Commercial Division Blog

Posted: August 28, 2014 / Categories Commercial, Tortious Interference

Acquirer Not Liable for Tortious Interference With Contract of Company it Acquired

On August 4, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in American Water Enterprises Inc. v. Tectura Corp., 2014 NY Slip Op. 32182(U), dismissing a claim for tortious interference with contract.

In American Water Enterprises, the plaintiff asserted a claim for tortious interference with contract against a defendant that was in the process of acquiring Tectura, a company that had a contract with the plaintiff. The court granted the defendant's motion to dismiss the claim, explaining:

To state a claim for tortious interference with contract, plaintiff must allege (1) existence of a contract between plaintiff and a third party, (2) defendant's knowledge of the contract, (3) defendant's intentional inducement of the third party to breach or otherwise render performance impossible, and (4) damages to plaintiff.

[The plaintiff] fails to sufficiently plead the third element, that [the defendant] intentionally interfered with  Tectura's performance of the contract. [The plaintiff] relies on a statement by one of Tectura's employees that Tectura's employees had been told to stop working on the Project due to the Acquisition by [the defendant]. [The plaintiff] asserts elsewhere, however, that [it] has no way of knowing who gave those instructions to Tectura's employees. These instructions, without allegations that [the defendant] told Tectura employees to stop working, does not state a claim for tortious interference with contract. A company's decision not to acquire certain assets during an acquisition, particularly the decision not to accept assignment of a contract that is already in default, cannot itself be considered tortious interference with a contract.

Even if this court found otherwise, that [the plaintiff] sufficiently pleaded tortious interference by demonstrating that [the defendant] had affirmatively instructed Tectura employees to cease work, the defendant's motion to dismiss would be granted because [it] put forth a valid economic interest defense. . . .  It is well settled that a corporation that acquires another corporation and then causes one of the acquired corporation's contracts to be terminated, is not liable for interference with that contract, because it had an economic justification for its actions. While the facts here present a case of first impression, in that [the defendant's] acquisition of Tectura was not yet finalized when the alleged interference occurred, the law in cases where the interference occurred after a merger closed is equally applicable here. [The defendant] was in the process of acquiring Tectura's assets and had an existing economic interest in the affairs of Tectura, which it was privileged to attempt to protect. It is immaterial that the acquisition was not finalized when the alleged interference occurred. Even if [the defendant] interfered with the contract between [the plaintiff] and Tectura, although this court finds that it did not, it had an economic justification for doing so.

(Internal quotations and citations omitted) (emphasis added).