Opinion ID: 1615348
Heading Depth: 2
Heading Rank: 3

Heading: Conduct of interfering with business expectancy

Text: For its third point on appeal, Guaranty argues that there was no substantial evidence to support the third element of the tort that Guaranty engaged in improper conduct, which is required to prove interference with business expectancy. Specifically, Guaranty and STAR contend that there is no substantial evidence of a RESPA violation, notably that (1) there was no substantial evidence that Guaranty paid for business referrals and (2) that there was no substantial evidence that Guaranty improperly split settlement service charges. In response, Abstract argues that the evidence overwhelmingly demonstrates that Guaranty and STAR directly established a number of patently shell corporations through which RESPA was violated and illegal referral fees were routinely paid. We require that the defendant's conduct be at least improper. Vowell, 346 Ark. at 277, 58 S.W.3d at 329. In determining whether an actor's conduct is improper, we consider (1) the nature of the actor's conduct; (2) the actor's motive; (3) the interests of the other with which the actor's conduct interferes; (4) the interests sought to be advanced by the actor; (5) the social interests in protecting the freedom of action of the actor and the contractual interests of the other; (6) the proximity or remoteness of the actor's conduct to the interference; and (7) the relations between the parties. Id. At issue in this case is whether Guaranty's actions of creating the Title Max programs, the marketing agreements, and the closing coordinators constitutes improper conduct under Vowell, supra . With regard to the Title Max programs, Guaranty contends that the jury could have found, at best, that Guaranty's misstep would not result in a RESPA violation. However, the testimony at trial illustrates that a RESPA violation may have occurred. Val Hansen, a real estate broker with RE/MAX Properties, testified that he established Pavilion Title and entered into nine or ten transactions in connection with the TitleMax program. He stated that he never asked for any capitalization of Pavilion Title, there never was capitalization of Pavilion Title, there was never any equity developed in the company, and that the net worth of Pavilion was zero when it started and zero when it ended. He further stated that he never designated employees to work at Pavilion Title. Mr. Hansen also testified that he did not have separate offices for Pavilion Title, did not pay any rent anywhere for any space, and did not do any business with any customers other than those who were clients of his real estate company. He admitted that his disclosure let people know that he owned Pavilion Title, but that disclosure did not mention Stewart Title. Mr. Hansen further testified that he signed service agreements in advance. He admitted that he stopped participating in the program when he heard other people in the industry not speaking favorably about this program. Jeff Fuller, a real estate broker of Agentonline.realty, testified about his involvement in the TitleMax program and with STAR. He testified that he met with Mr. Harris in January 2001, and upon entering the TitleMax program, he established a company called Pulaski Title LLC. Mr. Fuller stated that the business was a STAR-approved Stewart Title insurer, and that he began and ended Pulaski Title with zero capital investment. Jim Pender, a former Stewart Title agent and a lawyer who primarily works in the title closing business, testified at length about his discussion with Bill Bozeman, the regional legal counsel for Guaranty, about Mr. Pender's belief that the Title Max program was illegal under RESPA. Jim Pender testified that TitleMax was a Guaranty company program whereby Guaranty would make an offer to a real estate agent or a mortgage company to become a TitleMax agent, and they would be paid money for the business they received under the TitleMax program. Mr. Pender testified that he believed this program violated RESPA. Mr. Pender further testified that Guaranty did not have much success in the market until it implemented these programs. He further stated that his own business suffered substantial losses after Guaranty implemented these programs. Finally, Mr. Adkins of Abstract testified that Mr. Rainey brought a copy of the Title Max program to Mr. Adkins, and Mr. Adkins reviewed it, we shared information among ourselves, had also legal counsel on it, [and] decided it was not the proper thing for us to do, and my opinion, I thought it was inappropriate. I don't think that's a fair playing field for title insurance companies or anyone else to be in. With regard to Guaranty's marketing agreements with Rainey Realty and Real Estate Central, these programs were established through rental arrangements and split-advertising to hide Guaranty's payments to brokers for referrals. Eugenia Williams, a realtor with Coldwell Banker and former employee at Rainey Realty, testified that she often conducted business with Billy Roehrenbeck at Abstract. She also testified that she routinely used Abstract until she was asked by Rainey to send business to STAR. Ms. Williams further testified that, during one closing, she questioned Mr. MacKinder on whether Stewart should conduct the closing, and Mr. MacKinder got very upset, very agitated, and almost came forward on the desk. Mike Harris testified that he placed STAR's closing coordinators with Rector Phillips Morse. Kelli Greenwood, one of STAR's closing coordinators, testified that she was paid separately for each closing. Travis Bailey, the president of Beach Abstract and Guaranty Company, testified: Q: And what effect have they [Guaranty and STAR] had on competition, and describing it to the extent that the jury can understand it. A: If you, if you have an affiliation with someone that potentially can control the transaction, there's not any way you can compete with that. Q: Would you please explain? A: If, if a company is associated, for example, with a realtor and that realtor controls normally where that transaction goes to close, then that realtor is not going to send it to a competitor. Q: Well, why don't you just go in and pay more than the other? A: We don't pay for our business. Q: Why not? A: Because I'm under the impression that's illegal. Additionally, Grant Mitchell, an attorney with Schlotsky and Buckman in Washington, D.C., and a former HUD senior attorney who has been a long time adviser in real estate matters, including RESPA, testified on the issue of kickbacks in the marketing industry. He stated: [Kickbacks are] [e]ssentially anything of value. The term of art is a thing of value. If you give anybody a thing of value in exchange for the referral of business, that's a[HUD] violation. Also, a kickback in exchange for giving business, or splitting a fee when you did not perform any service. All these are violations of RESPA. Thus, in light of the foregoing testimony, the jury discerned that Guaranty engaged in the following conduct: (1) the establishment of the Title Max programs through which shell corporations were formed, (2) entering into marketing agreements with realty companies that allegedly disguised referral kickbacks, and (3) the introduction of closing-coordinator plan through which those coordinators were paid referrals. Therefore, we hold that there was substantial evidence to support the jury's finding that Guaranty engaged in improper conduct as described in Vowell, supra . Further, we conclude that Guaranty's conduct is distinguishable from the privilege to compete, as Prosser defines the term. Abstract did not simply [get] some competition and start[ ] to lose business, as the dissent suggests. Here, the testimony reveals that Guaranty, with knowledge, engaged in allegedly illegal conduct to buy its own customers through the use of shell corporations, kickback schemes, and referral deals. What Guaranty called an aggressive marketing campaign morphed into what many witnesses viewed as desperate acts of illegality to save a distressed business. This highly improper conduct can hardly be viewed under the auspices of fair advertising or free-market competition.