What Does “Interference with Prospective Contractual or Business Relations” Mean?

Turns out, until 2001 Texas has never had a really good definition of what “bad acts” are considered tortious interference with prospective contractual or business relations. Leaving something undefined is better for plaintiffs; it’s easier to get the case to a jury and then just leave it up to them, serving up the case with as much emotional umph as possible. But no more. Now, a business seeking to prove wrongful interference must prove that the alleged improper conduct was “independently tortious or unlawful.”

Although Texas law has included a cause of action known as “tortious interference with with prospective contracts or business relations” for many years, the conduct that is prohibited had never been defined until 2001. Now, before we go much further, think about that. You could sue someone, or they could sue you, and nobody really knew what it took to win. Or lose. What that means, in practice, is that these cases most often got thrown to a jury without much direction from the judge or the lawyers. Is it just something you know when you see it? Is that really justice?  This is just one instance of “sight justice.”  There are still others in Texas and federal law.

Prior to this case, judges got around the lack of a specific definition by using broad, vague terms to define the standard of unacceptable, illegal conduct, terms like “wrongful,” “malicious,” “improper,” of “no useful purpose,” “below the behavior of fair men similarly situated,” or “done with the purpose of harming the plaintiff.” Would you like a side of loopholes to go with that? Conduct that is “competitive” or “privileged” or “justified” is exempt, even if it is meant to harm the plaintiff.

Well, the Texas Supremes finally got ahold of a case that gave them the opportunity to, as they said, “bring a measure of clarity to this body of law.” And fortunately, they did just that. In the process, they even admitted that these vague concepts “have not only proved to be overlapping and confusing, they provide no meaningful description of culpable conduct…” So, let’s look at the clearer standard of prohibited conduct, and then apply it to some examples.

Here’s the rule, quoted directly from the Texas Supremes: “we conclude that to establish liability for interference with a prospective contractual or business relation the plaintiff must prove that it was harmed by the defendant’s conduct that was either independently tortious or unlawful. By ‘independently tortous’ we mean conduct that would violate some other recognized tort duty.” That’s on Page 2 of the opinion, and of course the Court next says “We must explain this at greater length…” and continues for 21 additional pages with 84 footnotes.

Now for some examples the Court used to show us what this cause of action is all about.

First example. A defendant threatens a customer with bodily harm if the customer does business with the plaintiff. In that instance, the defendant’s acts towards the customer were independently tortious–known as “assault”–and so that defendant would have committed tortious interference with prospective business relations of the plaintiff.

Second example. One business (the one who becomes the defendant) says something defamatory or fraudulent about the plaintiff to a prospective customer or business relation of the plaintiff. Again, we can point to conduct already prohibited by law–defamation and fraudulent misrepresentation. Are you getting the sense that this cause of action has now been substantially narrowed in its application?

Third example, slightly more complicated. One piece of real property, desired by two different persons, in beautiful Nederland, Texas. This tract of property was situated right next door to the local Wal-Mart, and Wal-Mart held a right to approve development of that tract. Harry Sturges, III, Dick Ford, Bruce Whitehead and J.D. Martin, III, (we’ll call this group the “Local Investors”) negotiated a contract with Bank One, Texas, to buy this piece of property. They planned to construct a 51,000 square foot facility, and they had a non-binding letter of intent to then lease said structure to Fleming Foods of Texas. Flemings liked the location, location, location, of being right next door to Wal-Mart.

The Local Investors had one problem. Wal-Mart had only approved a building of 36,000 square feet, so they would have to get Wal-Mart to agree to change the development restrictions to allow the larger 51,000 square foot structure.

Actually, the Local Investors had another, much bigger problem, which they wouldn’t find out about until a little later. But in the meantime, keep in mind that all throughout this process, the Local Investors only had a contract to purchase the property; they never actually purchased the property.

So off they went to Wal-Mart to negotiate the size of the building. A manager in Wal-Mart’s property management department told the Local Investors to submit their revised site plan, and indicated that Wal-Mart would approve it. The Local Investors were seeing the gold.

Unbeknownst to that manager, though, higher up the Wal-Mart management food chain, Wal-Mart had decided to either expand the Nederland store, or move it. The assignment of figuring out which, and acquiring the necessary dirt in either case, eventually went to local realtor Tom Hudson. This guy was like “Magnum, P.I” without the Ferrari, but then could you imagine somebody actually tooling around Nederland, Texas, in a Ferrari?

Hudson discovered the Local Investors’ plans to buy the adjacent lot. And he dutifully, and perceptively, told Wal-Mart to just deny the Local Investors’ request to approve the revised site plan. Wal-Mart did so. Hudson then contacted Fleming Foods and said, basically, “‘Heads I win, Tales you lose’ because either we get the property you wanted, for Wal-Mart’s expansion, or Wal-Mart won’t be there when you build your store, and Wal-Mart being there was the only reason you wanted to be there, so….what’s it gonna be?” It didn’t take Fleming Foods long to realize that this was, as the Court says, “an ultimatum not to move forward on the proposed lease with [the Local Investors].” They didn’t, and several months later, Wal-Mart purchased this tract of land and expanded its store.

“Ouch” cried the Local Investors. “Unfair” they screamed.” “We had this deal locked up, and Wal-Mart tortiously interfered with our deal with Fleming Foods.” They claimed all the lost rents as their damages. Never mind that (1) they never actually bought the property, and (2) their deal with Fleming Foods was non-binding, and (3) Wal-Mart had the contractual right to not approve any change to the site plan. Now remember that they never even purchased the land.

So what happened? The case made it to a jury, and the jury slammed Wal-Mart. One million dollars of actual damages, $500,000 in punitives, and $145,000 in “reasonable” attorneys fees. (This being a tort claim, though, the attorneys fees were not awarded.) Wal-Mart then did us all a big favor by appealing this case all the way through to this opinion.

Here’s how the Texas Supremes applied their new definition of this cause of action to these complicated facts. The Local Investors did not have any evidence of any conduct by Wal-Mart that was recognized as “wrong” by any other principle of law. There was no evidence of fraud, no deceit, no misrepresentation. Wal-Mart said they wanted it, and after they derailed the Local Investors’ scheme, Wal-Mart followed through with the purchase and expansion. That Wal-Mart actually bought the tract of real property in question and used it for their expansion basically sealed the deal as to the truthfulness of their statements. With “no evidence” of an independent wrong the case should not have gone to the jury, thus there should have been no jury award, case basically dismissed.

So what does it all mean? I think it means that this nefarious, vague, ambiguous tort claim has had much of its bite, and a lot of its terror, removed. If trial court judges will follow the law and will genuinely consider and be willing to grant motions for summary judgment, this cause of action will decline substantially in popularity. Fewer of these cases will ever get to a jury, and even those that do should go with some pretty detailed instructions as to what the jury must find before imposing liability. And it will give us lawyers a greater ability to plan your conduct as you are aggressively competing for business opportunities of whatever kind.

Wal-Mart Stores, Inc., v. Sturges, 52 S.W.3d 711 (Tex. 2001).


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