Newsletter – September 2020
When a “stranger to the contract” intentionally interferes with the performance of a contract, the parties can sue the “stranger” under California law. In Caliber Paving Company, Inc. v. Rexford Industrial Realty and Management, Inc., No. G058406 (Ct. App. September 1, 2020), the Court of Appeal considered whether a “stranger” with an economic interest in a contract could be liable for the tort of intentional interference with that contract.
Facts of the Case
The “stranger to the contract” in this case was Rexford Industrial Realty and Management (“Rexford”), which owned a California property. Rexford hired Steve Fodor Construction (“SFC”) to make improvements to the property. In turn, SFC hired Caliber Paving Company (“Caliber”) to pave the parking lot. Caliber paved part of the parking lot and planned to complete a second section on September 11, 2017. That day, there were trucks and trailers parked on the lot, so Caliber could not complete the work. Its workers left the property.
Caliber notified SFC that it owed “move-on” charges because Caliber could not complete the work. SFC disputed the charges, and according to SFC, Caliber refused to complete the work unless SFC paid up. As a result, SFC hired a different contractor to finish paving the parking lot.
In contrast, Caliber’s president stated that during discussions between SFC and Caliber about the move-on charges, SFC agreed to reschedule Caliber’s work until a few days later. SFC then cancelled Caliber’s work the night before the rescheduled date. Caliber’s president said that SFC’s owner told him that Rexford’s representative had directed SFC’s owner to “kick [Caliber] off the job or hire somebody else.” Caliber’s account executive said that the SFC project manager had told him “Rexford wanted Caliber off the job.”
Caliber sued Rexford for intentional interference with its contract with SFC, and it sued SFC for breach of the contract. Rexford filed a motion for summary judgment, arguing that (1) Rexford was not a stranger to the contract and so it could not be liable under this tort theory, and (2) the evidence Caliber presented of Rexford’s interference was inadmissible “double hearsay.” The trial court considered a key court decision – Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 513-514 (Applied Equipment) – in reaching its decision. It granted Rexford’s motion, reasoning that Rexford had an economic interest in the contract and so could not be liable for intentional interference with it. Taking a closer look at Applied Equipment, however, the Court of Appeal reversed the trial court’s summary judgment order in favor of Rexford.
Since Rexford Had an Economic Interest in the Contract, Why Did the Court of Appeal Reverse?
In this case, no one disputed that Rexford was not a party to the contract. However, no one disputed that Rexford had an economic interest in the contract. The major issue was whether a third party – a stranger to the contract such as Rexford – could be liable for interference if the technical “stranger” actually had an economic (or social) interest in the contract. The trial court considered two lines from Applied Equipment to justify its decision: “However, consistent with its underlying policy of protecting the expectations of contracting parties against frustration by outsiders who have no legitimate social or economic interest in the contractual relationship, the tort cause of action for interference with a contract does not lie against a party to the contract” and “The tort duty not to interfere with the contract falls only on strangers—interlopers who have no legitimate interest in the scope or course of the contract’s performance.” (Applied Equipment at p. 514 (emphasis added).)
Taking a closer look at the Applied Equipment decision, the Caliber Court of Appeal noted that the case involved whether a party to the contract could be liable for conspiracy to interfere with its own contract. It did not involve a third party stranger with an economic interest in a contract. As such, the Court of Appeal dismissed the two lines cited by the trial court as dicta (not binding law). The Court noted that allowing third parties with economic interests to interfere with contracts without legal consequences would stymie the purpose of the interference tort itself and contradict the policy underlying it. In other words, allowing Rexford to “direct” SFC to fire Caliber could not be ignored.
To reinforce its conclusion, the Court of Appeal reviewed several similar cases in which California courts decided that third parties with economic interests in contracts could be liable for interference with those contracts. Here, like in the other analogous cases, Rexford could be liable for interference in Caliber’s contract with SFC notwithstanding its own economic interest.
Moreover, after a detailed review of the hearsay exceptions, the Court of Appeal also concluded that Caliber submitted admissible evidence sufficient to raise a triable issue of fact regarding Rexford’s interference with the contract. The statements were admissible as exception to the hearsay rule as either party admissions (Evidence Code § 1220) or prior inconsistent statements (Evidence Code § 1235). As such, the trial court would have grounds to deny Rexford’s summary judgment motion on remand. If the motion is denied, Caliber can continue to pursue its tort claim against Rexford at trial.
A third party with an economic interest in a contract can be liable for intentionally interfering with the contract. This decision potentially expands the tort of interference of contract cause of action to “interested” individuals who are not actual parties to the contract. This expands the potential remedies available for a party who seeking recovery for a breached contract.