The Interference With Contractual Relations Conversation Continues
Had enough of the interference with contractual relations debate yet? If so, skip this post. If not, I have some more thoughts for you to ruminate about concerning the tort and how it may be applied to our industry.
Based on the comments left on the two posts on SAB regarding this issue (Sports Agents Interfering With Contractual Relations and Digging Deeper Into The Contractual Interference Claim), the main concern continues to be that most agent/athlete contracts are terminable at will, and that based on the fact that they are labeled as such, the tort should not apply. But other than the holding of the Illinois court, I can’t see why that concern should be valid. Yes, a terminable at will contract may be terminated at the will of an athlete, but that still should not preclude an action based on interference with contractual relations, since that claim is based on the actions of a 3rd party to the contract, not the athlete’s actions alone. In this type of case, but for the 3rd party’s interference, the athlete presumably would not have terminated the agency contract. There should be a remedy available to the agent who loses the client in this situation.
I recently read through a piece titled, Actions For Interference With Contract Rights by Stanley Rothenberg, a partner in the firm of Heit & Rothenberg of New York City, who has specialized in copyright and entertainment law since graduation from Harvard Law School in 1953. The full document is embedded at the end of this post. I highlighted portions of the document, which I will provide in bullet points, below.
- The remedy for the tort of contract interference now extends to situations where an actual contract relationship is lacking, as where the defendant interferes with an expectancy or an advantageous relationship.
- The dominating consideration of the courts today, instead of a determination of the presence or absence of some kind of legal malice, seems to be balancing the conflicting economic interests of the parties, so as to prevent unwarranted and actual injury. For example, one who knowingly induces the employee of another to quit his employment, to the employer’s actual injury, will be held liable in damages to the employer. In brief, to sustain an action for damages for unlawful interference with a contractual right, the plaintiff must establish the matters listed in the following checklist:
- The existence of a valid contract to which the plaintiff is a party.
- The plaintiff’s rights under the contract.
- The defendant’s knowledge of those existing rights.
- The defendant’s intentional interference with those rights.
- Lack of justification for the defendant’s acts.
- Damage to the plaintiff resulting from the interference.
- As a general rule, there must be an existing, valid contract before one can be liable for intentional interference with a contractual relationship.
- Interference with a contract that is terminable at will, such as an employment contract, is actionable since such a contract, until it is terminated, is of value to the plaintiff and presumably will continue to be in effect. Moreover, an agreement may not even have to be enforceable against the employee or performer in order to be the basis of a tort action for contract interference by a third party. In such a case, the law assumes that even an unenforceable promise will be carried out if the third person does not interfere. However, there is no cause of action if the plaintiff did not possess the contractual rights with which there has been claimed interference. In fact, to defeat the plaintiff’s claim, it may be necessary for defense counsel to show that the invaded right was the property of a third party, even though this may expose the defendant to the possibility of a lawsuit by such party.
- Knowledge by the defendant of the existence of the plaintiff’s contract with another is a prerequisite to liability for interfering with the agreement. Negligent interference with a contractual relationship, absent such knowledge, does not constitute the tort of wrongful interference. Furthermore, the cases almost uniformly require that the plaintiff show actual knowledge of the agreement by the defendant before the defendant will be held liable for interference.
Interestingly, the article posits that not only is a terminable at will contract protected from interference with contractual relations, but additionally, an actual contract relationship does not even need to exist – all that is necessary is an expectancy or an advantageous relationship (this is slightly contradicted later in the article). Truthfully, though, I think a contract is probably a smart move in this case, at least when it comes to an offering of proof. The key point is that the plaintiff will need to prove that the 3rd party knew about the contract between the agent/athlete and purposefully interfered with that contractual relationship. This burden may not be the easiest thing for a plaintiff to overcome.
I landed on another case that touches on an interference with contractual relations claim in our field, albeit the case is between agencies for the improper interference with an agent’s contract with an agency, not an agency contract between and agent/athlete.
The case is Vortex Sports & Entertainment, Inc. vs. R. David Ware; Ware & Associates, Inc; Constangy, Brooks & Smith, L.L.C.; and CSMG, Inc, which was affirmed on appeal in 2008. In part of the appeal, CSMG claimed that the court should have granted its directed verdict motion on Vortex’s interference with a contract action. Vortex originally claimed that CSMG interfered with its contractual relations with former employee, David Ware, when it hired him and he took many clients with him from Vortex to CSMG.
The Court looked to the case of Camp v. Springs Mortgage Corp. for the proper elements in proving an interference with contractual relations claim:
- existence of a valid contract;
- the wrongdoer’s knowledge thereof;
- his intentional procurement of its breach;
- the absence of justification; and
- resulting damages.
This echoes the elements presented by Rothenberg. The Court held that CSMG did interfere with contractual relations based largely on the fact that CSMG knew that Ware was responsible for debt repayment, that there was a clause in the employment contract providing that Ware be responsible to pay out any 3rd parties who demanded an interest in fees, and that CSMG had engaged in this type of wooing process in the past (with Fletcher Smith).
In an agency contract, a Court could look at whether the 3rd party has engaged in such practices in the past, boasted in public about stealing clients, documents/statements showing awareness of a contractual relationship, a clause in the 3rd party’s agency contract that stipulates the athlete will be responsible for any fees owed to the former agent, etc.
Perhaps the Illinois case reference in a previous article on this subject has been given too much credence by members in this profession. Not all hope is lost for agents who believe their clients are intentionally stolen from them by others.