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socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 37960
Experience:  Retired (mostly)
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CORPORATE LAW: TORTIOUS INTERFERENCE QUESTION I have a major

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CORPORATE LAW: TORTIOUS INTERFERENCE QUESTION
Hello:
I have a major client That I have had a business relationship since 1999 (16.5 years). My company has served this client under several service contracts for a segment of waste management. In 2008, my company made an investment for waste processing for which my client is a major user, constituting about 70 percent by weight of the material being processed. The client was made aware of the investment and encouraged the investment in order to have improved service infrastructure locally.
Recently, my client hired a new company that oversees and manages our area of work. My client also has a consultant for management of this area as well. Both of these individuals represent separate entities. One of important functions they perform for my client is to seek out savings opportunities.
These two entities recently introduced my client to a competitor for management of a component of waste that we are currently under contract to manage, and we have managed since 1999. The entities advised my client that they were legally capable of contracting this component to the competitor and remove it from our right to manage. The customer chose to do this.
Our contract with my customer is a five year term contract with a termination for convenience clause that requires a 30 day notice prior to termination. I have consulted with legal counsel and have been advised that my client has breached my contract. The damage is for 30 days for not executing a termination notice as required. There may be more damage under the good faith covenant requirement, which my state, Arizona, recognizes. The client chose a competitor for a cheaper price, and case law “usually” views this reason to execute the termination for convenience clause as an act in bad faith.
My question is do I also have a case for tortious interference against the two parties that introduced my client to a competitor for management of a component of our contracted right? According to my research, a claim for tortious interference must meet several standards:
A valid contract or contractual relationship existed
The tortfeasor had knowledge of this contract or relationship
The tortfeasor intended to induce one of the contracting parties to commit breach
The tortfeasor was not otherwise privileged or authorized to induce breach
The contract was in fact breached
The plaintiff suffered specific economic damage as a result
All of these requirements for tortious interfenence have been met by the meddling entities. Their motivation was, at least, to curry favor with my customer to save them money. We have terminated the contract with my client for breach of contract. The damages are as follows:\
43 months remaining on the term for lost revenue for the lost component is about $50,000; or
Lost revenue for the entire contract 43 months is about $500,000, or
Damage for improper termination by customer for the unexecuted 30 days notice for cancellation is about 11,500.
Do I have a case for tortious interference against the meddling parties and how will the court apply damages? Our position is that the tortfeasors are liable for the damages for lost profits for the remaining 43 months since tort law shall be applied as opposed to contract law and they shall not be protected by the 30 day termination for convenience clause liability that my client enjoys under contract law. The tortfeasors are fully aware of our investment for waste processing, and that removal of the component could harm the viability of that investment.
Please verify.
Thanks.
Frank
Submitted: 1 year ago.
Category: Business Law
Expert:  socrateaser replied 1 year ago.

Hello,

With due respect for you and your attorney, I do not believe you have stated the correct elements of tortious interference with contract under Arizona law. Consequently, your stated facts do not set out a prima facie case.

Arizona has long recognized the tort of intentional interference with contractual relations. See Snow v. Western Sav. & Loan Ass'n, 152 Ariz. 27, 34, 730 P.2d 204, 211 (1986). A prima facie case of intentional interference requires: (1) existence of a valid contractual relationship, (2) knowledge of the relationship on the part of the interferor, (3) intentional interference inducing or causing a breach, (4) resultant damage to the party whose relationship has been disrupted, and (5) that the defendant acted improperly. Id.

"Whether a defendant has acted improperly — generally is determined by weighing the social importance of the interest the defendant seeks to advance against the interest invaded. 2 F. HARPER, F. JAMES & O. GRAY, THE LAW OF TORTS § 6.12, at 350-51; Restatement § 767 comment b; H & M Associates v. City of El Centro, 109 Cal. App.3d 399, 409, 167 Cal. Rptr. 392, 398-99 (1980) (question of justification "comprises a factual issue which should properly be placed before the trier of fact"). To be 'improper,' an interference must be 'wrongful by some measure beyond the fact of the interference itself.' Top Service Body Shop, Inc. v. Allstate Insurance Co., 283 Or. 201, 209, 582 P.2d 1365, 1371 (1978), quoted in 2 F. HARPER, F. JAMES & O. GRAY, supra § 6.6, at 306-07; see also Restatement § 767." Snow at 35.

You state that the purpose of the interference was to curry favor with the client. This is not, by itself, wrongful conduct. You need something more, such as an intent to damage your corporation in a manner beyond the mere breach of an existing contract. For example, if the goal were to put your entire corporation out of business, as a means of attempting to monopolize a business sector, in violation of the Sherman Antitrust Act, then that would demonstrate the sort of improper purpose contemplated by Arizona case law precedent.

I don't know if such facts exist, however, from what you have thus far presented, I believe that your case is insufficient as a matter of law.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.

Thanks again for using Justanswer!

Customer: replied 1 year ago.
No this answer is is not accepted. The tortfeasors gain a financial adavantage for themselves at our expense by saving the client money. Another factor is that one of the tortfeasors uses the same competitor at other facilities he manages and allegedly wants my client to use the competitor in order to receive a financial benefit in the form of a reduced price for waste management at the other facilities. This is only alleged and cannot be proven by any evidence I have, other than experience in the industry that greater use typically warrants a volume discount. A "Prima Facia" case is not necessary for us to prevail in court. The preponderance of evidence is in our favor and will be sufficient for a favorable result. Bringing up the necessity of "Prima Facia" in order to prevail greatly discredits your respomse.
Expert:  socrateaser replied 1 year ago.

I regret that you find my answer unacceptable. In the interest of customer service I will reopen the question so that you can discuss the matter with someone who you may find more suitable.

Best wishes with your legal dilemma and thanks for using Justanswer!

Customer: replied 1 year ago.
Ok good. I'm waiting.
Customer: replied 1 year ago.
Actually there is evidence that one of the tortfeasors favors the competitor. One of the members of the group of facilities under my client which is covered by my contract informed me that the tortfeasor advised her to resign with the competitor to block us from acquiring this member of the group when our contract, which included this member, was renewed in 2014.
Expert:  socrateaser replied 1 year ago.

You appear to have added some additional facts. As no one else has decided to engage with you, I will reconsider my original answer, in an effort to provide further assistance.

Advising someone to resign, by itself, would not rise to the level of a tortious interference. However, paying a person to resign, or providing some other valuable consideration (i.e., a bribe) would be more than sufficient.

The point is that to prevail in a tortious interference claim, you must show that the interference was wrongful in a manner that legislative/public policy or case law precedent has determined (or is likely to determine) deserves disapproval. Competition, by itself, is insufficient. Unfair competition, by contrast, would be sufficient proof. Ariz. Rev. Stat. Title 44 provides descriptions of numerous acts which are considered wrongful by the legislature. If you can find something within these prohibitions which matches with your competitor's conduct, then you would have prove of a necessary wrongful act -- and, that will prove your claim.

In short, you must "connect the dots" between your competitors actions and some conduct that would be considered wrongful by itself, without any contract interference. That's the key to winning your case.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.

Thanks again for using Justanswer!

Customer: replied 1 year ago.
The tortfeasor conspired with my competitor to gain a portion of my business and has thus ruined my business relationship. Conspiracy between two parties to harm another party is a tort with treble damages. An unlikely burden of proof requirement, such as proving that someone was "paid off" is ridiculous. The "payoff" between the compeititor and the tortfeasor is the reduced price for waste management at the other facilities he manages. This would have to be decided based on the merits of this particular case. I agree that the case may be weak here though not impotent and the other components are clearly met. There is therefore a strong threat of litigation I can use against the client and the tortfeasors as we move forward towards resolution.You didn't answer my question regarding how the court would consider the damages as I asked you above. Please respond. Another level of damage we have suffered is reduced value for the business. We had been in discussions with a buyer for the business and this bad result has seriously harmed the value by as much as 50%. The reason for this is because of the nature of the market here and the importance the client is to our market. The competitor will install their equipment to satisfy the component that was stolen from us, and would be poised to takeover all of the functions we do. Since we have cancelled the contract, it is assumed that they will now do this. Please respond as to how the court would consider damage if we were to prevail.
Expert:  socrateaser replied 1 year ago.

Contract/compensatory/general damages follow a well-established legal theme: Foreseeable, Unavoidable, Causal and Certain (the acronym used by law school grads sitting for a state bar exam: FUCC).

Assuming you prove that the contract was breached, then to the extent that the lost profits were foreseeable at the time of contract making, unavoidable after you discovered the breach, caused by the breach, and certain in their amount -- then you are entitled to those damages. Lost revenue is not recoverable, because your costs, unless actually incurred, are not losses, and contract damages are limited to provable losses -- no punitive damages are permitted.

Consequential damages (naturally flowing from the breach), such as additional overtime paid to employees in order to try to salvage the deal, travel expenses, etc.), are also recoverable -- as long as you can satisfy the FUCC requirements.

Punitive damages are only permitted if you can prove tortious interference. The standard is three times your compensatory/consequential damages -- which means that a total of four times actual damages is possible. A jury can award far more in punitive damages than the standard -- however, courts are fairly routine in remitting punitive damages beyond the three times standard award. Only in cases where the tortfeasor's acts are so outrageous as to shock the conscience of the court is a larger award possible. I can't say whether or not you can make a case for more than the standard punitive award.

I think that covers your question re damages.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.

Thanks again for using Justanswer!

Customer: replied 1 year ago.
Answer is not clear. We have lost revenue which relates to anticipated profits. I know that anticipated profits are considered for damages. The anticipated profits would be about 75% or so of the lost revenue (0.75X lost revenue (500k for 43 months). Would the court consider the anticipated profits over 43 months or for just the 30 day period indicated in the termination for convenience clause with the client. Also, what do you think of recovery from the client based on the breach of good faith covenant? The client breached/unllawfully terminated the contract in favor of competitor for a lower price. My research tells me that using the termination for convenience clause for a cheaper price "usually" does not pass the good faith covenant stamdard. Please advise.
Expert:  socrateaser replied 1 year ago.

The "anticipated" profits, if they would have been earned during the course of the contract as originally contemplated. are recoverable, if you can prove that these profits would have been accrued.

Concerning the "termination for convenience" clause, if the contract permits the purchaser to walk away without further obligation on 30-day notice, then your damages are only what were actually lost during the period when notice was not given, plus 30 days. If there is an express payment in the contract required to obtain the right to terminate, then that payment is recoverable if not paid. If there is no consideration for the right to cancel with 30-days notice, then I would argue that the provision, if it was inserted by the purchaser, is unenforceable, unless supported by consideration, such as an advance payment -- because, it effects what is known in law as an "illusory contract," as it frees a party from any actual liability. It's sort of like: Buyer offers to pay a vendor $1.50 for a hot dog if buyer likes the hot dog! That's not a contract, because the buyer can escape liability based upon his sole discretion -- thus the buyer is not bound to perform anything.

So, it may be possible to get a court to refuse enforcement of the convenience escape clause. I would have to review the entire contract, and that's outside the scope of this Q&A session, and something that I would only do if I were actually representing you as an attorney.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.

Thanks again for using Justanswer!

Customer: replied 1 year ago.
Are you in Arizona and would you be capable of taking this case?
Expert:  socrateaser replied 1 year ago.

I'm not in Arizona. Even if I were, I'm retired (poor health), and not taking litigation cases at this time. I can review your contract, however.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.

Thanks again for using Justanswer!

Customer: replied 1 year ago.
OK thank you. I'm sorry about your poor health. I am sorry for being a bit harsh bui this situation has me extremely angry. I'm not sure what benefit it would be for me to have you review my contract since you could not litigate it. I'm not sure if I even want to litigate especially it if it isn't strong enough. I'm not getting good response as to the strength of the case form the few attorney's I have spoken with. That doesn't mean I do not have a case that could be successful. There are a lot of factors that are particular to the market here, the dominance of the client in this market, our investment to beneifit this client, etc., all would have to be weighed on its merits. Let me know if you know someone that could litigate the case. My email is***@******.***. Thank you. Frank
Expert:  socrateaser replied 1 year ago.

The only reason for me to provide you with direct legal services, such as contract review, is to provide an objective voice, rather than one which may be incentivized by the potential for future litigation fees. I like to think I'm unusually objective about legal matters -- I frequently piss off clients by telling them that they can't win, or even if they can, that the litigation costs will overwhelm them. Regardless, I'm not trying to upsell you. I "justanswer" the questions here, as asked, and hope that customers are grateful for the assistance.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.

Thanks again for using Justanswer!

Customer: replied 1 year ago.
OK. Well senf me an email and let me know what the cost to review the contract will be.
Thanks
Frank
Expert:  socrateaser replied 1 year ago.

Please cease further correspondence at this website, or you may (probably will) lose your right to assert the attorney-client privilege.

Thanks for your confidence and for using Justanswer!