It is indeed rare that cases which hinge completely on jurisdictional or procedural grounds could have any interest at all for non-lawyers. But GS Plasticos Limitada v. Bureau Veritas, which was just decided last week, is one such case.

In this tortious interference with contract case, the plaintiff, a Brazilian company, claimed that it lost a contract with another Brazilian company after the defendant testing company falsely reported that its products contained excessive amounts of arsenic. In response, the plaintiff sued not only the testing company, but also sued the testing company’s French parent corporation.

Since the testing was done in New York, plaintiff brought the case in New York County. But there was one (seeming) problem:  the French parent company had filed a certificate of surrender to do business in New York before the action was commenced, in accordance with BCL §1314(b)].

In reversing the trial court’s Order, and dismissing the action against both of the defendants, the appellate court stated as follows:

“BV’s surrender of its authority to do business in New York does not insulate it from the court’s assertion of personal jurisdiction over it, because the liability in this case was “incurred by [BV] within this state before the filing of the certificate of surrender” (Business Corporation Law [BCL] § 1310[a][5].; see Antonana v Ore S.S. Corp., 144 F Supp 486, 491 [SD NY 1956]; Munn v Security Controls, 23 AD2d 813 [1965]).

“However, the court erred in finding that it had jurisdiction pursuant to BCL § 1314(b)(3), based on the tortious conduct’s having arisen out of the testing services performed in New York. For purposes of BCL § 1314(b)(3), the inquiry is not where the tortious conduct occurred but ‘[w]here the cause of action arose’ (see id.; see also Gonzalez v Industrial Bank [of Cuba], 12 NY2d 33 [1962]; Hibernia Natl. Bank v Lacombe, 84 NY 367, 384 [1881]).

“Plaintiff’s claim is one for interference with contractual relations. Although the faulty testing that led to the loss of the contract occurred in New York, plaintiff had no cause of action until the contract was actually lost, i.e., until it was cancelled, and that cancellation occurred in Brazil.”

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Maybe the third time is the charm.

In a high-profile breach of contract and tortious interference lawsuit, the National Football League’s Tennessee Titans have sued former NFL coach ,and current USC coach Lane Kiffin, charging that he improperly poached their coaching ranks, inducing Titans running backs coach Kennedy Pola to breach his employment agreement with the Titans in favor of joining Kiffin at USC.

Unfortunately, the article discussing this lawsuit gives precious little details about the nature of the breach of contract. My guess is that there was some sort of non-compete clause in the agreement.

Assuming that is the case, here are some important factors that would be considered if it had been brought in New York: as noted in “Is My Non-Compete Agreement Enforceable Under New York Law?“, New York’s courts, as a general rule, strongly disfavor non-compete agreements because there are “‘powerful considerations of public policy which militate against sanctioning the loss of a man’s livelihood.”

Therefore, a New York court would look to see if the agreement with this coach was reasonable in its geographic scope and duration, whether it imposes an undue hardship on this particular coach, and whether it is reasonably calculated to protect the legitimate interests of the Titans.

That aside, since tortious interference claims require proof of an intentional act, the Titans would likely face an uphill battle in a New York court on those claims.

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In a blog piece that was published in yesterday’s Wall Street Journal, it was reported that OfficeMax has sued A & P, the well-known supermarket chain, seeking a restraining order barring them from poaching key employees. Apparently, OfficeMax felt compelled to take this action after 3 of their key employees left, including their former chief operating officer and two of his subordinates.

As part of their claim, they have also charged the former COO, Sam Martin, with violating the non-compete clause of his employment agreement, with breach of contract and breach of fiduciary duty, claiming that his employment contract with OfficeMax explicitly barred him from soliciting, or poaching, employees away OfficeMax’s ranks.

There’s just one big fly in this particular ointment, however.

Since A & P has filed for bankruptcy protection, certain legal actions against A & P are prohibited, such as pursuing litigation against the bankruptcy debtor’s property. (For additional information on this, please see Bankruptcy Code Section 362).

The question is whether this particular claim would also be subject to bankruptcy protection. A & P’s argument that forcing it to defend this lawsuit would effectively deprive it of one of the chief benefits of bankruptcy protection – i.e., immunity from lawsuits – definitely has some merit.

But I don’t think that it is the better policy in cases of this nature. While I understand shielding a bankruptcy debtor from money judgments, that protection should not be without limits; it should not allow them to act deliberately and intentionally raid other companies’ leadership without consequence.

My guess is that OfficeMax will attack A & P’s response as follows: a restraining order is inherently equitable in nature -  it does not seek damages, and therefore is not the type of claim insulated from suit by the Bankruptcy Code. In addition, to the extent any damages are sought, it would appear that they are targeted at the individual defendant, Mr. Martin, rather than at A & P.

For now, we’ll just have to wait and see how this case shakes out.

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Back in August, I wrote about the Most Formidable Defense to a Tortious Interference Claim in New York: justification. In other words, as long as a defendant can show that they induced Company A to break their agreement with Company B for legitimate economic reasons, the tortious interference claim will likely fail.

But, as pointed out in Omni Consulting Group, Inc. v. Marina Consulting Group, a New York Federal Court decision from tomorrow’s New York Law Journal, there is another defense to a tortious interference claim that is perhaps equally lethal: the plaintiff’s inability to prove that the defendant intentionally procured the breach of contract, and that if not for the defendant’s actions, the contract would not have been breached.

In dismissing the tortious interference claim, the Omni Court stated as follows:

“[The third party with whom plaintiff had the contract] came up with the idea of breaking the Master Agreement on his own. He told [defendant], without any prompting, that he would “work things out” with plaintiff to allow for a direct relationship with [defendant]. The very fact that [the third party] had to tell [defendant] that he would “work things out” implies that [the third party] hesitated to hire [plaintiff]. [Defendant] thus never suggested or encouraged any contractual breaches; it merely took advantage of an idea that [the third party] carried forward on his own.”

Somewhat ironically, as suggested in the title of this post, this claim was dismissed despite the fact that the defendant had defaulted, and not opposed the claim at trial. That result should underscore some of the difficulty inherent in proving all of the necessary elements of a tortious interference claim under New York law.

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If you are an insurance broker, and were wondering how you are supposed to protect against having your commission agreement breached, a decision that was rendered by a New York Federal judge last week – and published in today’s New York Law Journal – provides an excellent roadmap.

In Guy Carpenter & Company v. Lockton, RE, LP, the plaintiff entered into a broker’s agreement that was terminable at will, whereby they would earn commissions upon the placement of reinsurance contracts by two insurers, Zephyr and Safe Harbor. Shortly after the business was placed, one of the plaintiff’s brokers left to go work at a competitor, Lockton, at which point the insurers took their business to Lockton.

As is customary in the field, GC & C would receive their commissions by withholding a percentage of the clients’ quarterly premium payments, and transmitting the remainder to the re-insurer. But once this book of business was transferred to Lockton, Lockton refused to pay any more commissions to GC &C, as GC & C was no longer tending to this business.

Importantly, as the court noted, “[The insurers] were legally obligated to pay the full amount of the commission to Guy Carpenter … when the Reinsurance Contracts were placed. The fact that the contract allowed [the insurers] to pay that commission in installments is irrelevant; they owed Guy Carpenter the entire amount as soon as the reinsurance was placed.”

Further, since the agreement called for GC & C to “to deduct a fixed percentage of the quarterly premium payments” to exact their payment, these were deemed “specifically identifiable funds,” and thus sufficient for purposes of proving a conversion claim.

Finally, the Court upheld the plaintiff’s tortious interference with contract claim (at least at this stage of the case) because the four required elements of the claim were satisfied: (1) existence of a contract, (2) defendant’s knowledge of that contract, (3) defendant’s intentional procurement of a breach, and, (4) an actual breach of the Broker Agreement. See, e.g., Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 424 (N.Y. 1996).

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Although they sound an awful lot alike, the difference between an Order dismissing a case and an Order granting summary judgment is quite significant under New York law.

An October 19 decision from Justice Carolyn Demarest of Brooklyn in a breach of contract and tortious interference case provides an excellent illustration of this principle.

In Terra CRG, LLC v. Marke, the plaintiffs sued to recover monies that were purportedly owed them under the terms of an exclusive real estate brokerage agreement. But this wasn’t the first time they sued to recover on this agreement; they previously sued – and lost – in New York County, when a different judge dismissed the case, finding that their complaint failed to set forth a valid legal claim (in legalese, this is referred to as “failure to state a claim upon which relief may be granted”).

While there is a doctrine called “res judicata,” which means that the same claim can’t be brought twice (this is not to be confused with “double jeopardy,” which is in the criminal law context), that is only true when the dismissal of the case is on the merits – as would be the case when a claim is dismissed after having been litigated, and therefore dismissed on summary judgment – as opposed to at the very beginning of a lawsuit, before an answer to the complaint is served or filed.

Justice Demarest summarized this concept as follows:

“[R]es judicata bars future litigation between the same parties, or those in privity with the parties, of a cause of action arising out of the same transaction or series of transactions as a cause of action that was either raised or could have been raised in a prior proceeding. The prior action must have been brought to a final conclusion on the merits. There is only “limited preclusive effect” if the prior action is dismissed for failure to state a cause of action.  A dismissal based upon “insufficient plead[ing]” is not on the merits and does not bar the claims from being asserted in a new action (Viafax Corp. v Citicorp Leasing, Inc., 54 AD3d 846, 849 [2d Dept 2008]).”

Applying the decision to this particular case, Justice Demarest further held as follows:

“The instant action is not barred by the doctrine of res judicata or the doctrine of collateral estoppel because … his decision did not, contrary to the defendants’ claims, make a formal finding as to whether a breach of the Brokerage Agreement actually occurred. Rather, Justice Gammerman made a limited finding that, in the complaint before him, plaintiffs did not make the allegations necessary to adequately state a claim for breach of contract.”

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As you might have guessed, as a practical matter it is far from simple to prove a tortious interference with contract claim under New York law, and here’s why:

The plaintiff must prove that the defendant both intentionally AND without justification induced a third party to break their contract with the plaintiff.

Why is that so hard?

The answer, I believe, lies in the latter prong – without justification – because that is where many defendants have successfully defeated tortious interference claims. And the way they’ve done it is by simply showing that their actions were done for their legitimate economic interests. Make no mistake: that is a very broad category.

In fact, New York’s highest court has held that this exemption applied not only where the defendant was a direct competitor of the plaintiff’s but even if they weren’t directly competing, and summarized the rule as follows:

“The existence of competition may often be relevant, since it provides an obvious motive for defendant’s interference other than a desire to injure the plaintiff; competition, by definition, interferes with someone else’s economic relations. Where the parties are not competitors, there may be a stronger case that the defendant’s interference with the plaintiff’s relationships was motivated by spite. But as long as the defendant is motivated by legitimate economic self-interest, it should not matter if the parties are or are not competitors in the same marketplace.” (Carvel Corp. v Noonan, 3 NY3d at 191.)

Obviously, this is not an easy hurdle to clear.

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Today’s New York Daily News is reporting that Victoria’s Secret has been sued for inducing the Chinese supplier for a New York and New Jersey-based shoe company to break its 25 year relationship with the shoe company in favor of an exclusive deal with Victoria’s Secret.

Now, let’s not be naive; the reason the story is being reported upon is because of the named defendant – Victoria’s Secret – and because anything that invokes their name – particularly if it even has the scent of a scandal – will sell.

But, the article does have some educational value, however. Although the article doesn’t spell it out, it actually sets forth some of the essential elements of a tortious interference with contract claim under New York law, pointing out that the plaintiff seeks to recover by dint of Victoria Secret’s acts of inducing the Chinese shoe makers to end their contract with Valley Lane, and how this act cost the plaintiffs in excess of $20 million in damages.

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Although the range of different types of contracts is quite vast, a common thread unites them: the basic elements of a contract, and what you need to prove in the event that the contract is breached.

www.youtube.com/watch?v=1LT66lUMXnI

In general terms, in order to establish a breach of contract claim under New York law, a plaintiff must prove the following 4 things: (1) the existence of an (enforceable) agreement; (2) that the plaintiff performed his end of the agreement; (3) that the defendant breached the agreement; and, (4) that the plaintiff sustained damages as a direct result of the defendant’s breach.

A plaintiff’s failure to prove any one of these elements should prove fatal to a breach of contract claim. Leaving aside, for the moment, the issue of enforceability (some types of agreements must be reduced to writing, as required by New York’s Statute of Frauds, and other agreements, such as illegal contracts, are unenforceable on public policy grounds), the prong that most often dooms breach of contract cases is the first: proving the existence of an agreement.  Here, the plaintiff is obligated to set forth the essential and specific terms of the agreement that the claim is based upon.

As a corollary to this rule, the following must be borne in mind: generalized breach of contract claims that are cast against a battery of defendants will fail unless the plaintiff can show a specific agreement with each defendant. In legalese, this is called “privity.” In other words, if I enter into an agreement with A Corp. to buy some widgets, and A. Corp. breaches the agreement, I have no inherent right to sue A. Corp.’s 5 other affiliates that weren’t parties to the original contract, and did not tortiously interfere with or otherwise induce the breach of contract. See, e.g., Chen v. Street Beat Sportswear, Inc., 364 F. Supp. 2d 269, 294-95 (E.D.N.Y. 2005).

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This was just one of the issues that New York Federal Judge Jack Weinstein had to address in Globaltex Group Ltd. v. Trends Sportswear Ltd., a commercial litigation case where the plaintiff sought to recover payment for goods that it shipped.

The facts of this case were – and are – rather fascinating.

In this case, the plaintiff, a Hong Kong garment manufacturer, sold the defendant several large containers of clothing.  But here’s the interesting part:  instead of standard invoicing for the shipments, both parties to the deal used a “double invoicing” method in order to avoid United States customs duties. The first invoice, which understated the amount and value of the clothing, was presented to customs officials for purposes of calculating the amount of customs duties that were owed;  a second invoice which set forth the actual value of the goods seeking payment was then sent by plaintiff to the defendants.

When the defendants failed to pay on these invoices, leaving an outstanding balance totaling nearly $2 million, this lawsuit seeking recovery in breach of contract, business fraud, unjust enrichment, tortious interference and conversion followed.

The defendants in this case definitely merit the “chutzpah” award: they sought to dismiss the claim – and thereby avoid having to pay for the goods that they ordered, received, and presumably profited from – on the grounds that the contract between the parties was illegal, and therefore, unenforceable.

The Court articulated the general rule as follows:

“In New York ‘[i]llegal contracts are, as a general rule, unenforceable.’ Lloyd Capital Corp. v. Henchar, Inc., 80 N.Y.2d 124, 127 (1992) … An agreement which is lawful on its face and which does not contemplate or necessarily entail unlawful conduct in its performance is enforceable by the promisee even though he engages in unlawful activity in the agreement’s performance.”

Applying these rules to reject the defendants’ argument, the Court stated as follows:

“It appears that the double invoicing was only indirectly related to the contract, rather than being “central to or a dominant part of the plaintiff’s whole course of conduct in performance of the contract … Defendants’ invocation of the illegality doctrine is unpersuasive in that they seek to use the doctrine “as a sword for personal gain rather than a shield for the public good.”

I have no doubt that justice was achieved by this decision.

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