Opinion ID: 526511
Heading Depth: 1
Heading Rank: 3

Heading: State Law Claim for Intentional Interference with Contractual Relationship

Text: 25 In addition to its verdict for the State of South Dakota on the antitrust claim, the jury awarded $244,200,000 on SD's state law claim of intentional interference with a contractual relationship. This amount is composed of the sum of $200,000,000 in actual damages; $10,900,000 in loss of sales, use, and contractor's excise tax that would have been generated from construction of the West River Aqueduct; $8,300,000 in prejudgment interest; and $25,000,000 in punitive damages. 26 The relationship with which KCS allegedly interfered was based on the SDCD/ETSI contract. The State argues that but for KCS' petitioning activities against ETSI, the pipeline project would have proceeded and South Dakota would have reaped the full worth of its contract with ETSI. KCS, relying on the provisions of the Flood Control Act, 22 contends that there was not a valid contractual relationship which could have been interfered with because South Dakota did not have any water rights in the Oahe water to assign. Although the use of the surplus water within the Oahe Dam was the essential ingredient and sole purpose of the contract, KCS overlooks the fact that the contract provided other benefits to ETSI (for which it has paid substantial consideration). Additionally, South Dakota promised its cooperation and assistance to ETSI in securing a water source. The use of Madison water involved a number of potential difficulties, not the least of which would have included South Dakota's opposition. Furthermore, ownership and control as between state and federal authorities over Oahe water was far from settled. Under the contract, the State not only ended its opposition to the pipeline but in fact agreed to use whatever power it had to assist ETSI's efforts to secure permission to use Oahe water from the federal authorities. 27 This court has observed that South Dakota seems to have adopted the Restatement (Second) as its statement of the tort of interference with contractual relations. Cutter v. Lincoln Nat'l Life Ins. Co., 794 F.2d 352, 356 (8th Cir.1986) (citing Johnson v. Schmitt, 309 N.W.2d 838 (S.D.1981)). See also Groseth Int'l, Inc. v. Tenneco, Inc., 410 N.W.2d 159, 172 (S.D.1987). The Restatement (Second) of Torts Sec. 766B provides: 28 One who intentionally and improperly interferes with another's prospective contractual relation (except a contract to marry) is subject to liability to the other for the pecuniary harm resulting from loss of the benefits of the relation, whether the interference consists of 29 (a) inducing or otherwise causing a third person not to enter into or continue the prospective relation or 30 (b) preventing the other from acquiring or continuing the prospective relation. 31 The factors to be considered in determining whether the interference was improper include: 32 (a) the nature of the actor's conduct, 33 (b) the actor's motive, 34 (c) the interests of the other with which the actor's conduct interferes, 35 (d) the interests sought to be advanced by the actor, 36 (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other, 37 (f) the proximity or remoteness of the actor's conduct to the interference and 38 (g) the relations between the parties. 39 Restatement (Second) of Torts Sec. 767 (1979). For purposes of applying the Restatement (Second) of Torts, it is essential to acknowledge the fact that the contractual relationship in the instant case was terminable at will. One's interest in a contract terminable at will is primarily an interest in future relations between the parties, and he has no legal assurance of them. For this reason, an interference with this interest is closely analogous to interference with prospective contractual relations. Restatement (Second) of Torts Sec. 766 comment g (1979). 40 In the spirit contained in Restatement (Second) of Torts Sec. 767(e), there are certain privileged activities which may result in interference of contractual relationships but which shall not incur liability. One such activity involves the first amendment right to petition the government for redress of grievances. The Noerr-Pennington doctrine 23 has been applied in evaluating whether this particular activity is entitled to protection from liability. 24 Missouri v. National Org. for Women, Inc., 620 F.2d 1301, 1317-19 (8th Cir.1980). 25 See also Gorman Towers, Inc. v. Bogoslavsky, 626 F.2d 607, 614-15 (8th Cir.1980); Surgidev Corp. v. Eye Technology, Inc., 625 F.Supp. 800, 802-05 (D.Minn.1986); First Nat'l Bank of Omaha v. The Marquette Nat'l Bank of Minneapolis, 482 F.Supp. 514, 524-25 (D.Minn.1979). This exemption shall not apply, however, if the petitioning activities in question were sham and in fact solely intended to cause injury to competitors rather than to obtain governmental action. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 108 S.Ct. 1931, 1937 n. 4, 100 L.Ed.2d 497 (1988). The sham exception shall apply where defendant's resort to the courts and agencies  'is so clearly baseless as to amount to an abuse of process   .'  Razorback Ready Mix Concrete Co. v. Weaver, 761 F.2d 484, 487 (8th Cir.1985) (quoting Chest Hill Co. v. Guttman, 1981-2 Trade Cas. (CCH) p 64,417 (S.D. Ohio May 29, 1981)). 41 KCS' initial opposition to the ETSI coal slurry pipeline project involved its participation in defending the title actions beginning in the mid-1970's. The railroads failed to prevail in any of these actions. In the late 1970's, this window litigation began to wind down and was replaced by activity in the administrative forum. From that time until the early 1980's, KCS was involved in over thirty federal and state agency proceedings relating to the coal slurry pipeline. KCS' most significant effort in this regard involved its opposition to ETSI's proposed Environmental Impact Statement. As discussed earlier, KCS had been joined in this effort by the State of South Dakota until the SDCD/ETSI contract was executed in December, 1981. 42 To support its allegation of sham petitioning by KCS, SD points to the window litigation and administrative proceedings described above. Certainly the legitimacy of these activities is subject to debate. See In re Burlington Northern, Inc., 822 F.2d 518 (5th Cir.1987), cert. denied sub nom. Union Pac. R.R. Co. v. Energy Transp. Sys., Inc., --- U.S. ----, 108 S.Ct. 701, 98 L.Ed.2d 652 (1988). 26 However, we find that a determination of whether these pre-December, 1981, activities constitute sham petitioning is irrelevant to the issue of whether the State of South Dakota may raise a claim of improper interference with contractual performance. The SDCD/ETSI contract was not executed until December 23, 1981. Consequently, regardless of whether KCS' conduct prior to that date can be characterized as sham, we are confined to consider only those activities that took place between December 23, 1981, and July 31, 1984: the period between the date of execution and date of termination of the SDCD/ETSI contract. 27 43 During the period in which the contract was in effect, KCS continued to participate in a number of the administrative proceedings which had been commenced earlier in the decade. Again, its most prominent involvement related to the final stages of the EIS proceedings. These activities, however, were gradually being displaced by KCS' participation in the Andrews litigation which challenged ETSI's contract with the Bureau of Reclamation. The action for a permanent injunction barring performance of the BOR/ETSI contract was filed on August 18, 1982. The events in this case moved quickly and, on May 3, 1984, the United States District Court for the District of Nebraska enjoined performance of the contract. Missouri v. Andrews, 586 F.Supp. 1268 (D.Neb.1984), aff'd, 787 F.2d 270 (8th Cir.1986), aff'd sub nom. ETSI Pipeline Project v. Missouri, 484 U.S. 495, 108 S.Ct. 805, 98 L.Ed.2d 898 (1988). The record leaves little dispute that the district court's decision in Andrews was the single most important event immediately preceding the termination of the ETSI coal slurry pipeline project. Similarly, the record makes clear that, in examining KCS' overall activities between late-1981 and mid-1984, the Andrews litigation was by far the dominant component of those activities. Indeed, roughly one-third of the administrative actions mentioned above were directly related to the Andrews litigation. 44 We need not reach KCS' claim that the State's contract was null and void because only the Corps of Engineers could contract for the use of the water. 28 We hold as a matter of law that KCS' activities following December, 1981, in opposing the pipeline (1) had no significant or proximate causal relation to the cancellation by ETSI of the SDCD/ETSI contract and, even if they did contribute to the cancellation of the contract, (2) KCS' activities in the Andrews litigation were protected by the Noerr-Pennington doctrine. 45 First, we find that the successful Andrews litigation which enjoined the BOR/ETSI contract for use of the Oahe water never involved the formal adjudication of whether KCS had standing to participate as a party in the litigation. Although the district court originally held KCS did not have standing, it thereafter vacated its order and held that in the interests of judicial economy the court would reserve a decision on standing until one needs to be made. SD brief at 29 n. 21. This court, in affirming the permanent injunction of the contract, held that the issue of KCS' standing was superfluous. Missouri v. Andrews, 787 F.2d at 274. Thus the Andrews litigation which brought the pipeline project to a sudden halt was successful through the efforts of the various plaintiff states: Missouri, Iowa, and Nebraska. The efforts to obtain standing by KCS were de minimis as a matter of law and at best only remotely related to ETSI's withdrawing from the contract. This determination renders KCS' motive in pursuing its right to join in the suit irrelevant. Furthermore, any impropriety in KCS' efforts to obtain standing was mooted by the successful litigation of the named party plaintiffs. In so holding, we do not overlook situations in which a party might unreasonably assert standing, and in which such conduct could be deemed harassment as a matter of fact and would therefore be unprotected by the Noerr-Pennington doctrine. See Comment, Meritorious Litigation as a Section 2 Violation--In re Burlington Northern, Inc. Broadens Noerr-Pennington's Sham Exception, 74 Iowa L.Rev. 271, 278 (1988). 29 However, KCS' efforts were formally aborted and they were not one of the successful parties. Their efforts to become formal parties in the litigation to enjoin the SDCD/ETSI contract, successful or unsuccessful as they may have been, could hardly be deemed a proximate cause of ETSI's decision to terminate the contract. 46 In In re Burlington Northern, Inc., 822 F.2d 518 (5th Cir.1987), the Union Pacific Railroad, although not a formal party in Andrews, was found to have assisted the State of Nebraska in the litigation. 822 F.2d at 530-32. Assuming the record would support a similar factual finding with regard to KCS in the present case, we move to the second ground of our holding: KCS' participation in the Andrews litigation did not, as a matter of law, constitute sham petitioning and was fully protected by the first amendment. 47 South Dakota urges this court to adopt the reasoning contained in Burlington Northern. In Burlington Northern, the Fifth Circuit was asked to review the district court's denial of a discovery motion in an antitrust action brought against the railroads by ETSI and the southern utility companies. The court, which considered all of the petitioning done by the railroads from the mid-1970's until the mid-1980's, found that the totality of these activities could constitute sham. It remanded the case for further findings relating to the petitioners' subjective intent so as to determine whether the actual desire for relief was a significant factor in the underlying petitioning. Id. at 534. So long as such a desire existed, the issue of whether the petitioners also possessed anticompetitive motives is irrelevant. Id. at 528. Thus, SD argues that even if the petitioning in question is successful there nonetheless remains a factual question as to whether the petitioner's subjective intent was solely to harass and interfere with a defendant's business relationship, or whether the petitioner possessed an actual desire and a justifiable expectation for judicial relief. Comment, supra at 278-79. 48 Although this circuit has indicated that intent is the critical factor in assessing sham litigation, Mark Aero, Inc. v. Trans World Airlines, Inc., 580 F.2d 288, 297 (8th Cir.1978), we have not extended sham analysis to require submission of factual intent to the degree urged by South Dakota. In fact, this court has granted a summary judgment under an analogous circumstance where litigation was successful and consequently deemed to preclude a finding of sham or unlawful intent. Razorback Ready Mix Concrete Co. v. Weaver, 761 F.2d 484, 487 (8th Cir.1985). 30 49 However, even if we were to apply SD's interpretation of the Fifth Circuit's analysis in Burlington Northern, when the pre-December, 1981, petitioning activities are excluded we must hold that no evidence exists in the record in this case to suggest that KCS did not possess the intent to succeed in the Andrews litigation. In so holding we deem it significant that in Burlington Northern the parties were merely at the pretrial stage and the court was appraising sham litigation in terms of whether there was sufficient evidence based on the totality of KCS' petitioning activities to allow discovery as to KCS' intent. The court already had evidence of improper intent of KCS manifested by the pre-1982 window litigation. It was dealing with the overall allegation of an antitrust conspiracy extending through the entire record from the mid-1970's to 1984. Here the window litigation is immaterial, as was any involvement with the EIS proceedings in which SD joined with KCS in opposing ETSI project. The significant portion of these activities occurred before the execution of the SDCD/ETSI contract in December, 1981. There is no evidence to prove that KCS' involvement in the Andrews litigation following December, 1981, was not significantly motivated by a desire to prevail on the merits. Moreover, the plaintiffs did prevail in Andrews, thereby proving that there was a reasonable basis for the lawsuit. See Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 743, 749, 103 S.Ct. 2161, 2170, 2173, 76 L.Ed.2d 277 (1983); Razorback Ready Mix Concrete Co. v. Weaver, 761 F.2d 484, 487 (8th Cir.1985); Columbia Pictures Indus., Inc. v. Redd Horne, Inc., 749 F.2d 154, 161 (3d Cir.1984); Omni Resource Dev. Corp. v. Conoco, Inc., 739 F.2d 1412, 1414 (9th Cir.1984); Taylor Drug Stores, Inc. v. Associated Dry Goods Corp., 560 F.2d 211, 213-14 (6th Cir.1977); Edward B. Marks Music Corp. v. Colorado Magnetics, Inc., 497 F.2d 285, 290-91 (10th Cir.1974). Consequently, we hold as a matter of law that KCS' petitioning in the Andrews litigation was not sham and was fully protected under the first amendment because a significant factor in pursuing the action was the actual desire to obtain judicial relief and there was a reasonable basis for the action. 50 We therefore conclude that the judgment of the district court should be vacated on the grounds that (1) the State of South Dakota had no standing to bring the antitrust claim and (2) the evidence fails to show that KCS improperly interfered with the SDCD/ETSI contract through the petitioning activities occurring after December 23, 1981. 51 Judgment reversed and dismissed; the district court is instructed to enter judgment for the defendants.