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Gail S. Kelley, J.D., P.E.
ConstructionRisk, LLC

The plaintiff in this case, Barr Incorporated, was the general contractor (GC) on a project in Berlin, Massachusetts. After being terminated from the project based on a certification from the Architect, the GC sued the Architect for tortious interference with contractual and advantageous relations, and unfair and deceptive trade practices.  The Architect filed a motion to dismiss GC’s complaint, arguing that the GC was required to plead that the Architect had shown actual malice. The court denied the motion to dismiss, finding that Architect’s argument was not supported by case law.  Barr Incorporated v. Studio One, Inc., 2015 WL 7295492.

 

Under the construction contract for the project (“the Contract”), the Architect was responsible for reviewing claims that arose under the Contract and interpreting and deciding matters concerning the Contract Documents. Interpretations and decisions were required to be consistent with the intent of the Contract, made in good faith, and rendered without partiality to either the Owner or the GC.

The GC began work in December 2011 and according to its complaint, it performed its Contract obligations properly. However, before the Contract was executed, the Owner and Architect had become aware that changes to the work to be done under the Contract would be required. Because the Owner and Architect did not prepare alternative designs and obtain required approvals in a timely manner, there were delays. The GC asserted claims for an extension of time and an increase in payment, but its claims were denied.

During construction, the Owner encountered funding issues, failed to make timely payments to GC, and failed to ensure that it had sufficient funding to fulfill its obligations under the Contract.  The GC asserted that the Architect knew of the Owner’s financial troubles and that the Owner and Architect colluded to fabricate grounds for terminating the GC in order to avoid paying it.

The termination notice included a Corrective Action Plan whose terms were so onerous and unfair that Owner and Architect knew the GC would not agree to them. It also included a certification by the Architect that sufficient grounds existed for the termination because under the Contract, the Owner could not terminate GC “for cause” without this certification.   The GC alleged that the Architect caused the Owner to breach the Contract “to secure benefits to which it would not otherwise be entitled … including, among other things, substantial compensation for post-termination services and opportunities that would not have been available to the Architect absent the wrongful termination of the GC.”

Motion to Dismiss for Failure to State a Claim

To prevail on its claim of tortious interference with a contract under Massachusetts law, the GC had to establish that:

(1) it had a contract with a third party; (2) the Architect knowingly induced the third party to break the contract; (3) the Architect’s interference, in addition to being intentional, was improper in motive or means; and (4) the GC was harmed by the Architect’s actions.

The elements of tortious interference with advantageous relations are similar: a known advantageous relationship; deliberate interference, improper motive or means; and resulting economic harm. Both claims therefore require a showing of improper motive or means.

The Architect however argued that the GC had a heightened burden of showing that the improper motive or means constituted “actual malice.” The Architect argued that actual malice is required to plead a claim of tortious interference in cases involving a corporate official acting within the scope of his capacity as a corporate official or a supervisor acting on behalf of the supervisor’s employer. The basis for this argument was that courts have found that the alleged tortfeasor in these cases has a conditional privilege to purposely cause the breach of contract, and that a heightened pleading standard applies because of that conditional privilege.  In addition to citing previous Massachusetts cases, the Architect cited a New York case with very similar facts, BIB Construction Co. v. City of Poughkeepsie, 204 A.D.2d 947, (N.Y.App.Div.1994).

The court did not find the Architect’s reasoning persuasive. As the GC pointed out, this case did not involve either a corporate official acting within the scope of his capacity as a corporate official or a supervisor acting on behalf of the supervisor’s employer. Additionally, the New York case did little to help Architect. The court in that case found that, while the architect, as the city’s agent, generally could not be held liable for inducing its principal to breach a contract, an exception arises “when an agent does not act in good faith and commits independent torts or predatory acts directed at another for personal pecuniary gain.”

The court held that a showing of malice was not required in order to prove these two intentional interference torts; it was only necessary to show that an “improper motive” existed. By alleging that Architect’s certification was knowingly false and motivated by the prospect of additional compensation in the event of the GC’s termination, the GC had alleged that the Architect’s actions were improper in motive or means. Accordingly, the Architect’s motion to dismiss was denied and the matter will proceed to trial on the facts of the matter.

Comment:  Tortious interference with contractual and advantageous relations occurs when a person intentionally damages the plaintiff’s business relationship with a third person. These common law torts attempt to strike a balance between the promotion of healthy economic competition and the protection of existing or reasonably certain contractual relations. While American contract law encourages free market competition, it also recognizes that interests, rights and obligations worthy of protection arise once a contract exists between parties. However, in Massachusetts law, as in most other states, proof that the defendant exhibited actual malice, defined as “a spiteful, malignant purpose, unrelated to the legitimate corporate interest” is only required in a narrow subset of tortious interference cases.  Typically, it is only necessary to prove that the defendant’s actions were improper in motive or means.

 

 

About the Author:  As a professional engineer, Gail Kelley has performed structural design and analysis of post-tensioned structures, has performed constructability reviews, due diligence inspections, and condition assessments, and has provided litigation support for construction defect and delay claims in both state and federal court.  She received her B.S. in Civil Engineering from Cornell University, and Master of Science in Structure and Materials from Massachusetts Institute of Technology (MIT), and she received her Juris Doctorate from American University, Washington College of Law.  She provides risk management services for ConstructionRisk, LLC.   This article is published in ConstructionRisk.com Report, Vol. 18, No.4 (April 2016).

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