The time-honored commercial litigation claim of tortious interference with contract (TI) gives legal teeth to the intuition that if you and I have a contract, an outsider shouldn’t be allowed to profit by persuading one of us to break it. But a perusal of Minnesota case law shows that TI is a claim frequently made and infrequently won.
Why? Well, commercial competition is a good thing. We don’t want market competition chilled by fear of overbearing courts imposing tort liability, and business competitors sometimes use TI lawsuits to stifle their rivals in court when the rivals pull ahead in the marketplace. To prevent the use of courts as weapons against fair competition, the law provides that a TI claim can be defeated if the defendant shows the complained-of conduct was reasonable commercial behavior—which TI defendants often are able to do.
The basics of TI in Minnesota can be seen in a recent instance of a party prevailing on a TI claim, contextualized with a sampling of garden-variety unsuccessful TI claims.
Analysis
In Minnesota, tortious interference with contract1 has five elements:
- Existence of a contract.
- Defendant knew of the contract.
- Defendant intentionally procured a breach of the contract.
- Without justification.
- Plaintiff sustained damages as a result.2
In Qwest Comms. Co., LLC v. Free Conferencing Corp.,3 the plaintiff persuaded the trial court that it had proved all five elements of TI, then successfully defended its victory on appeal against attacks on four of the five elements.
The facts in Qwest were complicated. The plaintiff, Qwest, was a long distance telephone carrier that paid fees to Tekstar, a local telephone carrier that completed calls within a particular geographic region. The fees that Qwest paid, called “tariffs,” were stated in a contract between Qwest and Tekstar.
The defendant was Free Conferencing Corp. (FC), an internet free conferencing company. FC sought to profit by exploiting the relationship between Qwest and Tekstar. The tariffs Qwest paid Tekstar were higher than typical tariffs for other local telephone carriers because Tekstar served a rural area, which was more expensive to serve because the carrier infrastructure covered a large area with a sparse population of paying customers. In essence, FC sought to artificially increase telephone traffic into Tekstar’s network, then get paid a portion of the high fees received by Tekstar from Qwest for the increase in traffic.
FC carried out its plan by entering into an agreement with Tekstar in which Tekstar agreed to pay FC for setting up conference calls using telephone numbers served by Tekstar. FC marketed free conference calls over the internet, customers used the free conference call service, FC routed the resulting conference calls to Tekstar numbers, and Tekstar charged Qwest for its services in completing the calls. Tekstar then paid FC part of the money it received from Qwest.
Of course, the profits FC received came at Qwest’s expense. Qwest challenged FC’s business model, citing federal telecommunication regulations. Eventually the Federal Communication Commission ruled that free conferencing companies like FC were not “end users” for the free conference calls—which meant that the agreement between Tekstar and Qwest did not allow Tekstar to bill Qwest for completing the calls.
Qwest then sued FC under Minnesota law for tortiously interfering with the contract between Qwest and Tekstar. After trial, the U.S. District Court for the District of Minnesota agreed with Qwest that the elements of TI had been met:
- FC knew that Qwest and Tekstar had a contract;
- FC knew that its free conference call business caused Tekstar to breach its contract with Qwest by billing Qwest for calls which should not have been billed under the contract;
- FC induced Tekstar to breach the contract by entering into its relationship with Tekstar, which required Tekstar to wrongly bill Qwest;
- FC had no justification for its actions;
- Qwest suffered damages as a result.
The court awarded Qwest nearly $1 million in consequential damages, based on expenses incurred by Qwest routing FC’s calls through other long-distance carriers to reduce Qwest’s cost.
FC appealed the decision, challenging Qwest’s proof of four of the elements of TI (procurement, breach of the contract, justification, and damages). The 8th Circuit Court of Appeals affirmed, disposing of FC’s arguments concerning procurement, breach, and justification with little trouble. First, the court equated “procurement” with generic tort law causation and concluded FC caused Tekstar to breach Tekstar’s contract with Qwest with respect to the billing of FC’s calls. Second, the court affirmed that Tekstar’s breach of its contract with Qwest was a material breach, since proper billing was a primary purpose of the Tekstar-Qwest contract. Third, the court agreed that FC had notice, prior to contracting with Tekstar, that FC was not an “end user” under federal telecommunication regulations; therefore the court concluded Tekstar could not bill Qwest for FC’s conference calls and FC lacked justification for its arrangement with Tekstar.4
The appellate court’s discussion of the damages issue, too, was not extensive, but that issue in Qwest highlights an interesting aspect of TI. The 8th Circuit concluded that the damages claimed by Qwest were foreseeable and flowed naturally from Tekstar’s breach of its contract with Qwest; therefore the damages were properly awarded against FC. This conclusion illustrates how TI claims have a flavor of melding tort and contract liability. TI is a tort claim, but Qwest’s damages were measured by the foreseeable consequential damages caused by Tekstar’s breach of the tariff agreement with Qwest.
In essence, the TI claim allowed Qwest to hold FC vicariously liable for Tekstar’s breach of contract. Why didn’t Qwest simply sue Tekstar, the party that breached the contract with Qwest? The 8th Circuit opinion provides no explanation. One might speculate that Qwest sought to send a deterrent message that it would aggressively pursue and punish companies that sought to profit from Qwest’s relationships with local telephone exchange carriers, without damaging Qwest’s relationship with the local carriers themselves.
In any event, Qwest was slightly unusual as a Minnesota TI case because the defendant challenged Qwest’s proof on four separate elements of TI. More typically, Minnesota cases involving TI claims tend to revolve around just one or two of the elements—frequently the intentional procurement and justification elements.5
Cases turning on the question of whether the defendant intentionally procured a breach of contract show a variety of ways plaintiffs have failed to prove this element, such as where the evidence pointed to an individual other than the defendant as the cause of the breach, or where the plaintiff attempted to rely on a coincidence of events to prove causation.6 In Sysdyne Corp. v. Rousslang,7 the sole element at issue was justification. On this element, the Minnesota Supreme Court emphasized that the appropriate test is “what is reasonable conduct under the circumstances,” which is “normally a question of fact.”8 A defendant may show justification by showing she had a “legally protected interest that would be impaired or destroyed by performance of the contract,” but there are other ways to show justification also.9 The Sysdyne defendant successfully argued that its reliance on the advice of counsel justified its conduct.
A “legitimate economic interest,” such as the defendant’s own contractual relationships, can justify interference in another person’s contract, so long as “improper means”—such as another tort or illegal action—are not used.10 An earlier case in which the Minnesota Supreme Court addressed TI, Kjesbo v. Ricks,11 turned on the justification element, but there the plaintiff succeeded in arguing that no justification existed for the defendants’ scheme, which used a strawman transaction to exploit a statutory right of first refusal to defeat the plaintiff’s contract to purchase a plot of land.
Perhaps surprisingly, there is a fair number of Minnesota TI cases in which the plaintiffs failed to show that any contract was breached at all as a result of the defendants’ alleged wrongful conduct. Without a breach of contract, a TI claim fails before the court even reaches the point of considering intentional procurement or justification. TI plaintiffs have sometimes overlooked the fact that if the contract at issue contained a condition precedent that was never fulfilled, then the contract’s other obligations never came into existence, so there are no contractual obligations that could be interfered with.12 A similar elementary pitfall for TI plaintiffs is alleging TI based on the defendant’s breach of a contract to which the defendant itself was a party; by law a party may not tortiously interfere with its own contract. TI only applies to a situation where someone else, not a party to the contract, disrupts a contractual relationship.13
Conclusion
Tortious interference with contract is a useful commercial tort claim under Minnesota law, but TI plaintiffs must be careful to ascertain that all elements are met when they bring their claims, and they must particularly be prepared to show the defendant intentionally procured a breach of contract through conduct that was unreasonable under the circumstances.
Notes
1 Also called “wrongful interference with a contractual relationship.”
2 Sysdyne Corp. v. Rousslang, 860 N.W.2d 347, 351 (Minn. 2015).
3 Qwest Comms. Co., LLC v. Free Conferencing Corp., 905 F.3d 1068 (8th Cir. 2018).
4 Id. at 1074-76.
5 “Justification is the most common affirmative defense to an action for interference.” Johnson v. Radde, 293 Minn. 409, 196 N.W.2d 478, 480 (1972).
6 E.g. Auto Servs. Fin., LLC v. Frugal Indus., Inc., No. C7-01-6811, 2003 WL 23816530, at *6 (Minn. Dist. Ct. 8/13/2003) (no procurement of breach because the party to the contract, not the outsider, was the driving force behind the allegedly tortious events); Community Ins. Agency, Inc. v. Kemper, 426 N.W.2d 471, 474 (Minn. Ct. App. 1988) (no evidence that buyers who entered into contracts for deed without consent of senior mortgage lender had intentionally interfered with junior lender’s contract rights); Norwest Lighting, Inc. v. Viking Elec. Supply, Inc., No. C5-01-851, 2002 WL 77072 *2 (Minn. Ct. App. 1/22/2002) (plaintiff distributor failed to show that defendant supplier caused the termination of plaintiff’s contract with a different supplier; coincident timing of termination was not evidence of procurement).
7 Supra note 2.
8 Sysdyne, 860 N.W.2d at 351.
9 Id. at 352.
10 Harman v. Heartland Food Co., 614 N.W.2d 236, 241-42 (Minn. Ct. App. 2000).
11 Kjesbo v. Ricks, 517 N.W.2d 585 (Minn. 1994).
12 See First Union Mgmt., Inc. v. Kmart Corp., No. C3-93-2258, 1994 WL 385645, at *2 (Minn. Ct. App. July 26, 1994); Cunningham Implement Co. v. Deere & Co., No. C7-95-1148, 1995 WL 697555, at *3 (Minn. Ct. App. 11/28/1995).
13 Bouten v. Richard Miller Homes, Inc., 321 N.W.2d 895, 901 (Minn. 1982).
JOSEPH PULL represents clients involved in commercial and financial litigation, at Briol & Benson, PLLC. He occasionally comments on related statutes, court decisions, and claims – like tortious interference – at briollaw.com/briol-law-blog.