, regardless of whether an actual breach occurs. In this instance, your someone illegally either moves or attempts to move your cheese by ending your contractual relationship.
To prove a case of tortious (or intentional) interference with business or contractual relations, it is necessary to show: (1) the existence of a contract subject to interference; (2) the occurrence of an act of interference that was willful and intentional; (3) the defendant had actual knowledge of the existence of the contract and of the plaintiff’s interest in it, or knowledge of facts and circumstances that would lead a reasonable person to believe in their existence (4) the act was a proximate cause of the plaintiff’s damage; and (5) actual damage or loss occurred.[9] While it is not necessary we show the contract is actually breached, it is important to show the interference makes performance more burdensome or difficult. [10]
As stated earlier, these torts do not bar a business from using harsh or even dubious business tactics in the ultra competitive business world. There is a difference between merely comparing the features or performance of one business or product to another and interfering with a prospective or existing contract. However, these distinctions aren’t always so easy to see. You need experienced legal counsel to traverse this extremely fact intensive area of the law. Courts are the best source of some examples of conduct that have been considered tortious interference in Texas:
- Blackmailing or otherwise threatening a person or business to induce a breach a contract;
- Violating non-compete or non-disclosure agreements;
- Defamation causing customers to stay away;
- Refusing to deliver goods to prevent another party from performing contractual obligations; and/or
- Inducing someone to breach their contract by offering to sell goods below market price.
Like all civil lawsuits in Texas, there are time limits to file a tortious interference claim – two years.[11] Beyond that statute of limitations, however, these cases are complex and require an attorney experienced in the field. Contact us today if you fell your cheese has been wrongfully moved and we will take it from there.
[1] Delze v Winfree, 16 S.W. 111 (Tex. 1891).
[2] Calvillo v Gonzalez, 922 S.W.2d 928 (Tex. 1996).
- [3] Coinmach Corp. v. Aspenwood Apt. Corp., 417 S.W.3d 909, 923 (Tex. 2013), (citations omitted); Richardson–Eagle, Inc. v. William M. Mercer, Inc., 213 S.W.3d 469, 475 (Tex.App.-Houston [1st Dist.] 2006, pet. denied).
[4] Coinmach Corp, 417 S.W.3d at 923, citing Wal-Mart Stores, Inc. v. Stuges, 52 S.W.3d 3d 711, 713 (Tex. 2001) and Juliette Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660, 665 (Tex. 1990), superseded on other grounds by statute as stated in Prop. Tax Assocs., Inc. v. Staffeldt, 800 S.W.2d 349, 350 (Tex. App.—El Paso 1990, writ denied).
[5] Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 713, 726 (Tex. 2001).
[6] Coinmach at 924.
[7] Coinmach at 924 (Tex. 2013); Richardson–Eagle at 475–76.
[8] Richardson–Eagle at 475–76; Cooper v. Steen, 318 S.W.2d 750, 757 (Tex.App.—Dallas 1958, no writ)(“more than mere negotiations occurred) (citations omitted).
[9] Prudential Ins. Co. of America v. Fin. Review Servs., Inc., 29 S.W.3d 74, 77 (Tex. 2000); Bass v. United Dev. Funding, L.P., No. 05-18-00752-CV, 43 (Tex. App. Aug. 21, 2019).
[10] Lamont v. Vaquillas Energy Lopeno, Ltd., 421 S.W.3d 198 (Tex. App.—San Antonio 2013, pet. denied)
[11] First Nat’l Bank of Eagle Pass v. Levine, 721 S.W.2d 287, 289 (Tex.1986).