Written by George Patterson
A Federal court in New York recently provided some pleading parameters for employers for claims of tortious interference with business relations.
In Advance Watch Co., Ltd. v. Pennington, 13-CV-8169 (S.D.N.Y. Oct. 22, 2014), the Geneva Game Time Division of Advance Watch Company sued two of its former employees, claiming they interfered with licensing contracts with the National Football League (NFL) and Major League Baseball (MLB). Geneva alleged that after resigning from Geneva and accepting positions with its competitor, Rico Industries, the employees, with Rico’s assistance, misappropriated Geneva’s trade secrets and induced the NFL and MLB not to renew their licensing agreements with Geneva, and instead, induced them to enter into new licensing agreements with Rico.
Geneva alleged that Rico and the employees tortiously interfered with the existing customer agreements and the agreements Geneva hoped to reach in the future. The court granted the defendants’ motion to dismiss the tortious interference with contracts claim because Geneva failed to plead that the defendants actually procured a breach of Geneva’s licensing agreements with the NFL and MLB. Although the defendants may well have contributed to these customers’ decisions not to renew their contracts with Geneva, the court reasoned that “not renewing a contract is not the same thing as breaching a contract” and dismissed the claim.
But the court declined to dismiss the claim for tortious interference with prospective business relations, finding that Geneva had adequately pled its business relationship with the NFL and MLB, that the defendants knew of that relationship and intentionally interfered with it, that the defendants used improper or illegal means to interfere with those relations, and caused Geneva harm.
As to the “improper means” element, the court emphasized that “conduct that is not criminal or tortious will generally be lawful and thus [insufficient] to create liability for interference with prospective contracts or other nonbinding economic relations.” But because Geneva alleged that the defendants “engaged in unfair competition and misappropriated trade secrets” in inducing the MLB and NFL to refuse to renew their exclusive licensing agreements with Geneva, the “wrongful means” element was adequately alleged and the defendants were not entitled to dismissal of Geneva’s tortious interference with business relations claim.
In addition to clarifying how properly to plead tortious interference claims, this case illustrates some of the dangers lawyers face in business tort actions generally. When employees depart companies suddenly with confidential information, clients, understandably concerned that a failure to respond quickly will result in severe economic losses, often place intense pressure on counsel to institute legal proceedings on an expedited basis. Here, while Geneva set forth a sufficient basis for proceeding with its interference with business relations claim, several of its other counts were dismissed on the pleadings because the company was not able to construct viable claims from the available facts. Although the nature of trade secret and misappropriation lawsuits often requires plaintiffs’ attorneys to operate with imperfect information, a full exploration of the facts to ensure their application to the elements of each claim pled can withstand judicial scrutiny remains essential.