### No. 14846 IN THE SUPREME COURT OF THE STATE OF MONTANA 1980

LARRY PHILLIPS, Plaintiff and Appellant,

THE MONTANA EDUCATION ASSOCIATION, a non-profit corporation; JOHN BOARD; 

### C. D. "BUD" BEAGLE; MAURICE HICKEY; NOEL FURLONG and BETTY LOCKEY, Defendants and Respondents.

Appeal from: District Court of the First JudicidDistrict, In and For the County of Lewis and Clark, Honorable Peter Meloy, Judge presiding. Counsel of Record: For Appellant: Joseph Duffy argued, Great Falls,Montana For Respondents: Hilley and Loring, Great Falls,Montana Jardine, Stephenson,Blewett and Weaver, Great Falls,

Montana Alexander Blewett I11 argued, Great Falls,Montana

,

### . Filed:

## 9.;-L -- - 

### Submitted: December 12, 1979 Decided:

### at

### k

## 2

## 2 1980

### Mr. Justice John Conway Harrison delivered the Opinion of the Court. Appellant Larry L. Phillips appeals from an order and judgment of the Lewis and Clark County District Court granting a motion by the Montana Education Association (herein referred to asMEA); and John Board, C. D. "~ud" Beagle, Maurice Hickey, Noel Furlong,and Betty Lockey (herein referred to as individualdefendants) for summary judgment. Phillips was hired by the MEA on April 2, 1974, and commenced employment on July 1, 1974. The terms of his employment as executive secretarywere specified in a written, two-year contract. On December 30, 1974, the Board of Directors of the MEA terminated Phillips' contract and employment as of December 30, 1974. On January 28, 1975, Phillips filed a complaint against the MEA alleging breach of employment contract and failure to give the requisite threemonths notice of termination. On March 19, 1976, Phillips filed an amended complaint and alleged five counts which included the earlier claims,and added claims for slander, malicious inducementby agents of the MEA to breach the employment contract,and that the MEA had blacklisted him from further employment. The amended complaint added eight John and Mary Does as defendants. The MEA made a number of motions to dismiss, strike, to make more definite statementsand to dismiss defendants. In

an order dated November 8, 1976, the District Court dismissed the slander count for failure to state a claim, and struck Phillips' claim for punitive damages,penalties and attorney fees. Phillips appealed to this Court, and the MEA 

### filed 

### a motion to dismiss the appeal on the grounds that the order

### was not appealable. This Court granted the MEA's motion to dismiss the appeal, and the causewas remanded to the DistrictCourt. On August 1, 1977, the MEA deposed Phillips and he was unable to provide information concerning the alleged malicious inducementof breach of contract; and three days after that deposition, the MEA served interrogatories on Phillips seeking answers concerning the alleged malicious inducement of breach of contract. Phillipsdid not answer the interrogatories,and onApril 3, 1978, the MEA filed a motion to compel answers. A hearing was held on May 2, 

### 1978,and the District Court ordered Phillips to answer the interrogatories. Phillipsdid not answer the interrogatories within the time ordered by the District Court; and on August 31, 1978, the MEA again filed a motion to dismiss the amended complaint. A 

### hearing was held on September 26, 1978, and the District Court found that Phillips had violated the court order by not answering the interrogatories; and ordered that the amended complaintwould be dismissed with prejudice if Phillips did not answer the interrogatories by October 13, 1978. The District Court further found that Phillipshad failed to complywith a previous court order by not having filed a second amended complaint,and ordered that Phillips' complaintwould be dismissed with prejudice if Phillipsdid not file a second amended complaintby October 13, 1978. Phillips filed a second amended complaint and answers to the interrogatories on October 13, 1978. On November 16, 1978, the MEA and the individual defendantsmoved for summary judgment on count two, the alleged malicious inducementof breach of contract;and count three, the alleged MEA blacklisting of Phillips from further employment,of Phillips' second amended complaint.The motion 

### wasbriefed and a hearing held; and on April 

### 4, 1979, the District Court granted the motion for summary judgment. On April 10, 1979, finaljudgment was entered pursuant toRule 54(b),M0nt.R.Civ.P. The judgment specifically stated thatPhillipswas entitled toproceed with counts one and four of the second amended complaint concerning the cause of action forbreach of contract. Phillips has not appealed the granting of summary judgment on count three; therefore, Phillips' appeal is limited to the granting of summary judgment on count two. The following issue 

### israised by Phillips for our consideration on appeal: Whether the 

### District Court erred ingranting summary judgment on count two of the second amended complaint wherein Phillips alleged that the individual defendants were personally liable for the tortof malicious inducement of breach of contract. Causes of action for interferencewith contract rights have long been recognized inMontana. Pelton v. Markegard (19781, -Mont. 

## , 586 P.2d 306, 35 St.Rep. 1593; Taylor


### v. Anaconda Federal CreditUnion (1976), 170Mont. 51, 550 P.2d 151; Quinlivanv. Brown OilCo. (1934), 96 Mont. 147, 29 P.2d 374; Burden 

### v. Elling StateBank (1926), 76 Mont. 24, 245 P.958; Simonsen 

### v. Barth (1922), 64 Mont. 95, 208 P. 938. See alsoW. Prosser, 

## --- The Law of Torts, 5129 

### at 927 (4thEd. 1975). A complaint seeking damages for inducing a breach of contract is sufficient where it alleges (1)that a contract was entered into, (2) that itsperformance was refused, (3) that such refusal was induced by the unlawful and m~~licious acts of the defendant, and 

### (4) that damages have resulted to the plaintiff. Pelton 

### v. Markegard, supra,586 P.2d at 308; Burden v. Elling StateBank, supra, 245 P. 

### at 959. The law, independent of the contract, imposes upon strangers toa contract the duty not tointerferewith 

### its performance. The violation of thisduty 

### is

### a tort, the remedy for such interference isby action in tort. Burden v. Elling StateBank, supra, 245 P. at959. One type of interference with economic relations has been marked outrather definitely by the courts, and regarded 

### as a separate tort, under the name of inducing breach of contract. The parties do not dispute the fact that Phillips has a

cause of action against the corporation for the alleged breach of contract, and thiscause of action 

### ispending in DistrictCourt. The factthat there 

### is an available action against the party who breaks the contract 

### isno defense to the one who induces the breach, since the two 

### are joint wrongdoers, and each 

### isliable for the loss. Prosser, supra, S129 at948. In 

### terms of legal theory, 

### it 

### is thereforepossible tobring suitforbreach of contract and also tobring suitfor the tortof inducing breach of contract. The specific issue of whether agents, employees, officers and directorsof a corporationmay be held individually liable for the tortof malicious inducement of breach of an employment contract 

### isone of firstimpression inMontana. Phillips contends that the MEA and the individual defendants areinfactjoint tortfeasors. He argues that the tortof malicious inducement of breach of contract is impugnible individually to the individual defendants who sought to, and took steps to see that the corporation did breach the employment contract. Phillips further contends that individual officerscannot, with impunity, commit tortsand be allowed tohide behind the corporate veil inorder toescape accountability for those torts. The individual defendants contend that officers, directors and employees



### are the only persons who can acton behalf of a corporation; and that no director or officer would ever make a corporate decision involving the performance of a contractwithout fear of being sued for the tortof maliciously inducing the corporation tobreach a corporate obligation. The individual defendants further contend that corporations simply could not function if the officers, directors and employees

were tobe exposed to individual liability on every occasion when the corporation failed toperform on a contract. Given the intention to interferewith a contract, liability usually 

### will turn upon the ultimate purpose or objectivewhich the defendant is seeking to4 advance. Generally, an intentional interferencewith the existing contractual relations of another 

### isprima facie sufficient for liability and the burden of proving that 

### it 

### is "justified" 

### rests upon the defendant. The defendant may show that the interference isprivileged by reason of the interests furthered by his conduct, but the burden 

### rests upon him todo

so. The question of privilege must be considered inthe lightof the means adopted and the relations between the parties. Prosser, supra, 8129 at942-43. To determine whether interferencewith contractual relations isjustified, public policy considerations must be examined. Justification orprivilege constitutes the primary defense toan action for interference. Johnson v. Radde (1972), 293 Minn. 409, 196 N.W.2d 478; Estes, Expanding Horizons 

### ---- In The Law of Torts--Tortious Interference, 23 Drake L.Rev. 341, 358 (1974).One public policy consideration is that the officers, directors, employees and agents of 

### a corporationmust be shielded from personal liability for 

### acts taken on behalf of the corporation, including the breaching of contracts in furtherance of corporate goals, policies, and business interests. This corporate shield isneeded inorder to allow corporations toeffectively function. A competing public policy consideration is that individual corporate agents, employees, directors and officers should not be allowed to commit torts atwill, and then be allowed tohide behind the corporate veil inorder toescape accountability for those torts. Corporate officers or directors

### are privileged to interferewith or induce breach of the corporation's contracts or business relations with others aslong as their actions are ingood faithand for the best interests of the corporation. Wilson v. McClenny (1964), 262 N.C. 121, 136 S.E.2d 569; Allison v. American Airlines (N.D. Okla. 1953), 112F.Supp. 37. Where an officer or director acts against the best interests of the corporation, acts for his own pecuniary benefit, orwith the intent toharm the plaintiff, he 

### ispersonally liable. Pennington Trap Rock Co. v. Pennington QuarryCo. (1944), 22 N.J.Misc. 318, 38 A.2d 869; A. S. Rampell, Inc. v. Hyster Company (1957), 3N.Y.2d 369, 165 N.Y.S.2d 475, 

### 144N.E.2d 371; W. P. Iverson & Co. v. ~unham Manufacturing Co. (1958), 18 111.App.2d 152 N.E.2d 615; Stell~anufacturing Corp. v. Century Industries, Inc. (1961), 15App.Div.2d 87, 221 N.Y.S.2d 528. InWilson v. McClenny, supra, Wilson entered into a preincorporation agreement with several individuals who 

### later became directors of 

### a corporation called Gateway ~ife

### InsuranceCompany. Under the agreement, Wilson became president of the corporation. Later, because of a drinking problem, ~ilson was ousted as president during a directors' meeting. Wilson filed an action against the individual defendants for a breach of the preincorporation agreement and for tortious interferencewith his contractual rights with the corporation. InWilson, the court found that the acts of the directors were found to have been for the benefit of the corporation, thatWilson offered no evidence to the contrary,and that there were no individual or separate torts by the individual defendantsdistinguishable from their acts on the corporation's behalf. The court found thatWilson had failed to state a claim against the individual defendants. We hold that the corporate veil should not be utilized

as a protective devise by those who employ corporatepower
or authority to serve their own ends. Tort liability for the inducementof breach of contract should be imposed when

a corporate agent, employee, officer or director induces a breach of contract for private benefit, or because of personal feelingsand purposes relative to a 

### third party. The privilege of limited liability should be applicable in those situations where actions are motivated and taken in the furtherance of corporatepurposes, policies and ixterests. In the instant case, the record discloses that Phillips wrote a memorandum to the MEA 

### Board of Directors in reference to terminating the employment of certain employees. A 

### board member and some of the employees discussed the hilli ips 

### memorandum, and then some of those individuals wrote a letter characterizing the function of the staff administration. They also requested ameeting with the Board of ~irec-

### tors, exclusive of Phillips. The District

### Court concluded, and 

### we agree, that the actions taken by the individual defendants were within the scope of their employment, designed without malice, and inthe furtherance of corporate interests. Phillipshas failed to show that the actions taken by the individual defendants were not taken infurtherance of corporate purposes and interests. Therefore, the privilege of limited liability applies inthe instant case, and the individual defendants are shielded from personal liahility. The record shows the absence of any genuine issue of material fact; therefore, the order and judgment of the DistrictCourt granting the individual defendants' motion for summary judgment on count two, the tortcause of action for the malicious inducement of breach of contract is 

### affirmed. 

## 1

We 

### concur: 

# ~Adg 

# Qcd

_

### Chief Justice



# 4~lcQ.Aikd4 ustices

Mr. 

### Justice Daniel J. 

### Shea dissents and will

### filea written dissent later.

### DISSENT OF MR. JUSTICE DANIEL 

### J. SHEA

No. 14846

LARRY L. PHILLIPS, Plaintiff and appellant,

THE MONTANA EDUCATION ASSOCIATION, a non-profit corporation, et al., Defendants and respondents.



## MAY

# -61980

ELERKOF SUPREME COURT A STATE_OL MONTANA

### Mr. Justice Daniel J. Shea dissenting:

I

### would reverse the District Court's grant of summary judgment on the second count and remand for trial on the factual issue of whether the conduct of the corporate agents

was motivated primarily by personal considerations. There can be no question that the corporate veil should not be utilized as a protective device by thosewho employ corporate power or authority to serve their own ends. Tort liability for the inducement of breach of contract should be imposed when a corporate agent, employee, officer or director induces a breach of contract forprivate benefit,

or because of personal feelings and purposes relative to a third party. The privilege of limited liability should be applicable only in those situationswhere actions are motivated and taken in the furtherance of corporate purposes and policies. I cannot agree, however, with the majority's determination that the trial courtproperly granted the individual defendant's motion for summary judgment on the tort cause of action for the malicious inducement of breach of contract. In a case in which an officer, director, agent or employee's act is for some ulterior motive of his own,but happens to be consistent with corporate interests, the question of whether to impose personal liability should be based upon the dominant reasonmotivating the officer, director, agent

or employee. Caverno v. Fellows (1938), 300 Mass. 331, 15 N.E.2d 483; Remy Beverages v. Myer (1945), 56 N.Y.S.2d 828, 

### lo

### I3 aff'd. (N.Y.App. 1945), 269 App.Div. W,

### 59 N.Y.S.2d 371. If the dominant reason motivating a corporate agent is the furtherance of corporate interests or policies, the corporate agent should be shielded from personal liability. On the other hand, if the dominant reason motivating acorporate agent 

### is one forpersonal interest, feelings

orbenefit, then he should be held individually liable. This is soeven if the personal motive happens tobe consistentwith corporate interestsorpolicies. The heart of the 

### test of whether individualpersonal liability attaches 

### iswhether the acts taken by the corporate agent is ingood faith. See Smith v. GreatBasin Grain Co. (1977), 98 Idaho

The rationale and public policy considerations behind this approach is set forth inAvins, Liability For Inducing A - Corporation - To Breach 

### Its Contract 43 Cornell L.Q. 55, 65: "Officers, directors, agents oremployees who have an interest in the activities of a corporation orthe duty toadvise or direct such activities should be immune from liability for inducing the corporation tobreach 

### its contract, assuming their actions 

### are inpursuit of such interests orduties. Public policy demands that so long 

### as theseparties 

### act ingood faithand for the best interests of their corporation, they should not be deterredby the danger of personal liability. Any other positionwould make the limited liabilityof a corporation somewhat meaningless. "On the otherhand, the corporate veil should not stand as 

### a means of protection forthose who choose toemploy corporatepower toserve their own ends. Tort liability should be swiftly imposed whenever an officer, director, employee or stockholder induces a breach of contract for private benefit orto satisfypersonal feelings against a thirdparty. The limited liabilityof the corporate charter

### was granted for corporate purposes. Where such purposes no longer exist, there should be no limited liability." The trial court concluded, and themajority agreed, that the actions taken by the individual defendants 

### were within the scope of theiremployment, designed without malice, and inthe furtherance of MEA corporate interests. The issue, however, as towhether the individual defendants acted ingood faith orbad faith

### is a factual question which precludes summary judgment. See Nott v. Booke (19791,Mont

# . , 598 P.2d 1137, 36 St.Rep. 1542. The individual conduct of the defendants should be examined todetermine thedominant reason which existed inmotivating their conduct and actions. The plaintiff alleges inessence that the individual defendants named in the second amended complaint, acting forpersonal reasons, maliciously induced the MEA corporation tobreach its employment contractwith the plaintiff. A genuine issue of fact does existinrelation tothe individual defendants' actions and motives relating toultimately inducing corporate action terminating the plaintiff's employment contract. It 

### is clear therefore, that the order and judgment of the trial court ingranting the individual defendants' motion for summary judgment on the second count, the tort

cause of action formalicious inducement of breach of contract, should be reversed.