Opinion ID: 600744
Heading Depth: 3
Heading Rank: 2

Heading: Hartford's Legitimate Business Motive and Interests

Text: 61 Our cases accord substantial deference to defendants whose conduct, despite its conflict with plaintiff's interest, protects an existing legitimate business concern. 62 Thus, in Nathanson v. Medical College of Pennsylvania, we attached significance to the fact that defendant's interfering conduct was directed at protecting its legitimate business interests. 926 F.2d 1368 (3d Cir.1991). There, a medical student admitted to defendant MCP, after matriculating, obtained a one-year leave of absence. Id. at 1373. During the course of her leave, the student applied and was accepted to Georgetown Medical School. When MCP learned of her acceptance to Georgetown, MCP informed Georgetown that plaintiff held a position in MCP's entering class. Id. at 1376. Georgetown subsequently withdrew its offer of admission and plaintiff sued MCP for tortious interference based on MCP's communication with Georgetown. 63 The district court, emphasizing the interests sought to be advanced by MCP, found that MCP had acted to protect[ ] its own contractual interest. Id. at 1388 (relying on § 767(d)). We affirmed the district court, observing that MCP was simply complying with the standard 'traffic rules' followed by medical schools.... Id. at 1391. 64 We also emphasized the importance of allowing actors freedom to protect their legitimate business interests in Green v. Interstate United Management Services Corp., 748 F.2d 827 (3d Cir.1984). There, the defendants determined that their wholly-owned subsidiary had entered a bad bargain when it negotiated a lease with plaintiff. The defendants instructed their subsidiary not to sign the lease even though the subsidiary had orally agreed to sign. Overturning a jury verdict of tortious interference, we reasoned that defendants' motive, plainly, was to prevent dissipation of the resources of their wholly-owned subsidiary. In this case, 'the social interests in protecting the freedom of the actor' outweigh 'the contractual interests of the other.'  Id. at 831 (quoting § 767(e)). Thus, in the context of relations between parent and subsidiary corporations, we recognized an important interest under § 767(e) in allowing an actor freedom to protect its legitimate financial interests notwithstanding the fact that such action resulted in breach of a third party's contract. 65 In Advent Systems Ltd. v. Unisys Corp., we followed the reasoning of Green 14 in a prospective contractual relations case where the parent pressured its subsidiary to terminate contract negotiations. 925 F.2d 670 (3d Cir.1991). We reasoned that the parent's interest in the financial stability of its subsidiary and the need to avoid a situation where the two would be working at cross-purposes justified the disruption of negotiations with [plaintiff]. Id. at 673. 66 Green, Advent, and Nathanson support Hartford's contention that where an actor is motivated by a genuine desire to protect legitimate business interests, this factor weighs heavily against finding an improper interference. These cases also make clear the social interest in allowing an actor freedom to protect its legitimate business interests. See Restatement of Torts (Second) § 767(e). 67 Here the district court analyzed Hartford's motive in implementing the restrictions and concluded that Hartford was actuated by a genuine desire to protect its own financial interests and those of non-market timer contract owners, toward whom Hartford bore a fiduciary obligation. Hartford clearly had a proper motive. 68 Hartford also sought to advance important and legitimate business interests. Hartford and its independent fund advisor, Wellington Management Company, determined that market timing caused increased trading and transaction costs, disruption of planned investment strategies, forced and unplanned portfolio turnover, lost opportunity costs, and subjected a fund's asset base to large asset swings that diminished a fund's ability to provide a maximized return to all contract owners. 69 Hartford's concern with market timing was understandable. Market timer contracts represented only a small fraction of Hartford's 18,887 contracts, but the risks and costs associated with market timing were borne by all contract owners--few shared in market timing's benefits yet all bore its costs. 15 As a fiduciary charged with protecting the interests of all contract owners, Hartford sought to eliminate or diminish the adverse consequences timing activity imposed on contract owners. Hartford monitored the effects of market timing on the funds for two years and concluded it had a negative impact on the management and integrity of the funds. Hartford's independent fund advisor, Wellington, and the funds' board of directors reached the same conclusion. 70 These concerns were shared by others in the mutual fund industry and noted by the Securities and Exchange Commission. See Offers of Exchange Involving Registered Open-End Investment Companies and Unit Investment Trusts, Investment Company Act Rel. No. IC-16504, 53 Fed.Reg. 30,299, 30,301, 30,307 (1988). During the period Hartford devised and implemented its restrictions, other mutual funds such as Fidelity Investments and Vanguard Group began imposing anti-timer restrictions to mitigate the perceived negative effects of unrestricted timing activity. 16 71 Given our conclusion that the nature of Hartford's conduct was not independently wrongful, and the interests Hartford sought to advance were legitimate, we believe that the district court attached inadequate significance to its finding that Hartford acted with a legitimate business motive. 72 In sum, nothing indicates that the interests Hartford sought to advance were illegitimate, or that Hartford, in advancing these interests, acted with an improper motive or through impermissible means. Others in the mutual fund industry shared Hartford's concern with market timing's untoward effects. For these reasons, we hold that Hartford's conduct in imposing the restrictions did not constitute improper interference. We therefore will reverse summary judgment on the tortious interference with contract claim and direct entry of summary judgment in favor of Hartford.