Title: Maximus Inc. v. Lockheed Inf. Mgmt. Systems
Citation: N/A
Docket Number: 962519
State: Virginia
Issuer: Virginia Supreme Court
Date: October 31, 1997

Present:  Carrico, C.J., Compton, Lacy, Hassell, Keenan, and 
Kinser, JJ., and Whiting, Senior Justice 
 
MAXIMUS, INC. 
 
v.    Record No. 962519 
OPINION BY JUSTICE ELIZABETH B. LACY 
                                   October 31, 1997 
LOCKHEED INFORMATION MANAGEMENT 
SYSTEMS COMPANY, INC., ET AL. 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND 
 
Randall G. Johnson, Judge 
 
 
This appeal requires us to determine the elements required 
to establish a prima facie case of tortious interference with 
contract expectancy in Virginia. 
 
I. 
 
The instant case arose out of a dispute between Maximus, 
Inc., (Maximus) and Lockheed Information Management Systems 
Company, Inc., (Lockheed) over bids to privatize two child 
support enforcement offices in Northern Virginia. 
 
In November 1994, the Virginia Department of Social Services 
(DSS) released a Request for Proposals to privatize the two child 
support offices pursuant to the Virginia Public Procurement Act, 
Code §§ 11-35 through -80.  Maximus and Lockheed were the only 
two bidders.  To evaluate the bids, DSS created a selection panel 
composed of five state employees.  The panel heard oral 
testimony, reviewed and scored the proposals, and issued a Notice 
of Intent to Award the contract to Maximus dated April 13, 1995. 
 
On April 25, 1995, pursuant to Code § 11-66, Lockheed filed 
a formal protest of DSS's decision to award the contract to 
Maximus.  In its protest, Lockheed alleged that two members of 
the evaluation panel had undisclosed conflicts of interest which 
 
 
 
 
2 
interfered with their objectivity and compromised the integrity 
of the evaluation process.
1  State officials conducted an 
investigation and canceled the Notice of Intent to Award the 
contract to Maximus. 
 
 On February 5, 1996, Maximus filed this action against 
Lockheed.  In its motion for judgment, Maximus alleged that 
Lockheed had tortiously interfered with its contract expectancy 
with DSS.
2  Maximus claimed that Lockheed knew, or had reason to 
know, that the allegations advanced in its formal protest were 
false, that the false allegations were intentionally and 
selectively presented to create an appearance of impropriety, and 
that the protest was calculated to wrongfully interfere with 
Maximus' contractual relationship with DSS so that DSS would 
award the contract to Lockheed instead.  Lockheed filed a 
demurrer, asserting in part that it filed its protest pursuant to 
a statutory right and was, therefore, entitled to absolute 
immunity or privilege based on both the protections afforded 
government petitioners established in Eastern Railroad Presidents 
Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961), and 
United Mine Workers of America v. Pennington, 381 U.S. 657 
(1965), and the principle that statements made within a judicial 
                     
     
1In its protest, Lockheed alleged that the panel's 
decision was arbitrary and capricious on two other grounds 
which are not relevant to this appeal. 
     
2 Maximus also alleged conspiracy, but that claim is not 
at issue in this appeal. 
 
 
 
 
3 
                    
or quasi-judicial proceeding are protected.  However, that 
portion of the demurrer was denied by the trial court.
3  
 
Following the conclusion of Maximus' case in chief in the 
subsequent jury trial, Lockheed moved to strike the evidence.  
The trial court determined that Lockheed had a "qualified 
privilege" and that Maximus was therefore required to show malice 
or "that the improper conduct is so egregious as to override the 
qualified privilege" in order to reach the jury.  Concluding that 
Maximus had failed to meet this evidentiary burden, the trial 
court sustained the motion to strike and entered judgment in 
favor of Lockheed. 
 
 Maximus filed an appeal claiming that it had presented 
sufficient evidence to establish a prima facie case of tortious 
interference with contract expectancy, and that the trial court 
erred by striking the evidence for failure to show malice as an 
element of the cause of action.  Because we conclude that the 
trial court did not apply the correct standard for determining 
whether Maximus had established a prima facie case for tortious 
interference with contract expectancy, we will reverse the 
judgment of the trial court and remand the case for further 
proceedings. 
 
II. 
 
In reaching its decision, the trial court considered the law 
 
     
3 Lockheed did not assign cross-error to the denial of its 
demurrer; therefore, the issues in the demurrer are not before 
us. 
 
 
 
 
4 
of defamation analogous to the law of interference with business 
relationships and applied principles based on that analogy.  The 
trial court first concluded that Lockheed was entitled to a 
"qualified privilege."
4  According to the trial court, the 
existence of this privilege required the plaintiff to satisfy a 
"different burden," similar to the additional burden of showing 
malice placed upon a plaintiff in a defamation action when a 
qualified privilege is established.  The trial court concluded 
that in this case, the "different burden" should be a "showing of 
malice or a showing that the improper conduct is so egregious as 
to override the qualified privilege."  
 
 The trial court's use of the defamation analogy was based 
on Chaves v. Johnson, 230 Va. 112, 121, 335 S.E.2d 97, 103 
(1985), in which we recognized a similarity between the 
affirmative defense of justification or privilege in a tortious 
interference with contract suit and the defense of qualified 
privilege in a defamation suit.  The similarity, however, arises 
from the circumstances in which the offending words, or in this 
context, the offending conduct, occurs.  In certain 
circumstances, the interests of society require that the question 
of liability be resolved by balancing the rights involved, 
acknowledging that this balancing process may shield a party from 
liability even though he engaged in the offensive acts.  For 
                     
     
4 The record does not reflect the trial court's basis for 
this determination on the specific nature of the qualified 
privilege. 
 
 
 
 
5 
example, in the defamation context, an actor has an absolute 
privilege and is not liable for defamatory statements made in the 
course of a judicial proceeding.  Massey v. Jones, 182 Va. 200, 
204, 28 S.E.2d 623, 626 (1944); Penick v. Ratcliffe, 149 Va. 618, 
627, 140 S.E. 664, 667 (1927).  In the context of causes of 
action involving interference with a business relationship, 
freedom of action is balanced against protection of the business 
relationship involved to determine whether the affirmative 
defense of justification or privilege precludes liability for 
actions which would otherwise be culpable.  Chaves, 230 Va. at 
121, 335 S.E.2d at 103.   
 
Liability determinations in both instances involve balancing 
of interests; however, this similarity neither suggests nor 
demands that the specific requirements for imposition of 
liability in one cause of action must be applied to the other 
cause of action.  Other than acknowledging the similarity, we 
have not extended the defamation law construct to business torts 
and, for the reasons expressed below, we decline to extend it to 
the tortious interference with a contract expectancy cause of 
action at issue here. 
 
We have already rejected imposing an additional evidentiary 
burden in an action for intentional interference with a contract. 
 In Chaves, we determined that malice was not an element of the 
cause of action and also specifically recognized certain 
affirmative defenses of privilege and justification available to 
 
 
 
 
6 
defendants.  Id. at 120-21, 335 S.E.2d at 102-03.  Thus, by 
definition Chaves eliminated any requirement that the plaintiff 
show malice, even if the defendant establishes an affirmative 
defense. 
 
In Duggin v. Adams, 234 Va. 221, 360 S.E.2d 832 (1987), we 
considered the elements of a cause of action for interference 
with a contract terminable at will.  We found that not all 
business relationships are entitled to the same level of 
protection and concluded that a contract not terminable at will 
was entitled to more protection than a contract terminable at 
will.  Id. at 226, 360 S.E.2d at 836.  Reflecting this 
distinction, we held that one of the elements of a cause of 
action for tortious interference with a contract terminable at 
will is that the acts or methods used for the interference must 
themselves be "improper."
5  Id. at 226-27, 360 S.E.2d at 836.  As 
in Chaves, Duggin acknowledged the availability of certain 
affirmative defenses.  Id. at 229, 360 S.E.2d at 838.  Other than 
the "improper methods" requirement, no additional elements were 
imposed to establish a prima facie case, even when an affirmative 
defense was asserted. 
 
Our prior cases, however, have not addressed the level of 
protection or the elements of a cause of action attaching to the 
business interest at issue in this case, a contract expectancy.  
                     
     
5 Not all jurisdictions follow this approach.  See 
Restatement (Second) of Torts § 767 cmt. k (1977). 
 
 
 
 
7 
The Restatement (Second) of Torts § 766B (1977) describes the 
cause of action as follows: 
 
One who intentionally and improperly interferes with 
another's prospective contractual relation (except a 
contract to marry) is subject to liability to the other for 
the pecuniary harm resulting from loss of the benefits of 
the relation, whether the interference consists of  
 
 
(a) inducing or otherwise causing a third person 
not to enter into or continue the prospective relation 
or  
 
 
(b) preventing the other from acquiring or 
continuing the prospective relation. 
 
The Restatement notes that a contract terminable at will is 
"closely analogous" to the business relationship described in 
this section because both are based on an interest in a future 
relationship with no legal assurance of such future relationship. 
 Restatement (Second) of Torts § 766 cmt. g (1977).  We agree.  
 
 The virtual identity of interests and the legal ability to 
enforce those interests in a contract terminable at will and a 
contract or business expectancy lead to the conclusion that the 
level of protection afforded, and the elements of the cause of 
action, should also be the same.  There is no basis to impose an 
additional requirement to differentiate the protection afforded 
to a contract terminable at will and to a contract or business 
expectancy.  
 
Thus, to establish a prima facie cause of action in this 
case, Maximus was required to show that: (1) it had a contract 
expectancy; (2) Lockheed knew of the expectancy; (3) Lockheed 
intentionally interfered with the expectancy; (4) Lockheed used 
improper means or methods to interfere with the expectancy; and 
 
 
 
 
8 
(5) Maximus suffered a loss as a result of Lockheed's disruption 
of the contract expectancy.  Maximus was not required to show 
malice or any other egregious conduct. 
 
The trial court stated at the close of Maximus' case in 
chief that "if this were the end of the case," there was enough 
evidence to submit the issue "whether the conduct of the 
defendants was improper" to the jury.  While it is not clear 
whether this statement referred to the "improper methods" element 
of the cause of action or the ultimate issue of liability, either 
construction shows that the trial court struck the evidence based 
on its belief that Maximus had to produce additional evidence to 
establish a prima facie case.  Accordingly, the trial court erred 
in sustaining Lockheed's motion to strike.
6
 
Nevertheless, Lockheed argues that its motion to strike was 
properly granted because Maximus did not show that Lockheed 
engaged in "improper acts," one of the elements of a prima facie 
case.  Lockheed asserts that to qualify as "improper methods," 
the actions must be illegal or independently tortious, and 
Maximus failed to show that it engaged in such acts.  We reject 
Lockheed's interpretation of "improper methods."  
 
 While we have identified actions as improper which were 
also independently tortious or illegal, Duggin, 234 Va. at 227-
28, 360 S.E.2d at 836-37, we have also identified actions as 
                     
     
6 In light of this holding, we need not address the trial 
court's finding that Lockheed was entitled to a qualified 
privilege.  
 
 
 
 
9 
improper which are not themselves tortious or illegal, such as 
unfair competition or unethical conduct.  Id. at 228, 360 S.E.2d 
at 837.  Nor does the name given the cause of action impart a 
requirement of independently tortious acts.  "Tortious 
interference" means only that the interference was intentional 
and improper under the circumstances, not that the "improper 
methods" used were inherently illegal or tortious.
7  
 
Moreover, to adopt Lockheed's interpretation of "improper 
methods" would either negate the ability of a defendant to use 
some of the recognized affirmative defenses or shift the burden 
of proving an element of those defenses to the plaintiff.  Chaves 
referred to the affirmative defense of justification or privilege 
based on five grounds discussed in the Restatement (Second) of 
Torts §§ 768-72 (1977).  Chaves, 230 Va. at 121, 335 S.E.2d at 
103.  Four of these, including competition, the ground relied on 
by Lockheed here, require the defendant to prove that it did not 
employ "wrongful means."  Restatement (Second) of Torts §§ 768-71 
(1977).  None of our cases suggest that the affirmative defense 
grounds recognized in Chaves are different when raised in an 
action for interference with a contract terminable at will or 
                     
     
7 To limit improper methods as suggested by Lockheed 
returns the cause of action to its status in the nineteenth 
century, when recovery for interference with contract 
expectancy required that the conduct utilized by the interferer 
be "essentially tortious in nature."  That requirement was 
eliminated in 1893, when liability for this cause of action was 
extended to circumstances where the methods used were not 
themselves tortious.  Temperton v. Russell [1893] 1 Q.B. 715 
(Eng.). 
 
 
 
 
10 
with a business or contract expectancy.  While plaintiffs in 
these actions must show that the methods of interference were 
improper, defendants asserting certain affirmative defenses must 
prove that those methods were not "wrongful."  The plaintiff, of 
course, retains the burden of persuasion on the ultimate 
question:  whether the defendant intentionally and improperly, in 
other words tortiously, interfered with the plaintiff's business 
relationship causing loss to the plaintiff.  See Restatement 
(Second) of Torts § 767 (1977); Duggin, 234 Va. at 226-27, 360 
S.E.2d at 836. 
 
Accordingly, for the above reasons, we will reverse the 
judgment of the trial court and remand the case for further 
proceedings consistent with this opinion. 
 
Reversed and remanded.