How to Prove the Two Types of Tortious Interference Claims Under New York Law April 14, 2010

Is it still tortious interference of a contract if the defendant induces a
breach of their own franchise agreement with the plaintiff? In other
words there is only two parties to the action not three. Here’s an
example: a major franchisor sends fraudulent letters to a franchisee
inducing the franchisee to breach his franchise agreement. Is the
above circumstance an example of tortious interference with a contract?

Let me be more specific: a franchisor informs a franchisee that he has
breached a contract between the two parties that calls for his immediate termination. This contract was said to be a seperate agreement that was added on to the standard franchise agreement that had a clause allowing the franchisee to remedy in a timely manner
any violations of company rules. The franchisee believes that he signed this add on agreement and decides to abandon his efforts to
remedy any company violations in a timely manner since he believes
he has been terminated effective immediately and sees no hope in trying to remedy a no-win situation. Surprise; it turns out that he
never signed this automatic termination agreement but unfortunately
for him he has abandoned his franchise business and moved his
equipment at great expense to a new location where he had to hire
contractors to remodel and had to sign a new lease. Not surprisingly
the new business fails and the former franchisee reasons that he was
duped into defaulting on the franchise agreement he did affirm and has
suffered insurmountable losses due to the franchisor’s negligence and
trickery. Is this not a case of tortious interference with a contract? Doesn’t the franchisor have an obligation to be truthful to it’s franchisee
and inform him of their errored communications? The developement
agent who was supposed to have had the franchisee sign the additional contract received a carbon copy of the phony termination
letter but never informed the franchisor he worked for or the franchisee
that this letter of automatic termination was fraudulent. If this is not a
case of tortious interference or inducing the franchisee to break his
existing contract then what is it?
received

The Subway Case alluded to in the previous example could also be
handled in court as a case of fraudulent inducement which of course is
an independent tort requiring proof of a false statement. Recently in a
lawsuit against AIG a district court ruled that a fraudulent inducement
claim was not subject to the arbitration clause of the contract. If you would like to see the story I will gladly email it to you. There is more
than one way to get justice from the unjust who hide behind franchise
agreements heavilly weighted in their favor.

Fraudulent Inducement Claim Not Subject To Arbitration Clause and $34 Million Verdict Upheld Against AIG
Article By:
Michael J. McGaughey
Howrey LLP
posted on: Tuesday, May 25, 2010
Criminal Law / Business Crimes / Dispute Resolution / Insurance Reinsurance & Surety / Litigation / Trial Practice
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A district court recently reaffirmed a $34 million jury verdict against three subsidiaries of American International Group Inc. ( “AIG”), finding that a claim for fraudulent inducement brought by AXA Versicherung AG (“AXA”), as successor in interest to Albingia Versicherungs AG (“Albingia”), was not subject to the arbitration clauses found in the two reinsurance contracts at issue. This decision is further confirmation that policyholders may be entitled to litigate extra-contractual claims in court despite the presence of an arbitration provision in the insurance policy at issue.

Here, AXA brought suit against AIG alleging that AIG fraudulently induced Albingia, through both affirmative misrepresentations and material nondisclosures, to enter into two reinsurance agreements. The suit proceeded to trial and a jury rendered a verdict in AXA’s favor for $34, 373, 170, including $5,750,000 in punitive damages. AIG appealed the verdict to the U.S. Court of Appeals for the Second Circuit, arguing that the allegations of misrepresentation and nondisclosure sounded in contract and, therefore, should have been arbitrated pursuant to the arbitration clauses contained in the reinsurance contracts, which required that “[a]ll disputes or differences arising out of the interpretation of this Agreement shall be submitted to the decision of two arbitrators . . . .”

The Second Circuit remanded for further proceedings regarding whether the fraudulent inducement claim should have been sent to arbitration pursuant to the contractual arbitration clauses and, if so, whether AIG waived its right to arbitration. Upon remand, the U.S. District Court for the Southern District of New York held that the claims for fraudulent inducement were not arbitrable. First, the Court held that AXA’s fraudulent inducement claim sounded in fraud, rending it outside the scope of the agreements’ arbitration clauses. Second, the Court independently determined that even if the fraudulent inducement claim could be viewed as sounding in contract, it still would fall outside of the scope of the arbitration clauses because “it does not ‘arise[e] out of the interpretation’ of the contracts.” Finally, the Court determined that, even if the claim had been arbitrable, AIG waived its right to arbitration by sitting on its arbitral rights in a “strategic gambit” meant to provide it a second bite at the apple in the event that it lost in court.

In the end, the Court confirmed that extra-contractual claims, such as a claim for fraudulent inducement, may fall outside the scope of the arbitration clauses often found in contracts of insurance. Moreover, as set forth by the U.S. Supreme Court in the recent Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Inc. decision, the Court affirmed that “parties may agree to limit the issues they choose to arbitrate” and a party may not be compelled to arbitrate that to which it has not agreed to arbitrate. Stolt-Nielsen, 559 U.S. __ (2010), slip op. at 17-23. Therefore, if a policyholder desires to litigate an extra-contractual claim against its insurer in court, be it a claim for fraudulent inducement or one for bad faith, careful attention should be paid to the actual language of the policy’s arbitration clause and the nature of the extra-contractual allegations levied against the insurer.

Reposted from Howrey LLP’s Insurance Coverage Monitor blog which features discussion and analysis from leading policyholder insurance attorneys on news and developments relating to insurance recovery law.

How about this situation: A business owner attempts to sell a business and assign the lease to the new owner. The new owner meets the requirements for transfer, as per the lease, but landlord won’t okay transfer. The longer the landlord holds out, the less time remaining on the lease, and the less value the lease holds. Is this a contract dispute only, or does it also fit the definition of tortious interference? Thank you in advance.

Thank you for responding. Yes, it is not strictly hypothetical, and I have an appointment scheduled to review the case. I was just curious if this fell under the contract itself, or could be considered interference.

If a transfer of lease is covered in the lease, and all the requirements are met to allow the transfer, how can a landlord effectively add more requirements (i.e. landlord must know, like and want to do business with new owner)? Wouldn’t that have to be included in the lease? If not, what is the point of putting anything into the lease? Do the landlord’s whims trump a written contract?

BTW, the lease states that consent may not be reasonably withheld if the assignee meets the criteria stated in the lease, which he does (and landlord agreed they were met, orally). For what it’s worth, landlord insists that he must meet with buyer (to discuss and possibly amend terms of the 5 year tenant option at end of 10 year lease). I am in NYC. So is this a breach of contract, or interference?

I realize that this is just a question on a blog, and not a formal review of the facts. Like I said, this is for an attorney, and as my current attorney is only handling the business transfer, I am meeting tomorrow with a tenant/landlord attorney. I’m just very curious and a touch impatient. Thank you again for your time.

I’d also like to add that once the landlord gave his verbal okay and told both parties that the new owner should pose no problems, thousands of dollars were spent by both parties on attorneys to draw up a contract and facilitate the transfer of ownership

I am a teacher. All teachers have employment contracts.

Another teacher filled a complaint against me that just might cost me my job. The complaint was a lie. There are no witnesses to what she said happened because it never happened. If this costs me my job, can I sue her for tortious interference with contract ?

This is a really interesting thread.

Here’s a question I’ve been struggling with. I’ve recently come across a case where a landlord is working on a HAMP loan modification (HAMP is a program Obama created to help homeowners modify their mortgage.) The bank, however, does not want the landlord to qualify for a modification. One of the requirements to qualify for a modification is proof of a specific amount of income. The landlord needs the tenants to pay rent in order to earn the satisfactory income requirements. The bank sent someone to the landlords house to speak with the tenants and tell them that the landlord will be losing his house and they therefore do not need to pay rent. This caused the tenants not to pay rent….(which I’m wondering whether that qualifies for tortious interference) which ultimately will result in the landlord losing his home, since he no longer earns the required amount of income.

Is this tortious interference?

-Rob

OK,

1. Tenant and landlord have lease contract in effect
2. Landlord is about to go through foreclosure and is trying to modify his mortgage
3. Bank doesn’t want landlord to modify because the property is more valuable to them.
4. Bank sends someone to tell the tenants not to pay rent because lanmdlord is losing house.
5. As a result, the tenant stops paying and the landlord no longer makes enough money to qualify for a HAMP mortgage modification.

It seems that there was an existing contract between the landlord and tenant….the bank must have known of this contract…the bank willingly intervened between the contract….and the bank’s intervention caused the tenant to stop paying, causing direct damage to the landlord.

Is there any other information you need about the case?

Thanks, Rob

In New York State, do you have a case of tortious interference when a member of a local school board, instructs (more like intimidates) a Director of Human Resources (a title they do not supervise), not to make administrative corrections (for employee positions) with the local civil service commission (positions held in excess of 36 months..) – as a direct result the employees were terminated.

Question
A and B enter a contract
A commits a material breach of expressly prohibited by the contract.
Independent third party C learns of the breach.
C notifies B of the breach so B can address the breach, protect their brands prestige.
C asks for a reward for providing this information.
C has no interest in contracting with B except to ensure C receives the reward.

Has C committed Tortious Interference in any fashion and or can C be liable for their actions in any way?

Thank you