On June 21, 2012, the Colorado Court of Appeals released an opinion that may have important impacts on contracts and competition in Colorado. The opinion in Slater Numismatics v. Driving Force, LLC, holds that a party may be liable for the tort of intentional interference with contractual relations although the interference neither causes a breach of contract nor makes performance impossible. The proposition announced in Slater may provide a tort remedy to contracting parties where a third party’s interference causes damages but falls short of causing a complete failure of the contract. On the other hand, Slater may also be read as limiting certain types of competition when it may obstruct an existing contract. A summary of the opinion is below.
Slater Numismatics v. Driving Force, LLC
2012 COA 103
Plaintiff, Slater Numismatics, was a buyer/seller of coins. As part of that business, Plaintiff had a relationship with a coin grading and packaging company, Independent Coin Grading Company (“ICG”). ICG graded, packaged and then forwarded Plaintiffs’ coins to buyers. One of Plaintiffs’ largest customers was Cable Shopping Network. Eventually, Plaintiff and ICG entered into an agreement whereby ICG could deal directly with Cable Shopping Network and, in exchange, Plaintiff received 25% of the fees ICG received. After the referral agreement was in place, ICG’s CEO began negotiating with ICG’s owners to purchase the company. During these discussions the CEO indicated that once he purchased ICG he intended to devalue a competitor by hiring away its employees, purchase the competitor at a discount and then merge the two companies. The negotiations eventually faltered and the CEO left ICG and purchased the competitor through a new entity, Driving Force, LLC. In the following months the competitor hired away all but two of ICG’s employees, rendering ICG noncompetitive. The competitor then placed a bid for all of the work ICG performed for Cable Shopping Network. Because the competitor was not subject to the 25% fee sharing agreement with Plaintiff, it was able to undercut ICG’s prices. Plaintiff brought claims for intentional interference with contractual relations and unjust enrichment against Driving Force, LLC which were dismissed on summary judgment by the trial court.
The Colorado Court of Appeals initially found that the Colorado Supreme Court had consistently relied upon the definition of the tort of intentional interference with contractual relations found in § 766 of the Restatement (Second) of Torts (1977), which provides:
One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.
Defendant argued that pursuant to a recent Supreme Court opinion, the intentional interference tort claim could not be proven because its conduct had neither caused ICG to actually break its contract with Plaintiff, nor made the contract impossible to perform. The Court disagreed, finding that early Supreme Court decisions interpreting § 766 did not require proof of either a breach of contract or impossibility of performance. The Court surmised that the later Supreme Court decision discussed breach of contract and impossibility merely as examples of possible ways in which the tort of intentional interference with contractual relations could be proven. The Court held that “[c]onduct by the defendant in impairing a third party’s performance of a contract with the plaintiff, short of inducing or causing the third party to breach a contract, may constitute actionable intentional interference with contractual relations, under appropriate circumstances.”
The Court remanded the case concluding that, a jury could find that by hiring away nearly all of ICG’s employees, Defendant interfered with ICG’s ability to render services to Cable Shopping Network and thus caused ICG not to perform under referral agreement with Plaintiff.
The entire opinion is available free of charge at: http://www.courts.state.co.us/Courts/Court_Of_Appeals/Opinion/2012/11CA0683-PD.pdf