Opinion ID: 504384
Heading Depth: 2
Heading Rank: 2

Heading: Merits of Jurisdiction/Tortious Interference

Text: 25 1. Jurisdiction: Having hurdled the procedural obstacle, we now turn to the substance of the jurisdiction/tortious interference issue. We consider jurisdiction first. Jurisdiction over Volvo must be established by American Protein by a preponderance of the evidence. In this diversity case New York provides the applicable law. Arrowsmith v. United Press Int'l, 320 F.2d 219, 223 (2d Cir.1963) (en banc). Jurisdiction apparently was based on N.Y.Civ.Prac. L. & R. 302(a)(2) (McKinney 1972), which provides that a New York court may exercise jurisdiction over any nondomiciliary who in person or through an agent commits a tortious act within the state. The jury found that Volvo committed a tortious act within New York when its two executives attended the October Beijer, Inc. Board of Directors meeting in New York City and at that meeting ordered its subsidiary to wind down its affairs. Beijer, Inc. then breached the contract with plaintiff, allegedly with Volvo's approval, constituting a tortious interference by Volvo and Lastvagnar with performance of Beijer, Inc.'s contract with American Protein. Jurisdiction is thus intertwined with the merits of Volvo's liability. See United States v. Montreal Trust Co., 358 F.2d 239, 242 (2d Cir.), cert. denied, 384 U.S. 919, 86 S.Ct. 1366, 16 L.Ed.2d 440 (1966). Volvo argues that its executives who were also Beijer, Inc. directors were merely performing their duties as corporate fiduciaries and that their actions were justified under New York law. 26 These contentions frame two issues: (1) did the decision of the Volvo executives to wind down the affairs of Beijer, Inc. constitute tortious interference with American Protein's contract, and (2) if so, are the actions of these executives attributable to Volvo or did they act solely in their capacities as directors of Beijer, Inc.? Since, as will appear, we conclude that no tortious interference occurred, we need not consider the somewhat metaphysical question of whether a person serving as director of both a subsidiary and a parent corporation can subject the parent to liability by voting at a meeting of the subsidiary's board. 27 2. Tortious Interference: Turning to the merits of the tortious interference claim, we must apply New York conflicts law in this diversity action, see Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941), which holds that the law of the forum with the most paramount interest in the application of its law should be selected, see Knieriemen v. Bache Halsey Stuart Shields Inc., 74 A.D.2d 290, 293, 427 N.Y.S.2d 10 (1st Dep't), appeal dismissed, 50 N.Y.2d 1021, 431 N.Y.S.2d 812, 410 N.E.2d 745 (1980). This forum clearly is New York, as the acts constituting the alleged tort occurred in New York and a New York corporation (Beijer, Inc.) was implicated. Accordingly, the trial court properly applied New York law to the tortious interference claim. 28 The law of New York provides an applicable rule when a possible conflict arises between a director's duty to honor corporate contractual obligations and simultaneously to protect the stockholders' best interests. In such an event, directors of parent companies are released from liability for the contract's dishonor when it results from an effort to protect stockholders, absent a malicious motive. Felsen v. Sol Cafe Mfg. Corp., 24 N.Y.2d 682, 686, 301 N.Y.S.2d 610, 249 N.E.2d 459 (1969). In Felsen the New York Court of Appeals--reversing a judgment on a claim similar to the instant one--explained that the plaintiff could not recover unless it established that the defendant's actions were motivated by malice toward the plaintiff rather than by the preservation of its own economic interest.... Id. at 686-87, 301 N.Y.S.2d 610, 249 N.E.2d 459. In adopting that proposition, the court continued, an individual with an economic stake in the business of another may interfere with a contract that the other business has with a third person if the purpose is to protect the individual's own stake. In other words, terminating a corporate contract in furtherance of an equally important right to act in its own economic interests justifies what would otherwise be actionable. Id. at 687, 301 N.Y.S.2d 610, 249 N.E.2d 459. 29 There is no evidence on the record before us of malice toward American Protein on the part of either Volvo or Lastvagnar. Plaintiff failed to establish a prima facie case of tortious interference with contractual relations because the evidence showed only that Volvo executives on the board of Beijer, Inc. endorsed terminating Beijer, Inc.'s contract with plaintiff for the legitimate business reason that it was losing money. Consequently, the verdicts against Volvo and Lastvagnar for tortious interference with a contractual relationship under Count V of plaintiff's complaint must fail as a matter of law. Those verdicts are reversed. IV 30 We consider finally Counts VI and VII of the complaint, which charged Lycke with fraud and negligent misrepresentation. The jury exonerated Lycke of fraud, but awarded American Protein $200,000 for negligent misrepresentation. 31 Here the alleged misrepresentations submitted for the jury's assessment by the trial court--unfortunately not in interrogatory form--were as follows: 32 (1) Beijer, Inc. was a division of a worldwide network of companies operated by Beijerinvest and that Beijerinvest funded the projects undertaken by these companies; 33 (2) Beijerinvest intended to fund the project and to insure Beijer, Inc. satisfied its obligations under the blood products contract; 34 (3) Beijer, Inc. had wide experience in marketing food products; 35 (4) Beijer, Inc. would be able to market all of American Protein's projected output under the blood products contract for three years; and 36 (5) Beijerinvest's other food companies in Sweden could alone absorb one-third of American Protein's projected output under the blood products contract. 37 Under New York conflicts law, a court must apply the substantive tort law of the state having the most significant relationship with the occurrence and with the parties. Babcock v. Jackson, 12 N.Y.2d 473, 482, 240 N.Y.S.2d 743, 191 N.E.2d 279 (1963); see Machleder v. Diaz, 801 F.2d 46, 51 (2d Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 1294, 94 L.Ed.2d 150 (1987). Given that Lycke is president of a New York corporation and that many of the alleged misrepresentations originated in New York, we conclude that New York law applies. The law of negligent misrepresentation, as enunciated in New York, recognizes that generally there is no liability for words negligently spoken but that there is an exception when the parties' relationship suggests a closer degree of trust and reliance than that of the ordinary buyer and seller. Coolite Corp. v. American Cyanamid Co., 52 A.D.2d 486, 384 N.Y.S.2d 808, 811 (1st Dep't 1976). The speaker must be bound by some relation of duty, arising out of contract or otherwise. White v. Guarente, 43 N.Y.2d 356, 363, 401 N.Y.S.2d 474, 478, 372 N.E.2d 315, 319 (1977). See Mallis v. Bankers Trust Co., 615 F.2d 68, 81-82 (2d Cir.1980), cert. denied, 449 U.S. 1123, 101 S.Ct. 938, 67 L.Ed.2d 109 (1981). If in the course of contract negotiations an employee of one party makes a fraudulent misrepresentation, of course a fraud claim is available, but here the jury rejected APC's fraud claim. In the absence of fraud and in the absence of a special relationship giving rise to a duty, it is up to the party hearing words he deems important to make them part of the contract. 38 Even assuming that the statements set out above were negligently spoken, no cause of action exists under the facts of the instant case. APC fails to allege that there was a special relationship between it and Beijer, Inc. before the contract was signed. Rather, APC took the risk that all contracting parties face: that the other party to the contract might end up in bankruptcy. Since APC alleges nothing more than ordinary arm's length negotiations, its negligent misrepresentation claim fails as a matter of law. Accordingly, the jury award on Count VII of the complaint must be reversed. 39 Finally, our resolution of the counts above obviates the need for addressing appellants' argument that the jury's overall damage award was inconsistent.