Suppose you’re a senior executive at a company that regularly transacts large volumes of business with another company, when the wife of the other company’s CEO files what you believe to be an unwarranted sexual harassment lawsuit against your company, presumably with the consent or approval of her husband. I suspect many would assume that you would have the right to cease doing business with that company due to the strain on the relationship caused by the wife’s lawsuit. Shouldn’t you have the right to decide for yourself which companies deserve your business? Well, be careful. In an opinion written by Eastern District of Virginia Judge James C. Cacheris last month, the court found that allegations like these were sufficient to state a claim for tortious interference with contract under Virginia law.
Tortious interference is a legal theory that requires a plaintiff to allege (and eventually prove) the following 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. If the contract is “at will,” such as the typical employment contract that either party is free to terminate at any time, it must also be proven that the defendant employed “improper methods.” After the case of Stephen M. Stradtman v. Republic Services, Inc., it would appear that “business retaliation” can qualify as the required “improper method” to support a tortious interference claim.
The case involves a dispute between two companies in the waste management industry. Mr. Stradtman was the CEO of Otto Industries North America, Inc., a manufacturing company that enjoyed tremendous success due in large part to its profitable business relationship with Republic Services, a waste collection service company. Stradtman eventually became engaged to marry Republic’s Director for Municipal Sales in the East Region, Jennifer Taylor. In September of 2011, Ms. Taylor filed an EEOC charge against Republic, alleging sexual harassment, gender discrimination, and retaliation for conduct that allegedly occurred between 2009 and 2011, and the following month she filed a civil discrimination lawsuit against Republic and various Republic employees in Fairfax County Circuit Court. Stradtman and Taylor proceeded to marry, and that’s when (according to the lawsuit Stradtman would later file) Otto’s business started to dry up.
The lawsuit claims that Republic intentionally diverted its business away from Otto in retaliation against Stradtman for his wife’s discrimination lawsuit. Republic withdrew its participation in an annual golf tournament, commenting that “lawsuits have unintended consequences.” Otto investigated the reason for the dramatic and sudden loss of Republic business in February of 2012 and found there were no quality, service, or price issues. When it became clear that Republic was withholding business as a means of punishing Stradtman for his wife’s lawsuit, Stradtman felt he had no choice but to resign as Otto’s CEO, given that he had a fiduciary duty as CEO to act in Otto’s best interests. He resigned, and sure enough, Republic resumed placing regular orders with Otto promptly upon learning of his departure.
The court, treating these allegations as true (as it is required to do at this stage of the litigation), agreed that if Republic was guilty of the alleged conduct, Stradtman could recover against it on a claim of tortious interference with business expectancy.
Republic argued that Stradtman’s voluntary resignation from Otto was fatal to his claim because Virginia law requires the interfering party to cause a third party (Otto) to terminate the business relationship with Stradtman, and Stradtman admitted that he resigned. The court, however, was persuaded by Stradtman’s response that he was “constructively discharged” and that the defendants intentionally acted to give him no other choice but to resign. In other words, Stradtman did not willingly surrender his expectancy of continued employment.
As for whether Republic used “improper methods” to interfere with the contract expectancy, the court found sufficient that Stradtman alled that “Republic and Mr. Krall employed improper methods including, but not limited to, violating Va. Code § 18.2-460 which prohibits any obstruction of justice…breaching its contract with Otto…defamatory allegations that Otto rather than Republic had not performed under the contract, efforts to discredit Mr. Stradtman and shift business away from Otto[.]”
For these reasons, the court denied Republic’s motion to dismiss the tortious interference claim.