Subtle Pleading Difference Allows Claim for Intentional Interference with Business Expectancy to Go Forward

Judge James C. Cacheris' mnst recent opinion in Signature Flight Support Corporation v. Landown Aviation Limited Partnership, 2009 U.S. Dist. LEXIS 1938 (E.D. Va. Jan. 13, 2009), is a good illustration of how subtle shifts in the way a case is plead can be the difference in whether a company can recover in an unfair business practices case. And, it serves as a valuable primer for claims for intentional interference with a business expectancy. A copy of the opinion can be found here.

As we discussed in our prior post, found here, in an earlier opinion in Signature Flight, the court dismissed the plaintiff's tortious interference with contract claim because the plaintiff did not allege an "intentional interference of contract inducing or causing a breach or termination of the relationship or expectancy." Signature Flight, 2008 U.S. District Lexis 93715 at *6-7 (emphasis added).

The plaintiff then amended its complaint to add a claim for intentional interference with a business expectancy as opposed to interference with a contract. To assert a claim for an intentional interference with a business expectancy, a "plaintiff must allege: (1) the existence of a business relationship or expectancy, with a probability of future economic benefit to a plaintiff; (2) defendant's knowledge of the relationship or expectancy; (3) a reasonable certainty that absent defendant's intentional misconduct, plaintiff would have continued the relationship or realized the expectancy; and (4) damage to plaintiff." 2009 U.S. Dist. LEXIS 1938, *5. "In addition, when alleging a mere business expectancy, the plaintiff must show that the defendant's actions were improper." Id. (citations and internal quotations omitted).

The meaning of "improper" methods proves to be expansive and malleable in order to accommodate wide-ranging bad acts that are not easily defined or itemized. "Methods that have been recognized as 'improper' include (1) 'means that are illegal or independently tortious,' (2) 'violence, threats or intimidation, bribery, unfounded litigation, fraud, misrepresentation or deceit, defamation, duress, undue influence, misuse of inside or confidential information, or breach of a fiduciary relationship,' (3) means that 'violate an established standard of a trade or profession,' (4) '[s]harp dealing, overreaching, unfair competition,' or 'other competitive conduct below the behavior of fair men similarly situated.' Duggin v. Adams, 360 S.E.2d at 836-37 (internal quotations and citations omitted) (collecting cases)." Id. at *6.

The defendant tried to attack the claim in a number of ways. First, it argued that the plaintiff "only allege[d] a possibility that Plaintiff would realize its expectancy, not a probability." Id. at *9. The court rejected that argument because a "valid expectancy is still merely an expectancy. It need not be absolutely guaranteed." Id.

Next, the defendants argued that the "alleged actions do not qualify as improper because Plaintiff fails to allege every element of the separate torts of unfair competition or fraud." Id. at *11. The court found, however, that "a plaintiff need not allege a separate and complete tort to state a claim for tortious interference," citing the Restatement (Second) of Torts Sec. 767 cmt. c (1979) ("One may be subject to liability for intentional interference even when his fraudulent representation is not of such a character as to subject him to liability for other torts."). Id.

The court also found that the specific alleged improper conduct was sufficient to state a claim. The plaintiff alleged that the "Defendant made false, deceptive, and misleading statement to others with the intent to divert Plainitff's repeat business to itself." Id. at *12. "The Court finds that these types of statements constitute improper conduct because, as alleged, they fall under the rubric of 'misrepresentations or deceit,' 'sharp dealing, overreaching,' or 'other competitive conduct below the behavior of fair men similarly situated.'" Id. (citing Duggin, 360 S.E.2d at 836-37).

Williams Mullen Announces Creation of Unfair Business Practices Team

We are pleased to announce that Williams Mullen has created an Unfair Business Practices Team of seasoned litigators who understand bet-the-company litigation and have managed many cases like those that have been the subject of this Blog. Jim Kinsel and I are its Co-chairmen. The Team includes lawyers with significant experience in complex business litigation, intellectual property, employment, government and white-collar investigations and e-discovery.

The Unfair Business Practices Team members have a long history representing clients with cases involving business-to-business competition, misappropriation of proprietary information, corporate raiding, mass resignation of employees to start or join competing companies, business conspiracies, breach of fiduciary duties and corporate control issues. Our lawyers look for creative, outcome-driven strategies to manage a case as a crisis response. For more information about the Team and the types of Unfair Business Practices cases that we have handled, click here: http://www.williamsmullen.com/unfair-business/ .

Split of Opinion in Virginia Federal Courts Over Independent Personal Stake Exception to Intra-corporate Conspiracy Claims

A recent decision by Judge Mark S. Davis of the United States District Court for the Eastern District of Virginia has set up a clash between judges in that district over whether Virginia recognizes the “independent personal stake” exception to the intra-corporate immunity or intra-corporate conspiracy doctrine. It has long been understood in Virginia that because a corporation acts only through its agents, officers and employees, a conspiracy between a corporation and its agents, acting within the scope of their employment, is a legal impossibility. Griffin v. Electrolux Corp., 454 F. Supp. 29, 32 (E.D.Va. 1979). This principle, known as the intra-corporate immunity or intra-corporate conspiracy doctrine, has a recognized exception: if the agent, employee or officer has an “independent personal stake” in the conspiracy, then a conspiracy with the corporation may exist.

In December, Judge Davis in White v. Potocska, 2008 U.S. Dist. LEXIS 102204 (E.D.Va. December 3, 2008) refused to recognize the personal stake exception on the basis that the Supreme Court of Virginia had never recognized it. He drew support for his conclusion from two cases, Phoenix Renovation Corp. v. Rodriguez, 461 F. Supp.2d 411, 429 (E.D. Va. 2006) and Little Professor Book Co. v. Reston N. Point Village Ltd. Pshp., 41 Va. Cir. 73, 79 (Fairfax County 1996), an opinion by now federal district judge, Gerald Bruce Lee. Judge James C. Cacheris was the author of the Phoenix Renovation Corp. opinion. In 2007, however, Judge Cacheris reversed the view he expressed in Phoenix Renovation Corp. and recognized the “independent personal stake” exception in Buffalo Wings Factory, Inc. v. Mohd, 2007 U. S. Dist. LEXIS 91324 (E.D. Va. December 12, 2007). He reaffirmed that view in The Flexible Benefits Council v. Feltman, 2008 U.S. Dist. LEXIS 46626 (E.D.Va. June 16, 2008).
http://unfairbusinesspractices.blogspot.com/2008/11/virginia-court-limits-intra-corporate.html

Judge Davis did not mention either the Buffalo Wings Factory, Inc. or Feltman decisions in his opinion in White. Neither did he acknowledge the long line of Fourth Circuit cases that have recognized the personal stake exception, Greenville Publishing Co. v. Daily Reflector, 496 F.2d 391 (4th Cir. 1974); Buschi v.Kirven, 775 F.2d 1240 (4th Cir. 1985); Detrick v. Panaplina, 108 F.3d 529 (4th Cir. 1997); and American Chiropractic v. Trigon Healthcare, 367 F.3d 212 (4th Cir. 2004) or that a decision from the Western District of Virginia had followed the Fourth Circuit position on the issue. Selman v. American Sports Underwriters, Inc., 697 F. Supp. 225 (W.D. Va. 1988). All of those cases, with the exception of Greenville Publishing Co. originated in Virginia.

While there are several other Virginia Circuit Court opinions that have not recognized the “personal stake exception”, Softwise, Inc. v. Goodrich, 63 Va. Cir. 576 (Roanoke, January 28, 2004): Ashcon Int’l, Inc. v. Westmore Shopping Ctr. Assoc., 42 Va. Cir. 427 (Fairfax County, June 19, 1997) both recognize that the Virginia Supreme Court has been silent on the issue. And, in both cases, the courts found that, even had it been recognized, the plaintiffs had not alleged sufficient facts to implicate the exception.

It is unclear at this point how this divergence of views will be resolved in the federal courts, or whether the Virginia Supreme Court will ultimately address the issue. Meanwhile, the personal stake exception remains a very important doctrine in the unfair business practices arena. Where it is recognized, injured parties have a strong tool available to use in protecting their business interests by being able to pursue conspiracy claims.

Court Dismisses Tortious Interference with Contract Claim Because It Only Alleged a Decrease in Business

In Signature Flight Support Corporation v. Landown Aviation Limited Partnership, the U.S. District Court dismissed the plaintiff's tortious interference with contract because the plaintiff failed to allege an "intentional interference of contract inducing or causing a breach or termination of the relationship or expectancy." 2008 U.S. District Lexis 93715 at *6-7 (E.D. Va. 2008) (emphasis added).

Rather, the plaintiff "only alleged that Defendant has induced or caused a decrease in the business that it expected to gain as a result of the contract." Id. at 7 (emphasis added). Thus, the Court found that "[b]y bringing a claim for 'intentional interference with contract' and failing to allege a breach or termination of that relationship, Plaintiff has failed to state a claim for tortious interference with contract." Id. The court relied about the Virginia Supreme Court's opinion in Chaves v. Johnson, 230 Va. 112 (1985)

To state a claim for tortious interference with contract, a plaintiff must allege: "(1) the existence of a valid contractual relationship; (2) the interferor's knowledge of the relationship; (3) intentional interference inducing or causing a breach or termination of the relationship; and (4) resulting damage to the plaintiff’s relationship. Id. at 5.

It will be interesting to track this decision to determine whether Virginia state courts will follow this interpretation of Chaves and the claim for intentional interference with contract.