R.I. Superior Court Dismisses Tortious Interference Counterclaim Against Company That Successfully Solicited Defendant’s Customers

| Dec 16, 2013 | Firm News

The Rhode Island Superior Court has held one competitor cannot maintain a claim for tortious interference with contract against another competitor who solicited away customers when there were no binding contracts with the customers and the other competitor’s solicitations were common in the industry.

Plaintiffs are an individual named King and a new company he founded (“Precision”) that provides credit card transaction processing services. King previously worked for defendant (“Commerce”) which was in the same business, although King’s status with defendant was an issue in the litigation. Plaintiffs sued defendant for commissions King allegedly earned before leaving defendant and taking many customers with him to his new business. Defendant counterclaimed alleging tortious interference with contract, violation of a non-competition agreement, breach of a duty of loyalty and unjust enrichment. Plaintiffs moved for summary judgment on the counterclaims.

With respect to the tortious interference claim, the court observed that the agreements between Commerce and its customers provided the customers could cancel their contracts at any time by paying a cancellation fee. Moreover, solicitation of customers with existing agreements with other processing services is common in the industry. Commerce has done it.

A prima facie case of tortious interference with prospective and existing contractual relations requires proof of (1) the existence of a contract, (2) the alleged wrongdoer’s knowledge of the contract, (3) his intentional interference, (5) no recognized privilege or other justification for the interference, and (4) damages resulting from the interference.

Courts consider seven factors set forth in the Restatement of Torts to consider whether interference is unjustified: (1) the nature of the actor’s conduct, (2) the actor’s motive, (3) the contractual interests with which the conduct interferes, (4) the interests sought to be advanced by the actor, (5) the balance of social interests in protecting freedom of action of the actor and the contractual freedom of the putative plaintiff, (6) the proximity of the actor’s conduct to the interference complained of, and (7) the parties relationship.

The court said that while there were no “contracts per se” between Commerce and its customers, there was certainly a business relationship, which establishes the first element of the claim. The court conflated its analysis of the other elements. It said “[t]o punish a competitor for trying to solicit clients, and thereby advancing its own self-interest, would go against the weight of the factors laid out in the Restatement,” particularly where this conduct is common in the industry and defendant has done it.

With respect to Commerce’s claim that King violated the terms of a non-competition provision in a contract, the court there was an issue of fact as to whether there was a written contract between Commerce and King. Commerce produced a contract with King’s signature on it. King denies signing the contract and produced the report of handwriting expert that the signature was a forgery.

The court reviewed the law with respect to an agency relationship. There are seven factors to consider when determining whether someone is an agent or an independent contractor: (1) the right to control the conduct of the work, (2) the right of termination, (3) the method of payment, (4) the freedom to select and hire helpers, (5) the furnishing of tools and equipment, (6) self-scheduling of work hours, and (7) being free to render services to other entities. The court said King worked free of oversight by Commerce, was paid by commission, was not provided office space, and scheduled his own hours. The court said King was clearly an independent contractor, not an agent, and owed no duty of loyalty to Commerce.

Finally, the court said Commerce had no claim for unjust enrichment because it had conferred no benefit on King or Precision. Moreover, even if Commerce had conferred a benefit on Precision or King, it would not be inequitable for them to retain the benefit. The means by which they obtained Commerce’s customers were common practice in the industry.

The court granted plaintiff’s summary judgment motion with respect to the claims for tortious interference and unjust enrichment. It denied the motion with respect to breach of a non-competition provision based on an issue of fact, i.e., the existence of a contract.

Precision Payments, Inc. v. East Commerce Solutions, P.B. 11-2249, slip opinion, (R.I.Super. Dec. 11, 2013)

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