Opinion ID: 752950
Heading Depth: 2
Heading Rank: 3

Heading: Second Cause of Action: Tortious Interference with Contractual and Prospective Business Relations

Text: 53
54 Defendants GMI, Gallen and Brockway, against whom Hannex's second cause of action is directed, argue that because Hannex was not to be a party to the proposed 1988 distribution agreement, Hannex cannot claim that they tortiously interfered with Hannex's contractual and prospective relations with S & S Japan. We disagree. 55 First, we agree with Hannex that this claim was properly before the district court. The pretrial order defined the issues to be tried as including S & S Japan's failure to assign the 1985 Agreement and Yamaguchi's failure to sign the 1988 distribution agreement, due to the GMI Defendants' interference. While Hannex's claim that the GMI Defendants interfered with Hannex's existing contractual rights fails, in light of the JCAA's decision that Hannex had no contractual rights, this ruling does not preclude Hannex's claim based on its prospective business relations with S & S Japan. 56 To state a claim for tortious interference with prospective business relations, a valid contract is not necessary. See NBT Bancorp Inc. v. Fleet/Norstar Fin. Group, Inc., 87 N.Y.2d 614, 621, 664 N.E.2d 492, 496, 641 N.Y.S.2d 581, 585 (1996); Guard-Life Corp. v. S. Parker Hardware Mfg. Corp., 50 N.Y.2d 183, 190-91, 406 N.E.2d 445, 448-49, 428 N.Y.S.2d 628, 632-33 (1980). Further, it is not necessary for Hannex to prove that it would have been a party to any future contract with S & S Japan. Rather, it is well-settled that a plaintiff can recover if that plaintiff can prove that the defendant tortiously interfered with a continuing business or other customary relationship not amounting to a formal contract. Restatement (Second) of Torts § 766B cmt. c (1979); see also PPX Enters., Inc. v. Audiofidelity Enters., Inc., 818 F.2d 266, 270 (2d Cir.1987). According to the Restatement, to which the New York Court of Appeals has generally looked in defining the scope of the cause of action, see Guard-Life, 50 N.Y.2d at 190-92, 406 N.E.2d at 448-49, 428 N.Y.S.2d at 632-33, [i]t is not necessary that the prospective relation be expected to be reduced to a formal, binding contract. Restatement (Second) of Torts § 766B cmt. c. Accordingly, the tort encompasses the kind of conduct alleged here, including interferences with ... the opportunity of selling or buying ... chattels or services, and any other relations leading to potentially profitable contracts. Id. 57 Here, although Hannex did not have a contract with S & S Japan, Hannex controlled the distribution of S & S Japan's products in the United States through Hannex's other contractual relationships. Further, although Hannex did not have a formal contract with S & S Japan, Jack Hannes testified that S & S Japan dealt with Hannex as a co-distributor in the United States. In many countries, Yamaguchi dealt with distributors without written contracts. Regardless of whether or not Hannex would have been a party to any future contract, Hannex lost a valuable business relationship when S & S Japan signed the exclusive distribution agreement with GMI. 58 Moreover, a jury could conclude that Hannex would have directly benefited under the proposed distribution agreement. Although Yamaguchi at first misunderstood who was to be a party to the distribution agreement, once he knew that New S & S USA, Hannex's subsidiary, was to be a party--rather than Salvo's former company, S & S USA--Yamaguchi instructed Jack Hannes to obtain a release from Salvo. According to Martin Hannes, New S & S USA was incorporated as the wholly owned subsidiary of Hannex to allow Hannex to continue using the S & S USA name in distributing S & S Japan's products in the United States. Martin Hannes explained the nature of this relationship to Yamaguchi, and Hannex would have directly benefited under the contract, through New S & S USA. Accordingly, the second cause of action cannot be dismissed simply because Hannex was not named in the proposed agreement.
59 The district court dismissed Hannex's second cause of action because it determined that Hannex introduced insufficient proof that Defendants engaged in criminal or fraudulent conduct. We believe that Hannex adduced sufficient evidence to prove fraudulent conduct. 60 To state a claim for interference with contractual and prospective business relations against a competitor, the alleged tortfeasor must employ wrongful means. See NBT Bancorp, 87 N.Y.2d at 624, 664 N.E.2d at 497, 641 N.Y.S.2d at 586; Guard-Life, 50 N.Y.2d at 190-91, 406 N.E.2d at 448-49, 428 N.Y.S.2d at 632; PPX, 818 F.2d at 269; see also Nifty Foods Corp. v. Great Atl. & Pac. Tea Co., 614 F.2d 832, 838 (2d Cir.1980). The definition of wrongful means under New York law includes physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure. Guard-Life, 50 N.Y.2d at 191, 406 N.E.2d at 449, 428 N.Y.S.2d at 632; see also NBT Bancorp, 87 N.Y.2d at 624, 664 N.E.2d at 497-98, 641 N.Y.S.2d at 586-87 (quoting definition in Guard-Life ). In PPX, we noted in dicta that under New York law [i]f the defendant's interference is intended, at least in part, to advance its own competing interests, the claim will fail unless the means employed include criminal or fraudulent conduct. 818 F.2d at 269 (citations omitted). 9 61 As we outlined above, Hannex adduced sufficient proof for a jury to conclude that Salvo knowingly breached his fiduciary duty and that GMI, Gallen and Brockway knowingly participated in the breach. A knowing breach of fiduciary duty may also, if it satisfies the usual common law elements, amount to a fraud or misrepresentation. See Gordon v. Bialystoker Ctr. & Bikur Cholim, Inc., 45 N.Y.2d 692, 698, 385 N.E.2d 285, 288, 412 N.Y.S.2d 593, 596-97 (1978) (stating that under New York law, where a fiduciary relationship exists between parties, the law of constructive fraud applies); see also Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 275-76 (2d Cir.1992) (noting that breach of a fiduciary duty may constitute a fraud in the context of ERISA); United States v. Chestman, 947 F.2d 551, 571 (2d Cir.1991) (holding that a knowing breach of fiduciary duty may constitute a fraudulent scheme for purposes of the federal mail fraud statutes). Therefore, in this case, if a jury were to find the Defendants tortiously interfered with Salvo's fiduciary duties to Hannex, they could also find that such interference constituted wrongful means sufficient to support a tortious interference with contractual and prospective business relations claim. 62 Briefly, the circumstantial evidence adduced to support the tortious interference with fiduciary duty claim, viewed in the light most favorable to Hannex, arguably showed that the GMI Defendants actively participated in the alleged breach, in that they were on notice that Salvo was not supposed to meet with them and that Hannex did not want them talking to Yamaguchi, and they received numerous Hannex documents from Salvo. Furthermore, a jury could conclude that both Hannex and arguably S & S Japan were actively misled about Salvo's role in this. Defendants' use of the information provided by Salvo was critical to Defendants' ability to wrest prospective business relations from Hannex, and afford them to GMI. Accordingly, based on this same evidence, a reasonable jury could find that Defendants' conduct was sufficient to support the tortious interference with contractual and prospective business relations claim. Therefore, it was error to dismiss the second cause of action.