Opinion ID: 440317
Heading Depth: 1
Heading Rank: 3

Heading: Justifiable Interference With Contract

Text: 46 The district court made a further ruling that even if the Jewel-Pay Less agreement were binding and valid, Northwest's interference with that agreement would have been justified. The district court cites no legal authorities that support this claim in any way. 15 47 It is not clear exactly what the district court intended by its pronouncement that interference with a merger contract is justified as a matter of law because the marketplace is the proper forum to resolve competing tender offers. One possibility is that the district court is simply reiterating its belief that there is no protected interest in a merger agreement prior to shareholder approval. 16 If so, we have already considered this argument, and need not elaborate further on our holding that under California law, a board of directors may enter into an exclusive merger agreement with the board of another corporation and may, therefore, agree to forbear from entering into competing merger contracts pending shareholder approval. 48 Alternatively, the ruling might be understood to mean that in the view of the district judge, society's interest in promoting competition justifies, as a matter of law, a competitor's interference with an otherwise valid merger agreement. We find no support in California law for such a view. To the contrary, the district court's assertion that the policy of promoting free and competitive markets can legally justify interference with an otherwise valid contract has been specifically rejected by the California Supreme Court: 49 It is well established, however, that a person is not justified in inducing a breach of contract simply because he is in competition with one of the parties to the contract and seeks to further his own economic advantage at the expense of the other. Whatever interest society has in encouraging free and open competition by means not in themselves unlawful, contractual stability is generally accepted as of greater importance than competitive freedom. Competitive freedom, however, is of sufficient importance to justify one competitor in inducing a third party to forsake another competitor if no contractual relationship exists between the latter two. 50 Imperial Ice Co. v. Rossier, 18 Cal.2d 33, 36, 112 P.2d 631 (1941) (citations omitted); accord, Olivet v. Frischling, 104 Cal.App.3d 831, 841, 164 Cal.Rptr. 87 (1980); Winn v. McCulloch Corp., 60 Cal.App.3d 663, 673, 131 Cal.Rptr. 597 (1976); Herron v. State Farm Mutual Ins. Co., 56 Cal.2d 202, 207, 14 Cal.Rptr. 294, 363 P.2d 310 (1961); Restatement (Second) of Torts Sec. 768(2) (1979). 51 We also note that the district court's policy premise, that the sole aim of corporate law in these matters is to promote active competition among corporate conglomerates interested in acquiring new targets is a highly controversial point of view and by no means represents the consensus of courts and commentators that have considered the question. 17 No authority has previously suggested that the market for corporate acquisitions is unbounded by traditional principles of contract and corporate law. It is not the function of the courts to fashion so novel a rule or to resolve the policy disputes that have divided the economic experts. That task, if it is to be performed at all, is best left to the California legislature. 52 We hold that the district court's ruling that society's interests in promoting healthy competition among those seeking to take over existing companies justifies interference with an otherwise valid merger agreement between the boards of directors of two corporations squarely conflicts with the law of California.