Court Opinion

ID: 4177130
Source: CourtListenerOpinion
Date Created: 2017-06-13 18:08:56.309206+00
Date Added: 2024-06-11T14:39:00.157537
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

KABLE PRODUCTS SERVICES,
INC.,

Plaintiff,

v’

)
)
)
)
)
)
)
TNG GP, a Delaware General ) C.A. No. N16C-05-194 PRW CCLD
Partnership, COMAG )
MARKETING GROUP, LLC, a )
Delaware Limited Liability )
Company, and HUDSON NEWS )
DISTRIBUTORS, LLC, a New )
Jersey Limited Liability Company, )

)

)

Defendants.

Submitted: April 17, 2017
Decided: June 13, 2017

MEMORANDUM OPINION AND ORDER

Upon Defendcmts TNG GP, Comag Marketz'ng Group, LLC, and Hudson News
Distributors, LLC ’s Motions to Dismiss,
GRANTED.

Leslie B. Spoltore, Esquire, Seth A. Niederman, Esquire, Wali W. Rushdan II,
Esquire, Fox Rothschild LLP, Wilmington, Delaware, George J. Kruger, Esquire,
Fox Rothschild LLP, Philadelphia, Pennsylvania (pro hac vice) (argued),
Attorneys for Kable Products Services, LLP.

Steven L. Caponi, K&L Gates LLP, Wilmington, Delaware, Attorney for TNG GP
and Comag Marketing Group, LLC.

Michael F. Bonkowski, Esquire, Nicholas J. Brannick, Esquire (argued), Cole
Schotz P.C., Wilmington, Delaware, Attorneys for Hudson NeWs Distributors.

WALLACE, J.

I. INTRODUCTION

Plaintiff Kable Products Services, lnc. (“Kable”) filed suit against
Defendants TNG GP (“TNG”), Comag Marketing Group, LLC (“Comag”), and
Hudson News Distributors, LLC (“Hudson,” and collectively With TNG and
Comag, “Defendants”). Kable brings three counts against Defendants: Count l
- Conspiracy; Count ll - Tortious lnterference With Contractual Relations; and
Count lll - Tortious lnterference With Prospective Contractual Relations.

Before the Court are the Defendants’ Motions to Dismiss. TNG and Comag
assert that: (l) Kable’s claims include a single allegedly tortious act that does not
meet the requirement of a significant act causing the breach of contract required for
Count ll; (2) mere refusal to deal is not enough to support Count lll; and (3) since
both Counts ll and lll fail, there is no underlying tort to support the allegation of a
civil conspiracy in Count l. TNG additionally claims that because it had no part in
Comag’s ultimate denial of Kable’s application for Wholesaler status, it should be
dismissed entirely. Hudson asserts that it took no actions that Would give rise to a
valid claim against it, and that any facts in the complaint that include Hudson are
not enough to survive a motion to dismiss.

Because Kable has not pled sufficient facts to show that there Was a valid
and enforceable contract to be interfered With, has not pled sufficient facts to show

a significant act interfering With prospective contractual relations, and cannot,

therefore, support a claim for civil conspiracy, the Court GRANTS the
Defendants’ Motions to Dismiss as to all counts.
II. FACTUAL AND PROCEDURAL BACKGROUND

A. INI)USTRY BACKGROUND; KABLE AND HGR BUSINESS MoDEL.

Kable is in the product fulfillment and repackaging business for consumer
products. lt provides logistic and delivery service for the magazine publishing
industry.l Comag is a national distributor for large publishers;2 TNG is Comag’s
majority owner;3 Hudson is Comag’s minority owner.4

ln February 2015, Michael Duloc (“Duloc”) acquired all of Kable’s assets.5
Soon thereafter, he Was approached to participate in a new business model that
could possibly cut costs and increase market efficiencies.6 ln anticipation of doing

so, Duloc spoke With representatives from Hudson Group Retail, LLC (“HGR”).7

 

‘ Pl.’s Am. Compl. 11 11.

2 Pl.’s Am. Compl. 11 3; Hudson News Distributor’s Opening Br. in Supp. of its Mot. to
Dismiss Pl.’s Am. Compl at 4 [hereinafter Hudson Br.].

3 Hudson Br. at 4.

4 Id.

5 Pl.’s Am. Compl.1l 15.
6 Id.

7 Pl.’s Am. Compl. 11 l6. HGR is not affiliated With Hudson, a defendant in this action.

-4_

At the time of the discussion between Duloc and HGR, TNG already
provided some of HGR’s news distribution services.8 But the contract between
TNG and HGR was set to expire by December 3l, 2015. “Upon information and
belief,” HGR was not satisfied with TNG’s services and the proposed economics
for renewing its contract with TNG.9

ln or around mid-late 2015, “upon information and belief,” HGR notified a
number of the major publishers and national distributors that used HGR as a
distribution outlet that HGR was considering a business strategy that would result
in structural changes to the news distribution industry.10 HGR sought
non-disclosure agreements with those publishers and informed them that it might
seek “to have magazines shipped directly from publishers to [HGR] through an

”" Kable believes several of the publishers

out-sourced relationship with [Kable].
favorably received the idea.
Based upon subsequent discussions with HGR representatives, Kable alleges

several publishers informed HGR they would support HGR’s new business model.

Kable further alleges additional retailers expressed interest about pursuing a

 

8 Pl.’s Am. Compl.1l l7.
9 Id.
‘0 Pl.’s Am. Compl. ‘H 18.

ll Id

possible business relationship depending on how Kable’s business with HGR
evolved.12

Kable claims that the proposed changes would “directly challenge [HGR’s]
current wholesale suppliers by reducing the need for their services.”13 Kable
claims the new model would directly compete with certain services provided by
those traditional wholesalers and that the proposed changes posed a “direct
challenge to the economic interests of a number of market participants . . .”14

B. THE KABLE-HGR SERVICE AGREEMENTS.

On November 13, 2015, HGR and Kable entered into a Master Services
Agreement (“the November MSA”).15 Kable alleges that the November MSA
“demonstrated [HGR’s] commitment to the business relationship” with Kable and
that the November MSA provided significant economic benefits to Kable.16

On or about November l6, 2015, HGR formally notified Defendant TNG

that it would not renew its contract with TNG after the contract’s December 31,

 

'2 Pl.’s Am. Compl. 11 20.
‘3 Pl.’s Am. Compl. 11 21.
14 ld

‘5 Pl.’s Am. Compl. 11 22.

l6 Id

2015 expiration.'7 HGR informed TNG that Kable would provide selected services
to its account and that HGR would additionally assume any services that TNG
previously provided. Kable claims that HGR’s actions “represented not only the
loss by TNG of a significant contract, but also a broader challenge to its business
and the business model enjoyed by [the other Defendants.]”18

After HGR did not renew its contract with TNG, Comag notified HGR “that
it would refuse to distribute [Comag’s] clients’ titles to [HGR] through [Kable
instead of TNG] since [HGR] was not on the ‘[Comag] approved wholesaler
list.”’19 Comag’s removal from HGR’s distribution business would directly
adversely impact HGR.20 Kable claims that by doing so, Comag intended to
benefit both TNG and Hudson and pressure HGR into continuing its relationship
With TNG.21

Kable alleges Comag “knew that it could exert pressure on [HGR] because

the [Comag] client titles . . . account for a significant percentage of [HGR’s]

 

17 Pl.’s Am. Compl. 11 23.
18 ld.

19 Pl.’s Am. Compl. jj 24. Both TNG and Comag are members of the non-party Jim

Pattison Group. Id.
20 lai

21 Pl.’s Am. Compl. 11 25.

business.”22 Soon after Comag stated it would not ship to HGR via Kable, HGR
formed a separate entity, HG Wholesale Logistics, LLC (“HG Wholesale”). HGR
intended that HG Wholesale, in lieu of HGR, could then receive shipments from
Comag through Kable.23

On or about December 4, 2015, Kable and HG Wholesale entered into a
revised Master Services Agreement (“the December MSA”).24 The December
MSA was intended to replace the November MSA, rendering the November MSA

void.25

C. DEFENDANTS ALLEGEDLY THREATEN KABLE AND INTERFERE wITH ITS
AGREEMENTS.

Kable claims that shortly after Kable and HG Wholesale entered the
December MSA, Defendants “concurrently continued to urge HG Wholesale to
breach the December MSA” through a series of “closely coordinated calls
reflecting an agreed-upon course of concerted action . . . sought to cajole and then
coerce [Kable] into forfeiting certain of its rights under the December MSA.”26

But Kable alleges no facts that sufficiently support this averment.

 

22 ld-
23 Pl.’s Am. Compl. 11 26.
24 ld-
25 lar

26 Pl.’s Am. Compl. 11 27.

What Kable does say is that on or about December 29, 2015, Michael
Korenberg (“Korenberg,” vice-chair of the Jim Pattison Group, which holds TNG
and Comag) called Duloc to inquire if Duloc would be available for a call with him
and James Cohen of Hudson.27 Korenberg told Duloc that Cohen wanted to
discuss how Hudson could offer a solution that would: (l) allow TNG and Kable to
provide distribution and logistics services to HGR; and (2) protect Kable’s
economic interests through the MSAs.28

Duloc agreed to the call. Kable argues that Korenberg and Cohen
acknowledged the existence of the December MSA during that call and understood
its material terms, but again, offers no factual support for those contentions.29
During the call, Cohen allegedly suggested restructuring certain relationships
Duloc expressed some willingness to consider such restructuring, given it was
acceptable to HG Wholesale and did not cause Kable any losses.30

Kable claims Korenberg and Cohen sought a standstill of the Kable-HG

Wholesale relationship to “protect [Kable’s] economics” and “work out issues”

 

27 Cohen has a significant ownership interest in Hudson and a minority interest in Comag.
Additionally, Cohen is a minority shareholder and board member of Dufry AG, the Swiss parent
company of HGR, which created HG Wholesale. Pl.’s Am. Compl. jj 28.

28 Pl.’s Am. Compl. jj 28.

29 Pl.’s Am. Compl. 11 29.

30 Pl.’s Am. Compl. jj 30.

with Kable.31 Allegedly, Cohen proposed that Kable provide certain services to
TNG in exchange for Kable forfeiting certain rights under the December MSA
with HG Wholesale. Cohen allegedly further suggested that pending Kable’s
decision on the offer, there should be a standstill under which TNG and Kable
would continue to service HGR, under the former HGR-TNG contract that Kable’s
December MSA with HGR was supposedly going to replace. Duloc stated he
didn’t understand the standstill and said that Kable continued to enjoy a contract
with HG Wholesale.32

On December 31, 2015, TNG’s David Parry allegedly called Duloc with his
concerns about the December MSA. Parry asked if TNG could do something “to
satisfy [Kable’s] business interest in exchange for [Kable’s] agreement to
withdraw from and/or modify its contractual relationship with HG Wholesale.”33

As a result of these phone calls, Duloc apparently told Korenberg, Cohen,

and Parry that he was committed to being transparent with HG Wholesale. Kable

alleges Duloc suggested a meeting with representatives of TNG, Comag, Hudson,

 

31 Pl.’s Am. Compl. jj3l.
32 Pl.’s Am. Compl. jj 32.

33 Pl.’s Am. Compl. jj 33.

_1()_

and HG Wholesale to discuss the various proposals. That meeting never

happened.34

D. DEFENDANTS ALLEGEDLY CoNsPIRE AND INTERFERE wITH THE
DECEMBER MSA.

Kable claims that because TNG lost its contract with HGR, Defendants
wanted to prevent HG Wholesale from fulfilling its obligations under the
December MSA.35 “Upon information and belief,” but (again) with no tangible
facts recited, Kable claims the Defendants “agreed to a plan of action to pressure
HG Wholesale to breach its obligations under the [December] MSA.”36 And then,
Kable claims, HG Wholesale did, in fact, breach the December MSA. Specifically,
Kable claims HG Wholesale breached § 3.l, related to inventory management and
the associated Statement of Work (“SOW”). Section 3.l of the December MSA
requires HG Wholesale to coordinate the delivery of inventory and maintain a
certain level of inventory at each facility through Kable’s services.37 Kable claims

these actions by the Defendants cost Kable over $4 million in losses.38

 

34 Pl.’s Am. Compl. j 34.
35 Pl.’s Am. Compl. jj 35.
36 Pl.’s Am. Compl. jj 36.
37 Pl.’s Am. Compl. jj 37.

38 Id. Kable calculated this figure through the value associated with lost revenue regarding

computer logistic services, shipping, and production that were to be performed over the two
years of the contract plus potential renewals. Id.

_11_

Kable claims that in early January 2016, TNG contacted a number of
publishers whom it believed may want to enter the distribution process with HG
Wholesale. Kable alleges TNG “suggested the publishers refrain from doing so as
the new business model would harm TNG and require TNG to increase the prices
it charged publishers in order to offset” the loss of HGR’s (and others’) business.39
Kable offers nothing more to support its claim of prospective business relations.

On or about January 18, 2016, Kable alleges one of its representatives
encountered Cohen by mere chance. Kable alleges that at that time, Cohen “made
disparaging remarks” about HGR and HG Wholesale, “asserted in words and
substance that [Kable] was ‘trying to destroy the wholesale distribution system’
and claimed that maj or publishers would refuse to supply [Kable] with product for
distribution.”40 Kable’s representative responded that Kable had commitments
from publishers and reminded Cohen that Kable had a contract with HG
Wholesale. Kable alleges Cohen acknowledged the existence of that contract (the
December MSA), and stated “that it ‘won’t matter’ because publishers would

refuse to distribute” with Kable.41

 

39 Pl.’s Am. Compl. jj 38.
40 Pl.’s Am. Compl. jj 39.

41 Id

_12_

Around that same time, HG Wholesale completed its application to appear
on Comag’s “approved wholesaler list.”42 Kable claims that HG Wholesale
properly completed the application and met all of Comag’s criteria. Yet, Kable
claims, “as part of the Defendants’ plan to cause HG Wholesale to breach the
December MSA, [Comag] rejected HG Wholesale’s application on purely
pretextual grounds” and “assert[ed] several deficiencies, including merchandising
shortfalls,” along with Kable’s software system.43 Kable asserts Comag “licenses a
similar version of this same software from Kable,” which, it surmises, evidences
the pretextual nature of the rejection.44 Kable says nothing more.

Comag’s rejection and refusal to list HG Wholesale as an approved
wholesaler precluded all of its client publishers from distributing through Kable to
HG Wholesale. Kable claims this was a “critical component” of the Defendants’
efforts to cause HG Wholesale to breach the MSA.45 Kable alleges Comag, acting
in concert with TNG and Hudson, intentionally interfered with and deprived Kable
of the benefits of the December MSA and impaired Kable’s ability to expand its
new business model. Unfortunately, it does not offer many, if any, practicable

facts to support this.

 

42 Pl.’s Am. Compl. jj 40.
43 Pl.’S Am. Compl. 11 42.
44 Pl.’s Am. Compl. j 43.

43 Pl.’s Am. Compl. jj 44.

_13_

Kable claims the Defendants warned other publishers who previously
supported Kable’s new model to “refrain from entering into contractual relations
with HGR, lest they suffer adverse economic consequences.”46 Kable asserts this
created a hostile climate for HG Wholesale to perform under the December MSA,
leading to HG Wholesale’s eventual breach.

III. PARTIES’ CONTENTIONS

Defendants argue Kable claims a single allegedly tortious act (Comag’s
denial of HG Wholesale’s application) resulted in breach of` the December MSA.
Further, they say, Count ll fails because if there was any contract at all, it was an
option contract that cannot be interfered with - not a final, enforceable contract
- barring Count lI.

Defendants also claim that Count lll is not supported, because mere refusal
to deal, as Comag did, is not enough to support a claim of tortious interference
with prospective contractual relations. Further, conclusory statements about
prospective business and a “perception” that such business would come to fruition
is not enough to sustain the Count. Lastly, Defendants argue that they were

privileged to openly compete in the market against Kable.

 

44 Pl.’s Am. Compl. jj 46.

_14_

Defendants argue that the conspiracy alleged in Count l ultimately fails
because, once Counts ll and lll don’t survive dismissal, there is no actionable
underlying tort to support civil conspiracy.

ln response, Kable asserts that the three Defendants entered into a de facto
agreement with one another in order to deprive Kable of the benefits it sought to
obtain from a new market structure and its contracts with HGR and HG Wholesale.
Kable says that the Defendants knew of the contract between Kable and HG
Wholesale and caused HG Wholesale to breach that contract. Kable says it thereby
suffered damages both from loss of that contract and from loss of other
prospective, similar contracts.

IV. STANDARD OF REVIEW

ln considering a motion to dismiss pursuant to Superior Court Civil Rule

l2(b)(6), the Court will:
(1) accept all well pleaded factual allegations as true,
(2) accept even vague allegations as “well pleaded” if
they give the opposing party notice of the claim, (3) draw
all reasonable inferences in favor of the non-moving
party, and (4) [not dismiss the claims] unless the plaintiff

would not be entitled to recover under any reasonably
conceivable set of circumstances47

 

47 Cem‘. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531, 535
(Del. 2011) (stating standard for motions to dismiss). See also Del. Super. Ct. Civ. R. l2(b)(6)
(2016).

_15_

lf the claimant may recover under this standard of review, the Court must deny the

motion to dismiss48

As noted, under Rule 12(b)(6), the Court must accept as true all well-

9

pleaded allegations.4 And “every reasonable factual inference will be drawn in

favor of the non-moving party.”50 The Court, however, will “ignore conclusory

»)51

allegations that lack specific supporting factual allegations “Dismissal is

warranted [only] where the plaintiff has failed to plead facts supporting an element
of the claim, or [where] under no reasonable interpretation of the facts alleged
could the complaint [be read to] state a claim for which relief might be granted.”52
V. DISCUSSION

A. ToRTIoUs INTERFERENCE WITH CoNTRACTUAL RELATIoNS.

ln order to establish that Comag, TNG, and Hudson tortuously interfered
with Kable’s contract with HG Wholesale, Kable must show: (1) the existence of a
valid and enforceable contract; (2) “about which the defendant knew”; (3) “an

intentional act that [wa]s a significant factor in causing the breach of [the]

 

48 Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).
43 Cenr. Morrg. Co., 27 A.3d at 535.

34 Wilmmgzon Sav. Fund. soc ’y, F.S.B. v. Anderson, 2009 WL 597268, ar *2 (Del. super
ct Mar. 9, 2009) (ciring poe v. Cahilz, 884 A.2d 451, 453 (Del. 2005)).

3' Ramunno v. Cawzey, 705 A.2d 1029, 1034 (Del. 1989).

32 Hedenberg v. Raber, 2004 WL 2191164, ar *1 (Del. super Ct. Aug. 20, 2004).

_16_

contract”; (4) that that act was done “without justification”; and (5) that the act
“cause[d] injury” to the plaintiff.53
1. T 0 Sustain a Claim for Tortious Interference with Contract, Kable
Must Show a Valid and Enforceable Contract Existed at the T ime of
the Alleged Intelference.

For there to be tortious interference with contractual relations, there must be
an underlying contract that Kable could enforce. Comag and TNG assert that the
November and December MSAS were only “option contracts for the benefit of HG
Wholesale and were unenforceable by [Kable.]”54 Further, the November MSA
was abandoned by both Kable and HG Wholesale upon execution of the December
MSA, on or about December 4, 2015. Thus, the only contract that could have been
interfered with is the December MSA. Defendants contend that the December
MSA, like the November MSA, was an option contract, exercisable at HG
Wholesale’s sole discretion.

The Restatement explains how tortious interference can be applied to an
option contract, stating

[a] promise may be a valid and subsisting contract even
though it is voidable. The third person may have a

defense against action on the contract that would permit
him to avoid it and escape liability on it if he sees fit to

 

33 Aspen Advisors LLC v. Unired Arrisrs Thearre Co., 861 A.zd 1251, 1265-66 (Del. 2004)
(citing Irwl'n & Leighton, Inc. v. W.M Anderson Co., 532 A.2d 983, 992 (Del. Ch. 1987)).

54 TNG GP & Comag Mktg. Grp.’s Br. in Supp. of Renewed Mot. to Dismiss at 15
[hereinafter TNG & Comag Br.].

_17_

do so. Until he does, the contract is valid and subsisting
relation, with which the actor is not permitted to interfere
improperly. Thus, by reason of . . . conditions precedent
to the obligation or even uncertainty of particular terms,
the third person may be in a position to avoid liability for
any breach. The defendant actor is not, however, for that
reason free to interfere with performance of the contract
before it is avoided.33

Comag and TNG assert that the December MSA is a mere option contract by
virtue of the language in a number of recitals in the document itself.56 They claim
it is an option contract because HG Wholesale/HGR and Kable knew that HG
Wholesale could not get inventory that Kable wanted under the original November
MSA.57 Essentially, “absent the materializing of a contingency (approval as a
[Comag] wholesaler), which was out of the control of the parties to the agreement,
the [December] MSA could never be performed by either [Kable] or HG
Wholesale.”58

On the other hand, Kable argues that the December MSA was an
enforceable, finalized contract between the parties and that it was breached due to

the Defendants’ conduct.

 

55 RESTATEMENT (SECoND) oF ToRTs § 766 cmt. f (1979).

34 TNG & Comag Br. at 17_20.
32 Id. ar 18.

33 Id. 3119.

_18_

The December MSA was executed between Kable and HG Wholesale when
Kable was already aware that HG Wholesale was not an approved Comag
wholesaler.59 Without being approved as a wholesaler by Comag, neither party
could perform under the December MSA.60 lf such status was never achieved,
then the obligations visited by the December MSA could not be performed.

Kable argues that Defendants tortuously interfered with the December MSA
by ensuring that HG Wholesale did not achieve Comag wholesaler status,
rendering the December MSA inoperative and harming Kable. However, the
December MSA was essentially conditioned on HG Wholesale achieving Comag
wholesaler status - a designation decision that is solely within Comag’S right as a
business competitor to give or retain. ln essence, the December MSA was an
option contract that required a number of contingencies to fall into place before it
could be an enforceable and final contract between the parties

2. Defendants Must Have Known of the ContractAllegedly Breached.

As to the level of knowledge necessary for a tortious interference with

contract claim, Delaware courts follow § 766 of the Restatement (Second) of

 

33 ld. at15.

60 Id

_19_

Torts.6' Comment i to § 766 discusses the knowledge requirement. And it
instructs: for an actor “[t]o be subject to liability under [§ 766], the actor must have
knowledge of the contract with which he is interfering and of the fact that he is
interfering with the performance of the contract.”62

According to Comag and TNG, Kable fails to allege that Comag was “aware
that its refusal to designate HG Wholesale as an ‘approved wholesaler’ would
interfere with the [December] MSA.”63 But Kable says the Defendants knew what

they were doing when they attempted to keep it from the wholesaler market by

allegedly interfering with the December MSA.64

 

61 See WaveDivision Hola'ings, LLC v. Highlana' Capital Mgmt., L.P., 49 A.3d 1168, ll74
(Del. 2012) (“Delaware courts follow Section 766 of the Restatement (Second) of Torts in
assessing a tortious interference claim.”) (citations omitted).

62 RESTATEMENT (SECOND) OF TORTS § 766 cmt. i (1979). See also Anesthesia Servs., P.A.
v. Anesthesia Advantage, P.C. v. Winters, 2013 WL 3352672, at *5 (Del. Super. Ct. June 27,
2013) (“The language of Comment (i) demonstrates that knowledge of the contract itself is
insufficient to establish a tortious interference claim. The comment explicitly requires both
‘knowledge of the contract’ and knowledge ‘0f the fact that he is interfering with the
performance of the contract.”’) (emphasis in original) (citation omitted).

33 TNG & Comag Br. 3122.

64 Kable Prod. Servs. Ans. Br. in Opp. to Defs. Mot. to Dismiss at 22-23 [hereinafter Kable
Ans].

_2()_

Even if Defendants knew of the specific terms of the December MSA, the
single act alleged here falls within their privilege to compete with Kable and HG
Wholesale in the business world.65 Such conduct is protected and not tortious

3. Defendants Did Not Interfere with the December MSA.

Kable must show an intentional act on the part of the Defendants that
amounted to being a significant factor in bringing about the alleged breach of
contract to establish its claim. lt fails to do so.

TNG and Comag argue that neither party could breach the December MSA
because none of the contingencies that would have given rise to a performance
requirement of that MSA came to fruition.66 Further, they argue, if there were a
breach of the December MSA, they engaged in no intentional act for which they
could be held liable for such breach. They claim that the December 29, 2015
phone call and the second phone call discussing the standstill, along with the
allegations about TNG offering Kable something to satisfy their business interest,

were merely TNG attempting to offer Kable a better deal than that outlined with

 

43 RESTATEMENT (sEcoND) oF ToRTs § 768 emt. e(1979)(“1frhe actor employs wrongrui
means, he is not justified under [§ 768]. . . . On the other hand, the actor may use persuasion and
he may exert limited economic pressure Subject to [the carve out for illegal restraint of
competition], he may refuse to deal with the third persons in the business in which he competes
with the competitor if they deal with the competitor. Or he may refuse other business
transactions with the third person relating to that business.”). See also Wayman Fire Protection,
Inc. v. Premiarn Fire & Sec., LLC, 2014 WL 897223, at *10 (Del. Ch. Mar. 5, 2014) (“[A]ll of
[the] requirements [for tortious interference with contractual relations] must be considered in
light of a defendant's privilege to compete or protect his business interests in a lawful manner.”).

66 TNG & Comag Br. at 24.

_21_

HG Wholesale in the December MSA.67 They are privileged as business
competitors to do so. Comag is privileged to refilse to deal with whomever they
want given there is no enforceable performance under a contract, Mere refusal to
deal does not constitute an intentional act giving rise to tortious interference with a

contract,68

4. An Option Contract Can Be the Subject of Tortious Interference, But
T here is N0 Such Interference Here.

The alleged intentional act that Comag, TNG, and/or Hudson undertook
(here, their refusing to deal with HG Wholesale) must have improperly resulted in
a breach of contract in order to sustain a tortious-interference-with-contract-claim.
Section 767 of the Restatement cites the following factors to consider when
determining if intentional interference with another’s contract is improper or

without justification:

(a) the nature of the actor’s conduct, (b) the actor’s
motive, (c) the interests of the other with which the
actor’s conduct interferes, (d) the interests sought to be
advanced by the actor, (e) the social interests in
protecting the freedom of action of the actor and the
contractual interest of the other, (f) the proximity or
remoteness of the actor’s conduct to the interference and
(g) the relations between the parties69

 

47 Id. 6127.

44 RESTATEMENT (sEcoND) oF rom § 766 emr. b (1979) (“The rule stored in j§ 766j does
not apply to a mere refusal to deal.”).

69 RESTATEMENT (SECOND) oF ToRTS § 767 (1979).

_22_

“Deliberately and at his pleasure, one may ordinarily refuse to deal with
another, and the conduct is not regarded as improper, subjecting the actor to
liability. One may not, however, intentionally and improperly frustrate dealings
that have been reduced to the form of a contract.”70 lt is true that “[a] refusal to
deal is one means by which a person may induce another to commit a breach of his
contract with a third person. Thus A may induce B to break his contract with C by
threatening not to enter into, or to sever, business relations with B unless B does
break the contract.”71 But, “A may not, without some justification induce B to
break his contract with C, A is ordinarily free to refuse to deal with B for any
reason or no reason.”72 As an example, the Restatement explains:

Upon hearing of B’s contract with C, A ceases to buy
from B. When asked by B to explain his conduct, A
replies that his reason is B’s contract with C. Thereupon
B breaks his contract with C in order to regain A’s

business A has not induced the breach and is not subject
to liability to C under the rule stated in this Section.73

 

70 RESTATEMENT (SECOND) OF TORTS § 766, cmt. b (1979). See also Khoury v. Trumbull
Physician Hosp. Org., 2000 WL 1804356, at *3 (Ohio Ct. App. Dec. 8, 2000) (“The mere refusal
to deal with a party cannot support a claim for tortious interference with contractual relations.”)
(citing RESTATEMENT (SECoND) oF ToRTs § 766 cmt. b (1979)).

71 RESTATEMENT (SECoND) oF ToRTs § 766 cmt. l(1979).

32 lot

73 Compare ia'. at cmt. l, illus. 1, with ia'. at cmt. l illus. 2 (“Upon hearing of B’s contract
with C, A writes to B as follows: ‘l cannot tolerate your contract with C. You must call it off. l
am sure that our continued relations will more than compensate you for any payment you may
have to make to C. lf you do not advise me within ten days that your contract with C is at an
end, you may never expect further business from me.’ Thereupon B breaks his contract with C.
A has induced the breach and is subject to liability under the rule stated in this Section.”).

_23_

Defendants claim that Comag was privileged to compete with Kable and was
therefore justified in its decision to deny HG Wholesale’s application, and is
therefore justified in its actions.74 The Court agrees

The interference Kable complains of must be improper in order to establish a
cause of action.75 ln determining whether the interference is justified, the Court
looks to the factors listed above.

The first factor looks to Comag’s means Comag’s refusal to deal with HG
Wholesale does not support a claim of tortious interference, as explained above.
Even viewed in the best light for Kable, Comag was under no obligation to accept
HG Wholesale’s application to be an approved wholesaler in order to ensure Kable
could sufficiently perform under the December MSA.

The second factor looks to Comag’s motive. “Only if the defendant’s sole
motive was to interfere with the contract will this factor support a finding of

1376

improper interference Self-protection by not allowing a new,

industry-changing competitor into its market does not make it improper.77

 

74 Hudson Br. at 21.

73 NAMA Holdings LLC v. Relored WMC LLC, 2014 WL 6436647, er *26 (Del. Ch. Nov.
17, 2014) (“The adjective ‘improper’ is critical. For participants in a competitive capitalist
economy, some types of intentional interference with contractual relations are a legitimate part of
doing business . . . Determining when intentional interference becomes improper requires a
‘complex normative judgment relating to justification’ based on the facts of the case and ‘an
evaluation of many factors.”’) (internal citations omitted).

76 WaveDivision Hola’ings, 49 A.3d at 1174 (emphasis in original).

_24_

The third factor looks to whether the underlying relationship that Comag
interfered with violates public policy or justified the inducement of the breach.
Kable knew that it could not obtain Comag’s approval on its own (because it tried
and failed), so it attempted to get that approval through HG Wholesale, The fact
that it did not succeed does not make that failure tortious

The fourth factor looks to the interests Comag sought to promote through its
denial. Kable admits that it was a threat to the business Accordingly, Comag was
protecting itself.

The fifth factor “permits the Court to consider the social utility of the
interests sought to be advanced by each of the litigants”78 Kable was attempting
to break into the market with a new business strategy for magazine wholesalers
Comag was trying to protect the industry (and its place in it) as it already was

The sixth factor looks to the degree of separation between the action and the
consequence of Comag’s actions Here, Hudson claims that any damage done by
Comag’s action was done to HG Wholesale, not to Kable. Because of the

derivative nature of Kable’s damages Comag’s actions are, at least, once-removed

 

77 Ia'. (“Here, the Superior Court recognized that the lRN Holders and Senior Lenders were
motivated at least in part by a desire to protect their investment in Millennium, and not solely by
a desire to interfere with a Wave-Millennium deal. Thus, the Superior Court properly concluded
that the motive factor weighed in favor ofjustification.”)

78 Hursey Porter & Assocs. v. Bouna's, 1994 WL 762670, at *15 (Del. Super. Ct. Dec. 2,
1994) (citing REsTATEMENT (SECoND) oF ToRTs § 767 cmt. g (1979)).

_25_

from any alleged damage.79 lt was Kable’s inability to perform under the
December MSA that resulted in its termination, not Comag’s decision to deny HG
Wholesale’s application.

The seventh factor allows the Court to look at the relationships between any
parties involved in the suit to see if the interference is improper. Kable alleges that
Comag denied HG Wholesale’s application to benefit TNG and Hudson, as Comag
is an affiliate of TNG and Hudson. But, Comag is privileged to do business with
the companies it chooses And, given the nature of the December MSA, Comag
was under no obligation (contractual or other) to do business with HG Wholesale
or Kable. Choosing a better deal absent any obligation to perform otherwise does
not tortious interference make. Given the allegations presented and drawing every
reasonable inference in Kable’s favor, Kable still would not be entitled to recover
for tortious interference with contractual relations under any reasonably
conceivable set of circumstances80 The Court GRANTS Defendants’ motion to

dismiss as to this count.

 

79 See Kuroda v. SPJS Hola’ings, 971 A.2d 872, 887 (Del. Ch. Apr. 15, 2009) (“All the
harms that Kuroda allegedly suffered as a result of defendants’ allegedly tortious conduct only
affected Kuroda through his interest in Fugen. Accordingly, any claim for those damages must
be asserted by Fugen, and Kuroda has not properly asserted a derivative claim on behalf of
Fugen.”).

44 solow v. Aspeer Res., LLC, 2004 wL 2694916, er *2 (Del. Ch. oet. 19, 2004)
(“[C]onclusory statements - those unsupported by well-pled factual allegations - will not be
accepted as true. The Court will, however, draw all inferences logically flowing from the First
Amended Complaint in favor of the plaintiffs but only if such inferences are reasonable.”) (citing

_26_

B. ToRTIoUs INTERFERENCE wITH PRosPECTIvE CoNTRACTUAL
RELATIoNs

To establish a claim for tortious interference with prospective business
relations, Kable must establish “([1]) the reasonable probability of a business
opportunity, ([2]) the intentional interference by defendant with that opportunity,
([3]) proximate causation, and ([4]) damages, all of which must be considered in
light of a defendant’s privilege to compete or protect his business interests in a fair
,,81

and lawful manner.

1. Kable Had N0 Reasonable Expectation of Prospective Business
Relations.

The most crucial element to tortious interference with prospective business
opportunity is the existence of an actual, prospective business opportunity. The
type of business opportunities protected by this rule are “any prospective
contractual relations . . . if the potential contract would be of pecuniary value to the
plaintiff.”82 “lt is not necessary that the prospective relation be expected to be
reduced to a formal, binding contract, lt may include prospective quasi-contractual

or other restitutionary rights or even the voluntary conferring of commercial

 

Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988) (stating that “conclusionary allegations of fact
or law not supported by allegations of specific fact may not be taken as true” and that the court
“need not . . . draw all inferences from [the allegations] in plaintiffs’ favor unless they are
reasonable inferences.”).

44 DeBonovemuro v. Norionwide Mot. Ins. Co., 419 A.2d 942, 947 (Del. Ch. 1980)
(citations omitted).

82 REsTATEMENT (SECoND) oF ToRTs § 766B cmt. c (1979).

_27_

benefits in recognition of a moral obligation.”83 A “perception” that there will be a
prospective business opportunity is not enough.84 “[T]he probability of the
business opportunity must be assessed at the time of the alleged interference.”85

ln its attempt to show that it had prospective business opportunities in its
new business model, Kable contends: (1) that several major publishers and national
distributors “expressed favorable opinions” to HGR regarding HGR’s intent to
have magazines shipped directly to it through an out-sourced relationship that
Kable proposed,86 and (2) “[b]ased on subsequent discussions with representatives
from [HGR], [Kable] understood that [many publishers and retailers] told [HGR]
that they would support the new business model . . . and would . . . permit their
magazines to be distributed . . . once the business model . . . was in effect. [O]ther
retailers . . . expressed interest to [Kable] in pursuing possible business relationship

with [Kable] based on how [it’s] business evolved with [HGR.]”87

 

83 Id_
84 See Dionisi v. DeCarnpli, 1995 WL 398536, at *13 (Del. Ch. June 28, 1995) (“D & D
never signed an exclusivity contract with DuPont or anyone else. A perception that D & D

would receive work from DuPont, without more, is insufficient to form the basis of abona
fide expectancy.”).

85 Malpiea'e v. Townson, 780 A.2d 1075, 1099 (Del. 2001).
86 Pl.’s Am.Compl.jj19.

47 Pl.’s Am. Compl. jj 20.

_28_

Hudson claims the first argument cannot stand because the expressions of
interest were not made to Kable. lt claims Kable does not allege any relationship
between itself and the entities that were “favorable” toward HGR or any
expressions made to anyone in a relationship with Kable. As such, Hudson claims
Kable had a perception of HGR’s perception of the opportunities88

Hudson claims Kable’s second argument cannot stand either, because the
statements were made to HGR, not Kable. Further, any interest that was directly
expressed to Kable was contingent on its successth performance of its work with
HGR. Hudson argues that this expectancy was not reasonable at the time of the
alleged interference Hudson claims that such success with a new business model
was mere speculation, and cannot sustain the allegation that it was reasonably
expected.89 Defendants are correct.

The significant act relates back to Comag’s refusal to designate HG
Wholesale as an approved wholesaler. Comag was privileged to do so. A claim of
tortious interference with any prospective opportunity is subject to the defendant’s

privilege to compete with the plaintiff.90 Kable readily admits it was attempting to

 

88 Hudson Br. at 31.
89
Hudson Br. at 32.
24 Woymon Fire Proreerion, Inc. v. Premium Fire & see., LLC, 2014 WL 897223, at *10

(Del. Ch. Mar. 5, 2014) (citing DeBonaventura v. Nationwia'e Mut. Ins. Co., 428 A.2d 1151,
1152 (Del. 1981) (“Furthermore, all of these requirements [for tortious interference with

_29_

implement a “direct challenge” to the business models of all the Defendants in the
Complaint. As such, Hudson alleges that Comag’s denial is not tortious
interference with a prospective business opportunity, but normal industry

competition.

2. Defendants Did Not Improperly Interfere With Any Prospective
Contractual Relations If T hey Did Exist.

Even if Kable establishes that there was a reasonable probability of a
business opportunity created by their new system, there is a “privilege enjoyed by
competitors in the same market to compete aggressively for market share.”g] The
Restatement (Second) of Torts says that there is no improper interference with
prospective contractual relations if

(a) the relation concerns a matter involved in the
competition between the actor and the other and (b) the
actor does not employ wrongful means and (c) his action
does not create or continue an unlawful restraint of trade
and (d) his purpose is at least in part to advance his
interest in competing with the other.92
The same analysis used to decide whether or not there was improper

interference with contractual relations applies here. Thereunder, no charge of

improper interference with prospective contractual relations can be sustained. So,

 

prospective business relations] must be considered in light of a defendant’s privilege to compete
or protect his business interests in a lawful manner.”).

91 Lipson v. Anesthesia Servs., P.A., 790 A.2d 1291, 1287 (Del. Super. Ct. Oct. 3, 2001).

92 REsTATEl\/IENT (SECoND) oF ToRTS, § 768 (1979).

_3 ()_

again, given the specifics alleged, Kable would not be entitled to recover under any
reasonably conceivable set of circumstances And so, the Court GRANTS
Defendant’s motion to dismiss as to this count.

C. CIvIL CoNsPIRACY

Delaware law defines civil conspiracy as “the combination of two or more

persons or entities either for an unlawful purpose, or for the accomplishment of a
9993

lawful purpose by unlawful means, resulting in damage. “Civil conspiracy is

not an independent cause of action in Delaware - it must arise from some
underlying wrong.”94

The essence of Kable’s civil conspiracy claim is that Comag refused to grant
HG Wholesale approved wholesaler status because Defendants worked together to
keep Kable and HG Wholesale out of the market. On the facts as presented by
Kable, Defendants neither tortuously interfered with the December MSA nor

tortuously interfered with any prospective contractual relations Kable had because

they merely acted as business competitors and chose a better deal. As both these

 

23 Brooks_MeColtum v. shoreef, 2006 wL 3587246, er *3 (Del. super. cr Nov. 1, 2006).

24 Noples v. New Cosrle C¢y., 2015 WL 1478206, et *15 (Del. super Ct. Mor. 30, 2015),
ajf’a' 2015 WL 6850660 (Del. Nov. 6, 2015). Delaware follows the majority approach in
requiring the existence of an underlying tort for a civil conspiracy claim. See, e.g., Ramunno v.
Cawley, 705 A.2d 1019, 1039 (Del. 1998); Nicolet, Inc. v. Nutt, 525 A.2d 146, 149-50 (Del.
1987) (setting forth elements plaintiff must prove for civil conspiracy, including “an unlawful act
done in furtherance of the conspiracy”); See also Boyanowski v. Capital Area Interrnediate
Unit, 215 F.3d 396, 405-06 (3d Cir. 2000) (noting the general rule that “civil conspiracy may not
exist without an underlying tort is a common one” and noting it was unaware of any jurisdiction
that recognized a civil conspiracy claim without separate tortious conduct.).

_31_

claims lack evidentiary support, Kable cannot establish an underlying wrong on
which to hang his civil conspiracy claim.95 Defendants’ motions on this claim are
GRANTED.
VI. CONCLUSION

On the record before the Court, there is insufficient pleading of fact to
support any of Kable’s claims against the Defendants There are no specific facts
supporting claims of intentional action to improperly interfere with the December
MSA or any alleged prospective business relations And what is pled would not
allow Kable to recover on the interference claims under any reasonably
conceivable set of circumstances Because these two claims fail, the civil
conspiracy claim fails as well. Accordingly, for the reasons stated above, the

Defendants’ Motions to Dismiss are GRANTED.

IT Is so oRDERED. Q; .>
“,c/

Paul R. Wallace, Judge

 

23 Nopzes, 2015 WL 1478206,61*15.

_32_