Someone Interfered With My Contract. Tortious Interference in Texas

Two claims, two different standards

Texas recognizes two torts under the name interference. The first protects contracts that exist; the second protects deals that were likely but not yet made. They share a purpose, protecting business relationships from outsiders, but the second is much harder to prove, and confusing them is the most common error in these cases.

Interference with an existing contract

The Texas Supreme Court restated the elements in Prudential Insurance Co. of America v. Financial Review Services in 2000. A claimant must prove:

1. an existing contract subject to interference;
2. a willful and intentional act of interference with the contract;
3. that proximately caused the claimant's injury; and
4. actual damages or loss.

Each element carries rules of its own. The contract must be valid and enforceable, though Texas courts have held that a contract terminable at will can still be the subject of interference until it is actually terminated; the defendant has no right to induce a breach of it in the meantime. The act must be intentional in the sense that the defendant knew of the contract, or of facts that would lead a reasonable person to believe it existed, and desired to interfere or knew interference was substantially certain to follow. Negligent interference is not a tort in Texas. Causation requires that the defendant's act, not the other party's independent decision, produced the breach. And the damages must be real: the lost benefit of the contract, and in proper cases consequential losses and exemplary damages for malicious conduct.

The defendant must be a stranger to the contract

A party cannot tortiously interfere with its own contract. Its failure to perform is a breach, addressed by the contract claim, not a tort. Texas courts extend this rule to those who stand in the party's shoes: an officer or agent acting on the company's behalf and in its interest is treated as the company, and a corporate parent or affiliate that shares the party's interest in the contract is generally not a stranger to it. An agent who acts purely for personal benefit and against the company's interest can lose that protection, but the claimant carries the burden of showing it. This is why interference claims against the other side's own executives usually fail, while claims against competitors, former insiders who have left, and unrelated third parties proceed.

Interference with prospective business relations

Where there was no contract yet, only a reasonable probability of one, the standard changes. In Wal-Mart Stores v. Sturges in 2001 the Texas Supreme Court held that a claimant must prove the defendant's conduct was independently tortious or unlawful: conduct that would itself be actionable under a recognized tort, such as fraud, defamation, threats, or misappropriation of trade secrets, or that violated a statute. Conduct that is merely sharp, unfair or aimed at taking the business is not enough. The court restated the full test in Coinmach Corp. v. Aspenwood Apartment Corp. in 2013. The claimant must show:

1. a reasonable probability that it would have entered a business relationship with a third party;
2. that the defendant either acted with a conscious desire to prevent the relationship or knew interference was certain or substantially certain to occur;
3. that the defendant's conduct was independently tortious or unlawful;
4. that the interference proximately caused the claimant's injury; and
5. actual damage or loss.

The independent tort requirement is what separates competition from interference. A rival that wins a customer by offering a better price or a better product has done nothing actionable. A rival that wins the customer by lying about the claimant's financial condition, using a stolen customer list, or inducing the customer's employee to breach a fiduciary duty has. The claimant does not have to sue separately on the underlying tort, but it must prove the conduct would have been actionable.

Justification: the main defense

A defendant that interfered with a contract may defend by showing it was justified. In Texas Beef Cattle Co. v. Green in 1996 the Texas Supreme Court held that justification is established as a matter of law when the defendant was exercising its own legal rights, and that a defendant who acted on a good-faith, though mistaken, belief that it had a colorable legal right also has the defense, provided the belief was honestly held. A supplier that enforces its own exclusivity clause, a lender that calls a loan it is entitled to call, or a landlord that exercises a contractual right to approve assignments is justified even if the exercise causes a third party's contract to fail. The defense does not protect a defendant that used independently wrongful means, and whether the defendant acted in good faith is often the contested fact.

Where these claims arise in Dallas business disputes

• Employees under restrictive covenants. A competitor that hires an employee knowing of a non-compete or non-solicitation agreement and encourages its breach can be liable for interference alongside the employee's own breach. The new employer's exposure is covered in the risks of hiring someone bound by a non-compete.
• Departing insiders. A former partner, officer or sales manager who diverts customers under contract to a new venture faces interference claims as well as fiduciary and trade secret claims. See what a company can do when a key employee left and took clients.
• Suppliers and distributors. A manufacturer that induces a distributor's customers to buy direct, or a competitor that persuades a supplier to cut off a rival mid-contract, may be liable if a contract existed and the inducement was knowing.
• Real estate and financing. A third party that causes a lender to withdraw or a buyer to walk from a signed contract, by false statements or threats, is a frequent defendant.
• Disparagement. False statements to a counterparty about the claimant's finances, quality or legal troubles support both interference and business disparagement claims.

Example

Suppose a Dallas commercial cleaning company has three-year service contracts with several office buildings. A former operations manager leaves, starts a competing firm, and within a month two of the buildings terminate their contracts early and sign with him. Emails later obtained in discovery show he told the property managers that the cleaning company was "about to lose its insurance" and "would not make payroll," neither of which was true, and that he knew the contracts had two years left. The company has a claim for interference with existing contracts: the contracts existed, he knew of them, he intentionally induced the terminations, and the lost revenue is provable. The false statements also make his conduct independently tortious, which would matter for any prospective accounts he took. His defense that he was merely competing fails because the means were wrongful. Had he simply offered the buildings a lower price when their contracts expired, there would be no claim at all.

Damages and deadlines

The measure of damages is the loss caused by the interference, usually the value of the contract the claimant lost, which in a business context means lost profits proved with reasonable certainty. Because the claim is a tort, exemplary damages are available on proof of malice, subject to the statutory caps in Civil Practice and Remedies Code chapter 41, and the economic loss rule does not bar the claim because the duty breached arises outside any contract between claimant and defendant. The claim must be filed within two years, under the period in Civil Practice and Remedies Code section 16.003 that Texas courts apply to tortious interference, running from when the interference caused injury. That is half the time available for the contract claim against the party that breached, and the two claims are usually filed together so that neither is lost.

Building the claim

Interference cases are proved with the defendant's own communications. Preserve the contract, every message from the counterparty about why it left, and any contact between the counterparty and the defendant. Ask the counterparty, in writing, what it was told. Where a former insider is involved, secure devices and accounts before evidence is lost, following the limits described in what is allowed when investigating a departing employee's devices and accounts. The question a litigator will ask first is whether the defendant knew of the contract and what, exactly, it said or did; the answer usually decides whether the case is worth bringing. Tina Wysk represents Dallas businesses pursuing and defending tortious interference claims, often alongside non-compete, trade secret and fiduciary duty claims, in state and federal court.