No Tortious Interference if Contract Already Breached

Everybody knows you can get in trouble for breaching a contract. But did you know that you can also get sued for inducing someone else to breach a contract that you’re not even a party to? Virginia, like many states, recognizes a cause of action for “tortious interference with contract.” The tort requires proof of four elements: (1) the existence of a valid contractual relationship or business expectancy; (2) knowledge of the relationship or expectancy on the part of the interferor; (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy; and (4) resultant damage to the party whose relationship or expectancy has been disrupted. (See Chaves v. Johnson, 230 Va. 112, 120 (1985)).

Basically, this means that if your business partner breaches a contract with you and the cause of the breach is the meddlings of a third person, your legal remedy may involve not only a breach-of-contract action against the business partner, but a tortious-interference claim against the meddler. This is a recognition of the value the law places on contract rights. Interfere with them at your peril.

Still, there won’t always be a culprit. Sometimes, contracting parties are simply unable to meet their obligations and have no choice but to breach. Other times, a third person might have induced the breach, but for reasons that the law regards as understandable and reasonable (and therefore privileged). Breaching a contract on the advice of counsel, for example, is unlikely to result in a tortious interference claim against the lawyer. And once a contract has been breached without the involvement of any third parties, no tortious interference claim will lie against anyone who wanders into the situation after-the-fact.

The latest example of an unsuccessful tortious interference claim comes from the Richmond Division of the Eastern District of Virginia. The suit was brought by successors in interest to MainQuad Communications, Inc., against Davidson Media Virginia Stations, LLC (“Davidson Virginia”), and various related individuals and entities. Among the defendants was Atalaya Administrative, LLC, charged with tortious interference for allegedly acting unjustifiably to prevent Davidson Virginia from repaying a $1 million promissory note.

What, exactly, did Atalaya allegedly do to cause Davidson Virginia to breach its contract to repay a million-dollar loan? It’s not exactly clear from reading the complaint, but what is clear is that whatever Atalaya may have done, it happened after the loan was already in default.

The allegations go something like this: MainQuad loaned a million dollars to Davidson Virginia in 2005. The loan documents included a subordination agreement providing that Davidson Virginia would not have to repay the loan until it had first satisfied its debt to certain “senior” lenders. MainQuad sued to collect in 2008, but the parties settled the case with an agreement under which separationDavidson Virginia would pay $600,000 subject to the condition precedent that it would sell certain assets to another company. That sale never happened, so the settlement agreement never went into effect.

The following year, the complaint alleges, Davidson Virginia went through a corporate restructuring that resulted in the senior lenders becoming equity owners of the company. Many years later, on December 14, 2014, the senior debt was sold and Atalaya Administrative became the agent for the senior lenders. On June 3, 2015, Atalaya wrote a letter to Davidson Virginia informing them that they had outstanding debt to the senior lenders and stating that “no action prohibited to be taken under the Financing Agreement and the other Loan Documents while an Event of Default exists and is continuing may be taken until the Loans and Obligations are paid in full, including but not limited to the making of any payment of…that certain $1,000,000 Promissory Note dated May 13, 2005.”

The plaintiffs claimed these actions by Atalaya amounted to tortious interference with contract. The court disagreed.

Applying New York law (which expresses the elements of tortious interference slightly differently than Virginia but is essentially the same), the court found that the third element (causing a breach or termination of the contract) was not satisfied because Atalaya’s letter was sent after the alleged breach. “It stands contrary to basic logic that an event that occurred after the breach of a contract could have caused that same breach,” the court wrote.

Atalaya may have had other defenses to the case as well, but it won’t need to pursue them because the plaintiffs were unable to demonstrate one of the most basic requirements of a tortious interference claim: that the alleged interference come before the breach.

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