Opinion ID: 1535019
Heading Depth: 1
Heading Rank: 7

Heading: The Tortious Interference Claim Against Knightsbridge

Text: The plaintiffs' second claim against Knightsbridge alleges that Knightsbridge tortiously interfered with Frederick's stockholders' prospective opportunity to obtain a higher price for their shares from Veritas. The Court of Chancery dismissed this claim, holding that the plaintiffs did not have a valid business expectancy because there is no lawful way that Frederick's could have circumvented Knightsbridge's power (and, as the majority stockholder, its right) to vote down any transaction it did not favor. [86] Although we agree with the court's conclusion, our analysis differs slightly. To survive dismissal, a claim for tortious interference with business relations must allege: (a) the reasonable probability of a business opportunity, (b) the intentional interference by defendant with that opportunity, (c) proximate causation, and (d) damages. [87] We apply these elements to a particular case in light of a defendant's privilege to compete or protect his business interests in a fair and lawful manner. [88] In this case, we conclude that the complaint does not support an inference that Knightsbridge's alleged interference proximately caused Frederick's stockholders to lose the expected benefit of the Veritas' bid. The first element raises a timing question: At what point is the probability of the business opportunity measured? By holding that there was no valid business expectancy because the board did not have a duty to circumvent Knightsbridge's majority voting interest, the trial court implicitly assessed the likelihood of a superior bid at a point after Knightsbridge acquired its majority voting stake on September 9, 1997 and after Knightsbridge effectively gained control over the Trusts' shares on September 3, 1997. [89] We believe that the probability of the business opportunity must be assessed at the time of the alleged interference. In this case, the alleged interference  Knightsbridge's misrepresentation of its ownership rights and its litigation threats against the board  occurred before September 3, 1997. [90] We therefore assume, without deciding, that the complaint alleges sufficient facts supporting an inference that, at the time of the alleged interference, Frederick's stockholders could reasonably expect to benefit from the possibility of a higher Veritas offer. [91] The next question is whether the amended complaint alleged sufficient well-pleaded facts to support an inference that Knightsbridge had interfered with the stockholders' expectancy. With respect to this element of the tortious interference claim, the trial court correctly concluded that Knightsbridge's valid acquisition of a majority stake in Frederick's does not constitute interference, and its threat to enforce its rights under the June 1997 merger agreement was lawful. [92] But the amended complaint also alleges that Knightsbridge falsely asserted that it had acquired more than 40% of the voting stock in Frederick's and that its approval is necessary before any transaction may be consummated. The amended complaint further alleges that Knightsbridge threatened to use its purported voting power to block competing bids. According to the plaintiffs, Knightsbridge deliberately misrepresented its voting interest in Frederick's as a means to prevent the board's acceptance of superior bids and to forestall the implementation of a poison pill defense. Although these allegations may support an inference that Knightsbridge intentionally interfered with the auction process, that is not the end of the inquiry. The final question is whether the amended complaint adequately alleges that Knightsbridge's interference (that is, its misrepresentation) proximately caused Frederick's stockholders to lose the expected benefit of Veritas' superior bid. This question turns on whether Knightsbridge's misrepresentation could have caused the Frederick's board to reject Veritas' higher bid in favor of the lower Knightsbridge bid. [93] In some circumstances, Knightsbridge's alleged misrepresentation that it controlled more than 40% of the voting shares (combined with its expressed intent to block competing offers) could conceivably have influenced the board's decision to approve the Knightsbridge offer and to end the auction. But, in this case, Knightsbridge actually did acquire the Trusts' shares on September 4, 1997  two days before the board accepted Knightsbridge's September 6 offer. Since Knightsbridge effectively remedied its earlier misrepresentation well before the board acted, we conclude that the alleged misrepresentation could have had no effect on the board's decision to accept the Knightsbridge offer. Thus, in our view, the plaintiffs' tortious interference claim fails as a matter of law because the allegations in the amended complaint do not support an inference that Knightsbridge's misrepresentation proximately caused the board to accept the Knightsbridge offer and to reject the higher Veritas offer.