Most American jurisdictions look to the Restatement (Second) of Torts to guide their analyses of the torts of tortious interference with contract and tortious interference with prospective contractual relations. Unfortunately, although the Restatement framework has provided some guidance to practitioners and courts, it has largely led to confusion and unpredictability. As part of the ongoing effort to update the Restatement, the American Law Institute (ALI) is now undertaking to update the Restatement provisions related to economic harm.
June 03, 2014 Articles
Revisiting the Restatement's Tortious Interference Provisions
The drafters of this important treatise should fashion a tort that is meaningful and enforceable.
By Ryan M. Connor
Since the Restatement’s publication in 1979, cultural, legal, and business developments have taken place that strongly warrant the ALI revisiting the Restatement sections 766–774, which outline the torts of tortious interference with a contract and tortious interference with a prospective contractual relation, to modernize these sections and, it is to be hoped, lend more predictability to these torts going forward. This article describes three of the most glaring problems associated with the Restatement’s tortious interference framework: (1) the confusion about whether proper business competition, or the lack thereof, is an affirmative defense or an essential element of an affirmative claim, (2) the ambiguity and unworkability of the Restatement’s current test for “improper conduct,” and (3) with what level of improper motivation a defendant must act to give rise to liability.
As the Texas Supreme Court stated, the Restatement (First) of Torts “did almost nothing to define the parameters of tortious conduct,” and “[h]aving recognized these problems, the Restatement [(Second)] did little to solve them.” Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 718–19 (Tex. 2001). The tort thus remains in a state of muddled confusion. This confusion puzzles lawyers and courts, and frustrates clients.
The time is ripe to reconsider the Restatement’s tortious interference provisions. Given the complexity of the tort and the subject matter it seeks to govern, its application will never be completely clear. It can, however, be greatly improved. Below are a few suggestions that the ALI may consider during its review of the tortious interference sections. These suggestions are by no means exhaustive. Rather, they represent the low-hanging fruit. If these issues are resolved, they may lead to solutions for the more complex problems.
The Amorphous Burden of Proof Needs to Be Clarified
The relevant Restatement provisions, sections 766–774, include both causes of actions and affirmative defenses. These interrelated provisions lead to significant confusion on the issue of burden of proof. For instance, the Restatement contains several statements about the elements a plaintiff must satisfy to plead and prove his or her case. Sections 766 and 766B suggest that tortious interference plaintiffs must prove that the defendant engaged in improper conduct. Whether the defendant engaged in improper conduct is determined by, among other things, the wrongfulness of the defendant’s conduct and his or her reasons for acting. Thus, it would seem that it is the plaintiff’s burden to prove that the defendant acted wrongfully and was motivated by improper incentives.
However, section 768 of the Restatement holds that proper competition is a defense to tortious interference. Factors to consider in determining whether competition can serve as a defense are, among other things, the wrongfulness of the defendant’s conduct and his or her purpose for acting. Restatement § 768(1)(b)–(d). Thus, confusingly, both parties are subject to a burden regarding the wrongfulness and purpose of the defendant’s conduct. This confusion can be seen through a brief review of case law. Compare Thiesing v. Dentsply Int’l, Inc., 748 F. Supp. 2d 932, 953 (E.D. Wis. 2010) (“The defendants possess the burden of proving justification.”), with MacDougall v. Weichert, 677 A.2d 162, 174 (N.J. 1996) (“Plaintiff bears the burden of proving the absence of justification.”). As one court addressing this issue stated, “[t]he answer is far from clear.” Int’l Sales & Servs., Inc. v. Austral Insulated Prods., Inc., 262 F.3d 1152, 1158 (11th Cir. 2001). See also Robert L. Tucker, “‘And the Truth Shall Set You Free’: Truth as a First Amendment Defense in Tortious Interference with Contract Cases,” 24 Hasting Const. L.Q. 709, 713 (1997) (stating that the Restatement’s “authors declined to take a clear position on the matter” of burden of proof).
The consequences of this confusion are significant and far-reaching. First, by hedging on the issue of essential elements, the Restatement’s drafters made the tort easier to plead. Theoretically, this muddied standard resulted in an increased number of lawsuits where the competition was actually proper and the interference was therefore not actionable. Increased litigation of these torts, coupled with a heightened threat of litigation, may have had at least some chilling effect on business competition, a principle that our society holds in high regard. Second, whether a plaintiff must prove impropriety or whether a defendant must prove propriety is a core issue for the entire case. Not only is this important for trial; it can also affect summary judgment motions in jurisdictions that employ burden-shifting standards. Orrin K. Ames III, “Tortious Interference with Business Relationships: The Changing Contours of This Commercial Tort,” 35 Cumb. L. Rev. 317, 347 (2005). Clarity is needed on this issue to establish a more uniform tort, so that both parties know the burdens they have to meet.
Seven-Factor Test and Independent Wrongfulness
Under the Restatement, both tortious interference with contract and tortious interference with prospective contractual relation require that the defendant engage in “improper” conduct. Restatement §§ 766; 766B. The Restatement, however, does not define “improper.” Instead, section 767 identifies seven factors for a court to consider when evaluating whether a defendant’s conduct was improper:
1. The nature of the actor’s conduct;
2. The actor’s motive;
3. The interests of the other with which the actor’s conduct interferes;
4. The interests sought to be advanced by the actor;
5. The social interests in protecting the freedom of action of the actor and the contractual interests of the other;
6. The proximity or remoteness of the actor’s conduct to the interference; and
7. The relations to the parties.
Several jurisdictions have adopted this seven-factor test. See, e.g., Field v. Costa, 958 A.2d 1164, 1172 (Vt. 2008); Stewart Title Guar. Co. v. Am. Abstract & Title Co., 215 S.W.3d 596, 607 (Ark. 2005).
Not surprisingly, however, section 767 has garnered significant criticism. From the beginning, the drafters recognized that “the application of this Section [will cause] the most frequent and difficult problems of the tort of interference with a contract or prospective contractual relation.” Restatement § 767 cmt. a. As the drafters predicted, courts have spoken out in criticism of section 767. See, e.g., Kutcher v. Zimmerman, 957 P.2d 1076, 1088–89 (Haw. Ct. App. 1998) (“[T]he process of balancing the seven factors to determine whether the interference was ‘improper’ has been criticized in other jurisdictions on the grounds that it is unpredictable and does not clearly delineate burdens of pleading and proof.”). Although the drafters attempted to align improper conduct with societal norms, any inquiry that expressly “depends upon a judgment and choice of values in each situation” is inherently fickle. Restatement § 767 cmt. d.
Section 767 is vague, inconsistent, and unpredictable—in short, everything non-lawyers hate about the law. Any attorney who has litigated in this area understands the difficulty in explaining this standard to a client who feels he or she has a valid tortious interference claim. Naturally, clients believe that the other party has acted “improperly.” Therefore, it is hard for them to realize that the law has a more nuanced definition of “improper” than non-lawyers traditionally associate with the word. This unfamiliarity turns into outright frustration when you, as counsel, are unable to confirm whether the client has a viable lawsuit.
To address this problem, some jurisdictions have retreated from the Restatement approach and have crafted their own standards for impropriety. The jurisdictions that stray from the Restatement can be divided into two camps. First, several jurisdictions attach liability for tortious interference with a prospective business relation only if the defendant’s actions are independently tortious or violate some other established standard of the trade or profession at issue. See, e.g., Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 701 n.5 (Tenn. 2002); Duggin v. Adams, 360 S.E.2d 832, 836–37 (Va. 1987). This approach certainly provides more clarity than section 767, but by including business customs and trade standards, it still possesses a level of subjectivity that may impede predictability and uniform application.
With the second approach, courts attach liability for tortious interference with a prospective business relation only where the defendant’s conduct is “independently tortious or unlawful.” Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d at 713. Under this standard, conduct is actionable only if it “is already recognized to be wrongful under the common law or statute.” This approach establishes a clearer framework within which to analyze improper conduct. It is easier for courts and lawyers to apply and for clients to understand. To be sure, it may eliminate valid claims for conduct that violates business standards but falls short of unlawfulness; however, this is an acceptable trade-off for a tort that is workable and predictable.
Defendant’s Motive Should Be Subject to a Predominant Motive Standard
Adopting the “independently unlawful” approach for “improper” conduct would largely eliminate the need to examine a defendant’s motive when determining whether the defendant acted improperly. However, under the Restatement’s current seven-factor test, parties and courts are forced to divine the defendant’s motive to determine whether the defendant acted improperly. Restatement § 767(b). For conduct to be improper, the Restatement does not require that the defendant’s improper motive be its sole motive. Restatement § 767 cmt. d. Instead, improper conduct may exist where the defendant’s improper motive was simply a “primary” or even “causal” motive. Id.
Contrary to the Restatement’s flexible standard, in practice, most courts seem to require that improper motive be the predominant or primary motive for the defendant’s actions. See, e.g., Walker v. Anderson-Oliver Title Ins. Agency, Inc., 309 P.3d 267, 274 n.4 (Utah Ct. App. 2013); Compiano v. Hawkeye Bank & Trust of Des Moines, 588 N.W.2d 462, 464 (Iowa 1999). Some other courts even go so far as to require that improper motive be the sole motive for the defendant’s actions. See, e.g., Burger King Corp. v. Ashland Equities Inc., 217 F. Supp. 2d 1266, 1280 (S.D. Fla. 2002); Morgan Asset Holding Corp. v. CoBank, ACB, 736 N.E.2d 1268, 1272 (Ind. Ct. App. 2000).
If a look into the defendant’s state of mind is necessary, the primary/predominant motive standard represents a better alternative than either the balancing test outlined by the Restatement or the sole motive standard. Although the sole motive standard would limit tortious interference to truly unacceptable conduct and not unnecessarily prohibit competition, it may take all of the teeth out of the tort. After all, a defendant will likely always be able to come up with at least one lawful reason for interfering. On balance, the “primary motive” test is the best approach. It properly balances the goal of reserving tortious interference for truly unacceptable conduct with the desire to reserve the torts’ meaningfulness.
Conclusion
Undoubtedly, tortious interference has a place in American jurisprudence. However, its current framework is nearly unworkable for lawyers and incomprehensible for clients. The drafters of the Restatement should turn their attention to tortious interference during their revision process and, perhaps taking the above suggestions into consideration, fashion a tort that is meaningful and enforceable.
Keywords: litigation, business torts, Restatement (Second) of Torts, section 767, tortious interference, improper conduct, primary motive