Texas Law and Tortious Interference

Tortious interference, also known as intentional interference with contractual relations, is a common law tort that occurs when a party intentionally sabotages or otherwise damages the plaintiff’s contractual business relations with a third party. This article discusses one main form of tortious interference: interference with an existing contract.  We discuss interference with business relations in a separate post.

Interference with an Existing Contract

Tortious interference with an existing contract involves a third-party willfully and intentionally interfering with a contract and proximately causing actual damages, or loss as injury, to a plaintiff.[1]  This third party must be a stranger to the contract in order to tortiously interfere with it, as a defendant cannot tortiously interfere with their own contract.[2]

Elements

To prove an action for tortious interference a plaintiff must prove that there was an existing contract that the defendant intentionally and willfully interfered with, and that the defendant’s interference proximately caused the plaintiff’s injury and actual damage or loss.[3]

Existing Contract Subject to Interference

First and foremost, a plaintiff must be party to an existing and valid contract.[4] If no contract exists, or if the contract was void or illegal, it cannot have been tortiously interfered with.[5] A valid contract is one that is not void. Contracts that are illegal or against public policy are inherently void, and thus are not considered contracts at all.[6] Voidable contracts, however, may be the subject of an interference action even though a contracting party might ultimately avoid liability.[7] Note that while voidable contracts are largely unenforceable, they are still protected in Texas under this aspect of tort law, and it remains illegal for a defendant to interfere with the performance of the contract before it is voided.[8]

Willful and Intentional Act of Interference

To prevail on a tortious-interference claim, a plaintiff must prove the defendant was “more than a willing participant and knowingly induced one of the contracting parties to breach its obligations under a contract.”[9] Interference with a contract is only tortious if the interference is proven intentional.[10] A plaintiff is not required to show that the defendant intended to cause injury; a claim of tortious interference only requires showing that the defendant desired to cause the consequences of their act, or that the consequences were substantially certain to result from the act.[11]Though merely making performance of the contract in question more burdensome or difficult will suffice.[12] To meet this burden, a plaintiff “must present evidence that some obligatory provision of the contract has bene breached.”[13]

Interference Proximately Caused Injury

A plaintiff must prove that the defendant’s interference proximately caused injury.[14] Proximate cause requires proof of both cause-in-fact and foreseeability.[15] The test for cause-in-fact is whether the tortious conduct was a substantial factor in bringing about the alleged injury, i.e., a factor without which the injury would not have occurred.[16] Under Texas law, a plaintiff must show that the defendant interfered by actively persuading a party to breach a contract or otherwise causing the contract to be more difficult to fulfill or of less or no value.[17]

Interference Caused Actual Damage or Loss

Finally, a plaintiff must show that actual damage or loss occurred as a result of the alleged interference.[18] Actual damage can be loss of benefit of contract, loss of anticipated sales, loss of line of credit, or personal injury. Texas courts rely on the Restatement Second, Torts section 774A to determine the actual damages available in suits claiming tortious interference with an existing contract.[19] Generally, the basic measure of actual damages for tortious interference with contract is what it would cost to put the plaintiff in the same economic position he would have been in had the contract interfered with actually been performed.[20]

Remedies

Remedies granted for tortious interference with an existing contract include actual damages, interest, court costs, exemplary damages, and, in some cases, attorney’s fees. Generally, because there is no statute that provides for attorney fees in an action for tortious interference with contract in Texas, a prevailing party can only recover attorney fees if there is some equitable ground for them.[21] Courts in Texas, however, are split on whether a plaintiff can recover attorney fees as actual damages and the Texas Supreme Court has yet to address the issue.[22]

Limitations

Tortious interference with an existing contract is subject to three primary limitations. First, the tort is subject to a two-year statute of limitations.[23] Second, accrual begins when the plaintiff knows the nature of the injury and damages regardless of if the contract terminated at that time.[24] Finally, the discovery rule may apply to an action for tortious interference when the nature of the plaintiff’s injury is inherently undiscoverable and the injury is objectively verifiable by physical evidence.[25]

Defenses

Defenses to tortious interference with an existing contract include limitations, immunity, privilege or justification, or plaintiff’s fault. Privilege becomes especially relevant as a defense when the defendant in question is a corporate agent.

Special Scenarios

Defendant is Corporate Agent

There exist specific rules in place for a tortiously interfering defendant who is also a corporate agent.[26] A corporate agent can be accused of interfering with a corporation’s contract if the plaintiff proves that the agent acted willfully (same element as previously discussed) and intentionally to serve their own personal interests at the corporation’s expense.[27] On the other hand, however, corporate agents have a qualified privilege to interfere with the contracts of its corporation if they (1) act in good faith to further the interests of their employer and (2) does not use wrongful means.[28] The Supreme Court treats the issue of corporate agent as part of the plaintiff’s cause of action, not as an affirmative defense.[29]

Terminable-at-will Contracts

Texas law holds that terminable-at-will contracts are subject to tortious interference claims like any other contract, though there is an existing grey area regarding at-will employment contracts.[30] While the Texas Supreme Court has implied that at-will employment contracts are incapable of being interfered with, the Court stopped short of that holding and instead classified at-will scenarios as claims for interference with prospective business relations.[31]

 

[1] Prudential Ins. Co. of Am. v. Fin. Review Servs., Inc., 29 S.W.3d 74, 77 (Tex.2000).

[2] Community Health Sys. Prof’l Servs. v. Hansen, 525 S.W.3d 671, 690 (Tex.2017).

[3]Prudential, 29 S.W.3d at 77.

[4] Id.

[5] Vertex Servs. v. Oceanwide Houston, Inc., 583 S.W.3d 841, 853–54 (Tex.App.—Houston [1st Dist.] 2019, no pet.); Hurlbut v. Gulf Atl. Life Ins., 749 S.W.2d 762, 767 (Tex.1987) (P did not allege or prove any contract rights and thus could not claim tortious interference).

[6] Restatement Second, Torts § 774, Comment b.

[7] Juliette Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660, 665 (Tex.1990), superseded on other grounds by statute as stated in Prop. Tax Assocs., Inc. v. Staffeldt, 800 S.W.2d 349, 350 (Tex.App.-El Paso 1990, writ denied); Restatement Second, Torts § 766, Comment f.

[8] Clements v. Withers, 437 S.W.2d 818, 821 (Tex.1969).

[9] Funes v. Villatoro, 352 S.W.3d 200, 213 (Tex. App.—Houston [14th Dist.] 2011, pet. denied).

[10] Sw. Bell Tel. Co. v. John Carlo Tex., Inc., 843 S.W.2d 470, 472 (Tex. 1992).

[11] Id.

[12] Int’l Union United Auto. Aerospace & Agric. Implement Workers of Am. Local 119 v. Johnson Controls, Inc., 813 S.W.2d 558, 568 (Tex.App.-Dallas 1991, writ denied).

[13] Funes, 352 S.W.3d at 213.

 

[14] Prudential, 29 S.W.3d at 77.

[15] Immobiliere Jeuness Establissement v. Amegy Bank Nat’l Ass’n, 525 S.W.3d 875, 880 (Tex. App.—Houston [14th Dist.] 2017, no pet.) (citing Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 477 (Tex. 1995).

[16] Palla v. Bio-One, Inc., 424 S.W.3d 722, 728 (Tex. App.—Dallas 2014, no pet.) (noting that damages are necessarily limited to those proximately caused by the interference).

[17] Weatherford Int’l, LLC v. Binstock, 452 F. Supp. 3d 561, 576 (S.D. Tex. 2020).

[18] Prudential, 29 S.W.3d at 77.

[19] Browning-Ferris, Inc. v. Reyna, 852 S.W.2d 540, 549 (Tex.App.—San Antonio 1992), rev’d on other grounds, 865 S.W.2d 925 (Tex.1993).

[20] Am. Nat. Petroleum Co. v. Transcon. Gas Pipe Line Corp., 798 S.W.2d 274, 278 (Tex. 1990).

[21] Holland v. Wal-Mart Stores, Inc., 1 S.W.3d 91, 95 (Tex. 1999) (”We have consistently held that a prevailing party cannot recover attorney’s fees from an opposing party unless permitted by statute or by contract between the parties.” & Texas law does not provide for attorney’s fees); Knebel v. Capital Nat’l Bank, 518 S.W.2d 795, 799 (Tex.1974) (attorney fees granted due to equity).

[22] Martin-Simon v. Womack, 68 S.W.3d 793, 797–98 (Tex.App.—Houston [14th Dist.] 2001, pet. denied) (attorney fees incurred in previous litigation were not recoverable as damages in tortious-interference claim); contra DP Sols., Inc. v. Rollins, Inc., 353 F.3d 421, 434 (5th Cir. 2003) (Texas law explicitly recognizes that fees need not be segregated where “the services rendered relate to (1) multiple claims arising out of the same facts or transaction and (2) the prosecution or defense entails proof or denial of the same facts, so as to render attorney’s fees inseparable.”).

[23] Tex. Civ. Prac. & Rem. Code § 16.003(a); Burke v. Ins. Auto Auctions Corp., 169 S.W.3d 771, 778 (Tex. App.—Dallas 2005, pet. denied) (Automobile accident victim’s causes of action accrued from the time the vehicle was cannibalized, and, thus, two-year statute of limitations applicable to claims for negligence and tortious interference with contract began to run from that point, even if little actual damages had occurred).

[24] Burke, 169 S.W.3d at 778.

[25] Burke, 169 S.W.3d at 778; but see e.g. Snell v. Sepulveda, 75 S.W.3d 142, 144 (Tex.App.—San Antonio 2002, no pet.) (tortious interference not inherently undiscoverable just because P did not learn of it until after D’s conduct had occurred).

[26] Holloway v. Skinner, 898 S.W.2d 793, 795–96 (Tex. 1995).

[27] Holloway, 898 S.W.2d at 795–96 (Tex. 1995).

[28] Id.

[29] Holloway, 898 S.W.2d at 796 (Tex. 1995).

[30] Restatement (Second) of Torts § 766 comment g (1979); Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689 (Tex. 1989) (held that the terminable-at-will status of a contract is no defense to an action for tortious interference with its performance).

[31] El Paso Healthcare Sys. v. Murphy, 518 S.W.3d 412 (Tex.2017) (a hospital did not interfere with an at-will employee’s employment by asking the medical practice not to schedule any shifts while the employee was under investigation because the hospital was not required to schedule an at-will employee for any shifts at all); Sterner, 767 S.W.2d at 689 (further characterized the action as a claim for interference with prospective business relations instead of interference with an existing contract).

 

Possible expansion on this matter, see footnote for two leading cases.  [AD1] [AD1]

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