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“Affiliate” Relationship Insufficient to Found Economic Interest Defense

In Due Pesci v. Sustainable (New York County Index No. 651879/10), plaintiff Due Pesci Inc. brought suit against defendants Threads for Thought, LLC (“TFT”) and Sustainable Apparel Group, LLC (“Sustainable”), asserting, inter alia, a cause of action against Sustainable for tortious interference with contract, which Sustainable moved to dismiss pursuant to CPLR § 3211.

According to the decision by New York County Commercial Division Justice Eileen Bransten, defendant TFT designs and distributes clothing apparel lines and Sustainable is an affiliated operating company that conducts the business operations related to the distribution of TFT’s apparel lines.  The court noted that both TFT and Sustainable were “affiliated entities with common ownership” due to the fact that Jonathan Wiesner (“Wiesner”) is a principal and member of both companies.  Specifically, Wiesner owned a fifty-percent interest in TFT and was the sole owner of Sustainable.

In October 2008, a contract was entered into between TFT and plaintiff, which is a sales agent for garment manufacturers, which provided that plaintiff would sell TFT’s clothing to retail outlets and department stores within a certain exclusive sales territory.  In exchange, TFT agreed to pay plaintiff commissions for orders placed through plaintiff’s customers for TFT clothing.  In addition, the agreement provided for an early termination provision, wherein either party could terminate the agreement “by giving the other party notice in writing of termination within ninety (90) days prior to the end of the current term.”

The relationship between the parties soured approximately two years later.  In the complaint, plaintiff alleged that during July 2010, TFT began selling its apparel within the plaintiff’s exclusive territory through Sustainable, rather than through plaintiff, and that such activity was in violation of the agreement between the parties.

In response to the motion to dismiss, Sustainable disputed plaintiff’s claim for tortious interference and argued that Sustainable could not have interfered because TFT had effectively terminated the contract between the parties pursuant to the early termination provision.  Sustainable specifically referenced an email sent out by Wiesner on August 30, 2010 to plaintiff, which stated:  “We have been informed by ENK/Coterie that you have told them that you are no longer representing Threads for Thought.  While this is a somewhat unusual method to submit your resignation as our sales agent…through a third party, we accept your resignation effective immediately.”  In addition, Sustainable argued that it was economically justified in interfering with plaintiff’s contract with TFT in that both TFT and Sustainable were affiliated entities with common ownership.

The court rejected Sustainable’s arguments and denied its motion to dismiss the tortious interference with contract cause of action.  In its analysis, the court addressed each element required for a cause of tortious interference with contract, which requires the plaintiff to sufficiently allege “the existence of a valid contract between the plaintiff and a third party, defendant’s knowledge of that contract, defendant’s intentional procurement of the third-party’s breach of contract without justification, actual breach of the contract, [] damages resulting therefrom” (Due Pesci, NYLJ 1202542251827 at *5-6, quoting Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 424 [1996]), and finally that the contract would not have been breached “but for” the defendant’s interference.

The court held that the plaintiff sufficiently plead all six elements to the cause of action, and focused the majority of the opinion discussing two elements in particular relating to Sustainable’s arguments: (1) intentional procurement of the breach, and (2) economic justification.

In addressing the intentional procurement of breach element, the court noted, after reviewing the affidavits of third party buyers submitted in opposition by the plaintiff, that although many of the instances where the third party buyers were contacted by Sustainable occurred prior to the contract between TFT and plaintiff, there were two instances (in September of 2010 and March 2011) where Sustainable allegedly contacted the stores after the contract was effective.  Sustainable argued that the email sent by Wiesner on August 30, 2010 terminated the agreement and therefore the two instances of alleged interference occurred after the contract’s termination.  The court, however, rejected this argument and held that the plaintiff sufficiently alleged that the contract was in effect at the time in which Sustainable contacted buyers within plaintiff’s exclusive territory because (i) TFT did not properly provide plaintiff notice of termination with 90 days notice under the terms of the agreement, and (ii) plaintiff responded to the Aug. 30, 2010 email on two separate occasions rejecting TFT’s termination of the contract.

Next, the court addressed Sustainable’s argument that TFT and Sustainable were affiliates of one another and thus Sustainable was economically justified in interfering with TFT’s contract.  Pattern Jury Instruction § 3:56 with respect to Tortious Interference with Contract provides:

The defendant CD has the burden of establishing that (he, she, it) was justified in causing the breach of contract. In order to decide whether the defendant CD’s conduct was justified, you should consider the nature of the rights interfered with, the relation between defendant CD and the parties to the contract, and the interests that the defendant CD sought to protect, in other words, whether defendant CD’s interest is equal to or superior to the plaintiff AB’s interest. [where appropriate, add:] and the social interests involved).

If you decide that defendant CD’s conduct was justified, as I have explained that term to you, then you must next consider whether plaintiff AB has established that the defendant acted with malice or used wrongful means. If you find that the defendant CD has acted with malice or used wrongful means, then you will find for the plaintiff on this issue. If you find that the defendant did not act with malice and that the defendant did not use wrongful means, then you will find for the defendant on this issue.

One factor which courts analyze in determining whether a defendant is entitled to assert an economic interest defense to a tortious interference cause of action is the nature of the relationship between the defendant and the party which had a contract with the Plaintiff.    “When defendant’s interest is equal or superior to that of plaintiff, defendant is privileged to interfere with plaintiff’s rights, provided defendant does so by lawful means, and does not act for the sole prupose of injuring plaintiff.” Id., at 571.

The Due Pesci court rejected the argument by the Defendant because Sustainable did not state that it was “reasonably concerned that allowing the Agreement to continue would damage its economic interest.”  Due Pesci, NYLJ 1202542251827 at *14.  Specifically, the court found that Sustainable did not conclusively establish that it interfered with the agreement based on its economic interest because plaintiff promptly refuted TFT’s claim that plaintiff held out that it was no longer TFT’s sales agent after plaintiff received the August 2010 email.  In addition, the court found that Sustainable did not establish that it interfered with the Agreement in order to protect the financial health of its affiliate TFT.  Because plaintiff alleged that TFT gained over $2 million from sales made by plaintiff, the court found that in fact Sustainable’s alleged interference appeared to harm, rather than help, TFT’s economic interest, thereby undermining the motion to dismis




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