Tortious Interference with Contract in Minnesota

In Minnesota, a claim can be brought for the wrongful interference with noncontractual as well as contractual business relationships.  This article discusses claims for: 1) tortious interference with contract claims; 2) tortious interference with business relations; and 3) damages available for those claims.

        I.  Elements of Tortious Interference with Contract in Minnesota:

A third party who interferes with and causes the breach of a contract may be liable for damages if his actions are intentional and unjustified. Kallok v. Medtronic, Inc., 573 N.W.2d 356, 361 (Minn. 1998).  The test for a tortious interference with contract claim in Minnesota requires the plaintiff to show:

  1. the existence of a contract;
  2. the alleged wrongdoer’s knowledge of the contract;
  3. intentional procurement of its breach;
  4. without justification; and
  5. damages.

Furlev Sales & Assocs., Inc., v. N. Am. Auto. Warehouse, Inc., 325 N.W.2d 20, 25 (Minn. 1982).

The third element may be established by evidence that the defendant, with knowledge of the contract, induced the breaching party to breach that contract either by offering a contract with more favorable terms or by offering another incentive to the breaching party.  For example in Kallok, the defendant’s officials “met with Kallok on numerous occasions and produced the breach of his noncompete agreements by offering him the vice president position that he eventually accepted.” 573 N.W.2d at 362.  But merely entering into an agreement, even with knowledge of the contract, is not tortious interference if the defendant did not induce the party to breach his or her agreement with the plaintiff. See Salon 2000, Inc. v. Dauwalter, No. A06-1227, 2007 WL 1599223, at *5 (Minn. Ct. App. June 5, 2007).

Minnesota recently expressly recognized the justification defense against a claim of tortious interference with contract may be satisfied by a defendant’s good-faith reliance on advice of outside counsel, provided that the legal advice is obtained through a reasonable inquiry.  In Sysdyne Corp. v. Rousslang, 860 N.W.2d 347 (Minn. 2015), the supreme court held that honest reliance on the advice of outside counsel with respect to a noncompete agreement an employee signed with a prior employer barred a claim for intentional interference with contract by the former employer.  The justification defense may be lost, however, if a bad motive is present. Metge v. Cent. Neighborhood Improvement Ass’n, 649 N.W.2d 488, 500 (Minn. App. 2002).  The defense is a “fact-based, case-by-case” analysis. Sysdyne Corp., 860 N.W.2d at 352.

          II.   Elements of Tortious Interference with Prospective Economic Advantage in Minnesota:

The test for a tortious interference with prospective economic (or business) advantage claim in Minnesota requires the plaintiff to show:

  1. the existence of a reasonable expectation of economic advantage;
  2. the defendant’s knowledge of that expectation of economic advantage;
  3. that defendant intentionally interfered with plaintiff’s reasonable expectation of economic advantage, and the intentional interference is either independently tortious or in violation of a state or federal statute or regulation;
  4. in the absence of the wrongful act of the defendant, it is reasonably probable that plaintiff would have realized his economic advantage or benefit; and
  5. the plaintiff sustained damages.

Gieseke ex rel. Diversified Water Diversion, Inc. v. IDCA, Inc., 844 N.W.2d 210, 219 (Minn. 2014).

A reasonable expectation of economic advantage requires plaintiffs to demonstrate the existence of specific third parties with whom the plaintiff had a reasonable expectation of a future economic relationship means that defendants are liable only for the expectation that the relationship eventually will yield the desired benefit, rather than the mere speculative expectation that a potentially beneficial relationship will arise. Gieseke,844 N.W.2d at 221.  Speculative expectation that a potentially beneficial relationship will arise is not sufficient. Id.; see also H Enters. Int’l, Inc. v. Gen. Elec. Capital Corp., 833 F.Supp. 1405, 1417 (D. Minn. 1993).  For example, a general claim for “prospective economic relations with air travel customers” is insufficient under Minnesota law. Int’l Travel Arrangers v. NWA, Inc., 991 F.2d 1389, 1405 (8th Cir. 1993).

The intentional interference must be either independently tortious or in violation of a state or federal statute or regulation ensure that fair competition is not chilled. Gieseke, 844 N.W.2d at 218.  Typically, the independent tort is fraud or misrepresentation.

              III.  Damages for Tortious Interference Claims in Minnesota:

Both wrongful interference claims require the plaintiff to prove the defendant’s conduct cause damages.  General damage to a plaintiff’s business reputation, however, is insufficient to establish that an expectation of economic advantage was damaged. Gieseke, 844 N.W.2d at 222.  Further, damages cannot be speculative. Id.

A person injured by the tortious conduct of another is entitled to recover from the other damages for all harm, past, present, and prospective, legally caused by the tort. Kallok, 573 N.W.2d at 363.  For tortious interference with contract, the usual remedy provided by Minnesota law for interference with contract is to compensate the victim for the damages that resulted from the loss of the contract.” Storage Technology Corp. v. Cisco Systems, Inc., 395 F.3d 921 (8th Cir. 2005).  Damages may include lost profits. St. Jude Medical S.C., Inc. v. Biosense Webster, Inc., — F.3d —, No. 14-3886 (8th Cir. Apr. 12, 2016) (affirming award of $550,952 in lost profits for Biosense’s interference with St. Jude Medical’s contracted employee).

Notably, attorney’s fees may be recoverable for tortious interference with a contractual relationship. Kallok, 573 N.W.2d at 363.  Generally, the “American rule” of litigation prevents a party from shifting its attorney’s fees to an opponent without a specific contractual or statutory authorization. Id.  One exception to this general rule, however, is the “third-party litigation exception,” under which “[i]t is well-established that a third party who interferes with and causes the breach of a contract may be held liable for damages.” Id. at 361.  These damages may include attorney’s fees when the defendant’s conduct “thrusts or projects the plaintiff into litigation with a third party.” Id. at 363.  Generally, the amount of attorney’s fees is limited to those fees required for the plaintiff to enforce its contract rights, not to establish the tortious interference claim.

*                                  *                                  *                                  *