The Murky World of Tortious Interference:
What are the Rules of the Game?
By Robyn B. Gigl
In the seminal case of Printing Mart v. Sharpe Electronics1, the New Jersey Supreme Court laid out the four prong test that a plaintiff must satisfy in order to establish a cause of action for tortious interference with either contract or prospective economic advantage. The plaintiff must prove that it has some protectable right, either a contractual relationship or a prospective economic right; 2 the plaintiff must establish that the interference was done intentionally and with "malice", which is defined to mean harm that was inflicted intentionally and without justification or excuse; 3 the plaintiff must establish that the interference caused a loss and in situations where the plaintiff does not have an established contract right but claims a loss of a prospective gain, the plaintiff must show that there was a reasonable probability that it would have received the alleged gain; 4 and finally the plaintiff must prove that the loss in question caused damages to the plaintiff. 5
While certainly there can be disputes as to whether or not a plaintiff really did have a legitimate prospective economic advantage that was interfered with, 6 the most difficult prong of the Printing Mart test for litigants, practitioners and the courts to deal with is whether or not the interference was done intentionally and with "malice" and exactly constitutes malice in the tortious interference context.7 In this regard, our courts have recognized that when looking at business practices, determining what conduct is justified is governed by a "somewhat amorphous"8 standard. In particular, New Jersey Courts have appeared to have difficulty in defining and applying this somewhat amorphous test for reasonableness in the context of businesses that are in direct competition with one another. Trying to operate under admittedly amorphous standards makes it difficult for the business community, practitioners and trial judges to differentiate conduct that is sanctioned by the rules of the game and that for which liability may be imposed. This article gives an overview of the important cases in the area in an attempt to help practitioners navigate the murky "rules of the game".
Since the 19th century, New Jersey Courts have recognized that:
A trader may lawfully engage in the sharpest competition with those in like business, by offering extraordinary inducements, or by representing his own goods to be better and cheaper than those of competitors, yet when he oversteps that line and commits an act with the malicious intent of inflicting injury upon his rival's business, his conduct is illegal, and if damages ensues from it, the injured party is entitled to redress. And it does not matter whether the wrongdoer affects his object by persuasion or by false representation. The courts look through the instrumentality or means employed to the wrong perpetrated with the malicious intent, and provides the remedy to redress the wrong. 9
In Harris v. Perl10, Chief Justice Weintraub outlined the standard principals utilized by our courts in examining conduct between competitors to determine if a valid claim for tortious interference exists.
The law protects a man in the pursuit of his livelihood. True, he cannot complain of every disappointment; others too may further their equal interests, and if the means are fair, the advantage should remain where success has put it. But if the act complained of does not rest upon some legitimate interest or if there is sharp dealing or overreaching or other conduct below the behavior of fair men similarly situated, the ensuing loss should be redressed
* * * *
Protection is not limited to contracts already made. The law protects also a man's interest in reasonable expectations of economic advantage.11
Thus, the courts were instructed to look at two factors; did the actor have a legitimate interest in engaging in the complained of conduct - i.e. competition; and was the conduct complained of below what fair men would tolerate in a similar situation. Left unanswered was how the courts were to determine what would be tolerated by fair men similarly situated.
In Wear-Ever Aluminum, Inc. v. Townecraft, Inc.12, Justice (then Judge) Pashman, in answering this question concerning the conduct of competitors espoused an expansive view of the court's role in policing the business community. In Wear-Ever, the defendants were competitors in the sale of home cooking utensils13. The defendants targeted a division of plaintiff's sales force that sold to consumers in the Philadelphia and surrounding suburban area to leave plaintiff's employ and come to work for defendant. Approximately 35 members of plaintiff's sales force did in fact leave en mass and go to work for the defendant14. Additionally, as a result of the mass exit, the morale of remaining employees deteriorated and 43 more employees terminated their employment with plaintiff.15 In defending its actions, the defendant took the position that because the employees could terminate their contract at will and because defendant was a competitor of the plaintiff, its conduct was lawful.16
Judge Pashman disagreed and found that the defendant had tortiously interfered with the relationship between plaintiff and its employees. In rejecting defendant's argument that what it did was prevalent in the industry, Judge Pashman stated:
[E]ven if the defendant had established that the custom in the trade was to pirate salesman from competitors, this court would not permit such a custom to justify and legitimize what otherwise would be tortious conduct. The role of the court is to raise the standard of business morality and care, not judicially to sanction tortious activity. Higher standards benefit and protect both the innocent members of an industry and the general public.17
What was unique about Judge Pashman's decision in Wear-Ever, was his holding that it was the role of the judiciary to monitor business activities and to curtail sharp practices even if they were prevalent in the industry. In Judge Pashman's opinion it was incumbent upon the Court to establish the rules of the game and not simply to look to the industry to determine what the normal practice was.18
The pendulum seemingly swung away from Judge Pashman's more expansive view with the Appellate Division's decision in Ideal Diary v. Farmland Dairy.19 In Ideal Diary, the plaintiff had formerly been a dealer and distributor of Farmland Dairy products. It subsequently ended its relationship with Farmland and became a dealer and distributor for another dairy. The parting between Ideal and Farmland was not amicable and some months later, Farmland and several of its distributors canvassed Ideal's customers and offered to sell them milk at prices substantially lower than Ideal's prices20. Forty-eight of Ideal accounts terminated their agreements with Ideal and switched to Farmland. To counteract this, Ideal was forced to lower its prices and ultimately Ideal was able to get back 43 of the 48 customers it lost, although at substantially lower prices.21 Ideal filed a lawsuit seeking damages on the theory that Farmland's conduct was in violation of the Antitrust Laws and also constituted tortious interference.22 The matter proceeded to trial and the trial judge found that Farmland attacked Ideal in a predatory fashion; that Farmland was offering to sell to Ideal customers at prices below its own cost and that this was predatory pricing; and that this conduct was in violation of both the New Jersey Antitrust Act and constituted common law tortious interference with economic advantage.23 The Appellate Division in reversing the trial court's decision held that:
Although the laws of antitrust and tortious interference are based on competing interest and policies, they share a common purpose; i.e., the prevention of conduct which unjustifiably imposes injury or loss, either to competition (as in antitrust law), or to a competitor (as in the law of tortious interference). In keeping with this common purpose, we conclude that it is both reasonable and sound, as a matter of policy, to recognize that low-cost pricing which is neither predatory nor restrictive of competition is justified by the forces of competition and does not provide a basis for a claim of tortious interference.
****
Consistent with prior New Jersey decisions, we conclude that in tortious interference cases involving parties in direct competition in the same market, the line must be drawn where one competitor interferes with another's economic advantage through conduct which is fraudulent, dishonest, or illegal. ....
The record here does not establish that Farmland acted unjustifiably, wrongfully, and outside the "rules of the game" when it solicited Ideal's customers with low pricing. The record shows vigorous, short-term price competition consistent with the interest of consumers. There is no suggestion possible that Farmland's conduct threatened competitive market conditions. The judge erred in concluding that Farmland "maliciously" interfered with Ideal's prospective economic advantage based solely on evidence of its subjective ill-will and animosity.24
The standard espoused in Ideal Dairy, that as between competitors in the same market, conduct had to be fraudulent, dishonest or illegal to constitute tortious interference certainly can be seen as a withdrawal from the more expansive view of the judiciary's role in determining the rules of the games envisioned by Judge Pashman. Under the Ideal Dairy standard, it is questionable as to whether the conduct present in Wear-Ever would even constitute tortious interference as there was nothing fraudulent, dishonest or illegal about what took place. Rather than placing the Court in the forefront by attempting to raise the standard of business morality and care even if the conduct in question is accepted within the industry, the Appellate Division in Ideal Dairy set forth a less activist role for the Courts.
In 2001, the New Jersey Supreme Court in Lamorte Burns & Co. v Walters,25 addressed the standards espoused in both Wear-Ever and Ideal Dairy and sub silentio attempted to integrate the two. In Lamorte, the plaintiff, an insurance claim adjustment firm, brought an action against its former employees alleging that they breached their restrictive covenants, employment agreements and duty of loyalty in addition to the claim that the employees' conduct in gathering protected information and secretly soliciting plaintiffs' clients constituted tortious interference.26 Procedurally, the trial court had granted summary judgment to the plaintiff as to liability on all of its claims, including the tortious interference claims. The Appellate Division agreed that the defendants had breached their employment contracts but reversed summary judgment on the tortious interference claim27. The Supreme Court reinstated summary judgment in favor of the plaintiff holding that defendants' conduct did in fact constitute tortious interference.28
In analyzing the defendants' conduct in Lamorte, the Supreme Court recognized the principles set forth in Ideal Dairy that competition may constitute a justification for certain conduct.29 It further recognized that even conduct committed with an ill will was not necessarily sufficient to justify an action for tortious interference with economic advantage.30 The Court noted that clearly conduct that is fraudulent, dishonest or illegal and interferes with a competitor's economic advantage constitutes tortious interference.31 The Court went further, however, and recognized that "not all sanction conduct or customs of a specific industry will be immune from claims for tortious interference" citing Judge Pashman's decision in Wear-Ever.32 The Supreme Court quoted with approval Judge Pashman's role for the Court in examining business competition; namely, "to raise the standard of business morality and care, not judicially to sanction tortious activities."33 It is important to add a note of caution, however, in applying the holding to future cases because the Court's decision was primarily concerned with the taking and utilization of confidential information by former employees and whether that conduct violated the employees' contract and duty of loyalty. Having found that defendants had breached their employment contracts and their duty of loyalty to their former employer, a conclusion that the same conduct also constituted a cause of action for tortious interference was almost axiomatic.34
Since the Supreme Court's decision in Lamorte Burns, no reported decisions have dealt with how to interpret what is prohibited by the rules of the game between competitors in the same business. Two unreported decisions provide little guidance to the practitioner in terms of how to advise a client as to the grey area between what constitutes fair competition and what is not.
In an unreported decision, the Appellate Division in Grinspec v. Lance, et. al.35 seem to take a step back from the Lamorte Burns decision towards a more laissez faire approach to competition in finding no valid tortious interference claim. In Grinspec, the plaintiff was an insurance broker which sold primarily health insurance coverage in the public sector. Defendants were a former employee and the new insurance broker he went to work for.36 After having his employment terminated, the employee went to work for a competing insurance broker. At the request of his new employer, he went to many of the customers that he had serviced while working for plaintiff and requested that they change their broker from plaintiff to his new employer.37 His new employer agreed to indemnify him if he was sued and his new employer also agreed to indemnify certain of his old accounts if they were sued by plaintiff for breach of contract. As a result, a number of plaintiff's accounts canceled their brokerage agreements with the plaintiff and switched to the defendant's new employer.38 Defendant specifically testified that but for his new employer's assurances that they would indemnify him and hold him harmless for any claims, he would not have solicited his old customers. Representatives of defendants' new employer specifically testified that they advised him to target the accounts that he had serviced while in plaintiff's employ. Moreover, defendant's new employer testified that they were well aware that he was subject to a restrictive covenant which they encouraged him to ignore because they believed it was unenforceable.39
The trial court found that defendant had breached his non-compete agreement and that his new employer had tortiously interfered with that agreement. However, the trial court refused to award punitive damages or any other damages over and above those imposed as a result of the breach of the non-compete.40
On appeal the Appellate Division relying primarily on Ideal Dairy held that because the parties were in direct competition in the same market, the defendants' conduct was not fraudulent, dishonest or illegal, nor had they transgressed any generally accepted standards or violated any rules of the game.41 Certainly, a cogent argument can be made that had the Court applied the Wear-Ever standard, a different result would have been expected. It is certainly questionable whether a new employer who is aware of a restrictive covenant can counsel his new employee to breach the restrictive covenant and solicit his former clients and advise them to cancel their agreements with his former employer with impunity if the court is seeking to "raise the standard of business morality and care".42
In a second unreported decision, the Appellate Division in Fairway Dodge, Inc. v. Decker Dodge, Inc.,43 the Court again appeared to rely more on an analysis similar to a Lamorte Burns than that espoused in Ideal Dairy. Any conclusions, however, must be tempered by the egregious nature of the conduct that existed in Fairview Dodge which included the employees of one car dealership downloading after hours the computer system of the employer that they were leaving without anyone's knowledge and taking it to their new dealership and installing it on the new dealership's computers.44 There was also clear and convincing evidence that a general solicitation letter was mailed to their former employer's customers shortly thereafter.45 The Appellate Division in concluding that a tortious interference claim had been proven initially cited the language from Ideal Dairy that targeting a specific competitor in the marketplace is not improper but limited that principal by asserting that a defendant must not only justify his motive and purpose, but also his means.46
What is most troubling for the practitioner who is either trying to counsel a client on what competitive conduct is permissible and what is not, or whether a lawsuit is warranted in a given situation, is that the standards the court has applied are not only "somewhat amorphous" but even the amorphous standards appear to be applied unevenly by the courts. Thus practitioners are left to guess on how a court will define the "rules of the game". Will a court be more expansive and attempt to strike down conduct that might be prevalent in the industry but offends the court's sensibilities as to what should be permissible or will a court look solely as to whether the challenged conduct is fraudulent, dishonest or illegal? Certainly the Ideal Dairy standard is a bright line test, as no ethical practitioner would ever counsel a client to do anything fraudulent, dishonest or illegal. However, beyond that bright line test, there remains little guidance for attorneys seeking to have their clients avoid litigation or prevail if litigation ensues. The Appellate Division's decision in Grinspec, which applied the Ideal Dairy standard, can be read to countenance advising an employer who is in direct competition to allow a new employee to violate a previous non-compete agreement because said conduct is not fraudulent, dishonest or illegal. Nonetheless, such conduct does not appear "to raise the standard of business morality and care". 47 Moreover, based on the language of Harris v. Perl48, that a party cannot rely on the unenforceability of a contract as justification for interfering with it, one would be hard pressed to counsel an employer that because the language of a new employees non-compete with his former employer was overly broad, the employer was free to ignore it and to encourage the new employee to breach it. Nonetheless that is exactly the result of the Court's decision in Grinspec.
The safest conclusion that can be drawn from the analysis of the New Jersey case law on tortious interference is that other factors which at first blush appear not to be critical to the four pronged test of Printing Mart v. Sharpe Electronics49 to establish a claim of "tortious interference" often play a critical role in how the court will evaluate whether the alleged conduct violated the "rules of the game". In Wear-Ever the fact that a whole division of the plaintiff's work force was taken was critical.50 It is arguable that had defendants targeted only a few salespeople as opposed to the whole division, Judge Pashman would not have been as offended by the conduct. Likewise, in Ideal Dairy, plaintiff after initially losing 48 customers, was able to retain 43 of them by lowering its prices.51 It is reasonable to speculate that if plaintiff had not been able to get back the vast majority of its customers, like the sales people in Wear-Ever, the court would have found defendants' tactics to violate the "rules of the game". Similarly, had the defendants in Grinspec taken more than six customers away from the plaintiff52, the court may have been more inclined to have found the new employers conduct in advising the employee to violate the non-compete agreement was contrary to the dictates of Harris v. Perl, and was in violation of the rules. Finally, as noted, the conduct of the defendant's in Fairview Dodge was so egregious that the court could not avoid finding that the use of the surreptitiously purloined computer system to send a solicitation letter to substantially all of plaintiff's customers violated the rules of the game.53 Thus, while arguably the scope of the loss involved should not be determinative of whether the conduct involved transgressed what fair men would tolerate, it does appear to be a critical factor in whether or not the court will take a more expansive view of its role in policing the business community or a more laissez faire approach. Practitioners should therefore pay as much attention to the scope of the damage, as to the nature of the conduct itself, in advising their clients on how to proceed.
Robyn B. Gigl is the managing partner of Stein, McGuire, Pantages & Gigl, LLP. His practice focuses on litigation, including employment law, commercial litigation, probate litigation and white collar criminal defense.
1 116 N.J. 739 (1989).
2 Id. at 751.
3 Id.
4 Id.
5 Id. at 752.
6 E.g. Harris v. Pearl, 41 N.J. 455 (1964); C&W v. Alexander Summer Co., 295 N.J. Super. 173 (App. Div. 1996); Kopp, Inc. v. United Technologies, Inc., 233 N.J. Super. 548 (App. Div. 1988); Levine v. Kuhn Loeb & Co., 174 N.J. Super. 560 (App. Div. 1980).
7 Printing Mart v. Sharpe Electronics, 116 N.J. at 751.
8 Leslie Blau Co. v. Alfieri, 157 N.J. Super. 173, 204 (App. Div.), certif. denied sub nom. Leslie Blau Co. v. Reitman, 77 N.J. 510 (1978); Printing Mart v. Sharpe Electronics, 116 N.J. Super. supra at 757.
9 VanHorn v. VanHorn, 56 N.J.L. 318, 323 (1893).
10 41 N.J. 455 (1964).
11 Id. at 461-62.
12 75 N.J. Super. 135 (Ch. Div. 1962).
13 Id at 140.
14 Id. at 139.
15 Id.
16 Id. at 143.
17 Id. at 146-147.
18 Id.
19 282 N.J. Super. 140 (App. Div. 1995).
20 Id. at 151-52.
21 Id.
22 Id.
23 Id. at 154-55.
24 Id. at 204-206 (emphasis in original) (citations omitted).
25 Lamorte Burns & Co. v. Walters, 167 N.J. 285 (2001).
26 Id. at 290.
27 Id. at 296-297.
28 Id. at 309.
29 Id. at 307.
30 Id.
31 Id.
32 Id. at 307-308.
33 Id. at 308 quoting Wear-Ever Aluminum v. Townecraft Industries, 75 N.J. Super. at 146-147.
34 Id. At 309.
35 Grinspec, Inc. v. Lance, unreported decision, West Law Citation WL 32442790 (August 13, 2003), certif. denied, 178 N.J. 251 (2003).
36 Id. at pg. 2.
37 Id. at pg 6.
38 Id.
39 Id.
40 Id. at pgs. 7-8.
41 Id. It is important to note that despite finding no tortious interference, the Court did find that the employee was liable for a violation of his non-compete agreement.
42 Wear-Ever Aluminum, supra, 75 N.J.Super. at 147.
43 Fairway Dodge, Inc. v. Decker Dodge, Inc., unreported decision; West Law Citation WL 4077532 (decided June 12, 2006), affirmed on other grounds 191 N.J. 460 (2007). The Supreme Court's reported decision dealt only with the issues of liability under the Computer Related Offenses Act and whether the trial court should have allowed defendants to call additional witnesses on the issue of damages. The Supreme Court did not deal with the issue of tortious interference.
44 Id. at pgs. 5-6.
45 Id. at pg. 2.
46 Quoting, Lamorte Burns & Co., supra. 167 N.J. at 307.
47 Wear-Ever Aluminum supra, 75 N.J. Super. at 147.
48 "And since men usually honor their promises no matter what flaws a lawyer can find, the offender should not be heard to say the contract he meddled with could not have been enforced". Harris v. Perl, 141 N.J. at 461.
49 116 N.J. 739 (1989).
50 Wear-Ever Aluminum supra, 75 N.J. Super. at 148.
51 Ideal Dairy, supra, 282 N.J. Super. at 152.
52 Grinspec, Inc. v. Lance, unreported decision, West Law Citation WL 32442790 (August 13, 2003) at pg. 4.
53 Fairway Dodge, Inc. v. Decker Dodge, Inc., unreported decision; West Law Citation WL 4077532 (decided June 12, 2006) at pgs. 5-6.
