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May 06, 2019 Practice Points

What Constitutes “Wrongful Conduct” in Interference with Contractual or Economic Relations?

Courts have struggled with the question of when competition for business or employees crosses the line into an actionable tort.

By Jamie Maggard, Chris Tillery, and Fritz Riesmeyer

Since claims for interference with contractual and/or economic relations were first recognized over a century ago in cases like Lumley v. Gye, 112 Eng. Rep. 749 (Q.B. 1853), courts have struggled with the question of when competition for business or employees crosses the line into an actionable tort. The first concrete answer was the requirement of “improper conduct” beyond the mere fact of interference itself, which became the “hallmark” of the Second Restatement of Torts in 1979. Since then, courts have had to grapple with a new question: What constitutes “wrongful conduct” to support a claim of interference?

As recently noted by the Utah Supreme Court, a showing of “improper” conduct has become a necessary element of the tort in one form or another in virtually every jurisdiction. C.R. England v. Swift Transportation Company, 437 P.3d 343-348 (Utah 2019) (noting that while some use the phrase “not privileged” or “malicious,” each authority is attempting to identify what conduct is “improper” in the context of the tort of intentional interference with contract). The Second Restatement set forth a list of seven factors to be considered. Restatement (Second) of Torts, § 767. But these factors often proved too vague to provide clear guidance to courts, especially when weighing conduct between competitors in commercial settings. See Restatement (Third) of Torts, § 17, Reporter’s Note (b). Nevertheless, according to the drafters of the soon to be published Restatement (Third) of Torts, the evolving case law has finally carved out an answer to this question. See Restatement (Third) of Torts: Liability for Economic Harm §§ 16-17 (Tentative Draft No. 3 – March 7, 2018).

Sections 16 and 17 of the Third Restatement set forth more narrow and defined categories of when conduct will create liability. Id. Section 16, relating to interference with contract, provides:

(1) A defendant is subject to liability for interference with contract if:

(a) a valid contract existed between the plaintiff and a third party;

(b) the defendant engaged in wrongful conduct as defined in Subsection (2);

(c) the defendant intended to cause a breach of the plaintiff's contract or disruption of its performance; and

(d) the defendant’s wrongful conduct caused a breach of the contract or disruption of performance.

(2) Conduct is wrongful for purposes of this Section if:

(a) the defendant acted for the purpose of appropriating the benefits of the plaintiff's contract; or

(b) the defendant's conduct constituted an independent and intentional legal wrong; or

(c) the defendant engaged in the conduct for the sole purpose of injuring the plaintiff.

Id. at § 16 (emphasis added). The Third Restatement eschews the term “improper” entirely, using instead the term “wrongful conduct” defined by three narrow instances.

Section 17, relating to interference with economic expectations, goes a step further:

A defendant is subject to liability for interference with economic expectation if:

(a) the plaintiff had a reasonable expectation of an economic benefit from a relationship with a third party;     

(b) the defendant committed an independent and intentional legal wrong;

(c) the defendant intended to interfere with the plaintiff's expectation; and

(d) the defendant's wrongful conduct caused the expectation to fail.

Id at § 17 (emphasis added). Thus, “wrongful conduct” can be shown only by an independent and intentional legal wrong committed by the defendant: for example, “conduct wrongful in some way recognized elsewhere by the law.” Id. at § 17, Reporter’s Note (b).

These cases and drafts of the Third Restatement are helpful to focus counsel on the issue of wrongful conduct and the difference between actionable wrongful conduct and tough competition.

Practice Pointers

  • When analyzing whether there is liability for economic hard in interference cases, counsel should focus on the conduct and what types of conduct are considered wrongful.
  • Recent cases and the Third Restatement are helpful in defining what conduct will be found to be wrongful, by looking at the conduct and whether the conduct falls within one of the three categories under subsection (2) of § 16.
  • The Third Restatement clarifies that interference with contract and interference with economic expectation are two separate and distinct torts, rather than different aspects of the same tort.
  • Finally, because the Third Restatement has created much more narrow categories of liability and has clarified what constitutes “wrongful conduct,” it also has discarded several types of “privilege” that were recognized by the Second Restatement. Such privileges are no longer necessary because so much less conduct will be defined as “wrongful.” The Third Restatement sets forth the remaining privileges that can be argued in § 19. For instance, “competition” is no longer a privilege to interfere because competition will only rise to the level of liability for either tort if the competitive conduct meets the narrow definitions of “wrongful.”

Jamie Maggard, Chris Tillery, and Fritz Riesmeyer are with Seigfreid Bingham PC in Kansas City, Missouri.

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