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Substantiating Malice, As an Exception to the Economic Interest Defense, Is Increasingly Difficult

Weeks before then-President George Bush defeated presidential candidate John Kerry, Dan Rather narrated a 60 Minutes piece on CBS assailing President Bush’s service in the Texas Air National Guard.  Subsequent to President Bush’s re-election in November 2004, Mr. Rather claimed that CBS reduced Mr. Rather’s role and visibility at CBS.  After the loss of his highly prized seat as anchor of the nationally broadcast Evening News program, followed by an acrimonious severance from the Network, Mr. Rather filed suit, with claims sounding in breach of contract and related torts.  The First Department’s complete dismissal of Mr. Rather’s claims against CBS reiterated an important point for counsel prosecuting or defending tortious interference claims: claims of malice must be specifically articulated because generic, bare allegations of malice will not suffice to circumvent the economic interest defense to a tortious interference claim. In Rather v. CBS Corporation,[1] Mr. Rather’s action sounded in several causes of action, including breach of contract, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, and tortious interference with contract.  The Supreme Court granted the defendants’ motion to dismiss the claims for fraud, breach of the implied covenant of good faith and fair dealing and tortious interference with contract, but denied the defendants’ motion to dismiss the breach of contract and breach of fiduciary duty claims.  On appeal before the First Department, the Appellate Division held that the Supreme Court erroneously denied the defendants’ motion to dismiss the breach of contract and breach of fiduciary duty claims, and, therefore, dismissed the Complaint in its entirety. The First Department also affirmed that portion of the Supreme Court Order which dismissed Rather’s tortious interference claim against CBS.  Citing the 2007 Court of Appeals decision in White Plains Coat and Apron Co., Inc. v. Cintas Corp.,[2] (holding that a generalized economic interest in soliciting business for profit does not constitute a defense to a claim of tortious interference with an existing contract for an alleged tortfeasor with no previous economic relationship with the breaching party), the First Department ruled that the Supreme Court “correctly applied the economic interest doctrine to dismiss the claim against the corporate defendant [CBS].” As to the viability of the economic interest defense to a tortious interference claim, the White Plains Court noted that:
In response to such a [tortious interference] claim, a defendant may raise the economic interest defense–that it acted to protect its own legal or financial stake in the breaching party’s business. The defense has been applied, for example, where defendants were significant stockholders in the breaching party’s business; where defendant and the breaching party had a parent-subsidiary relationship; where defendant was the breaching party’s creditor; and where the defendant had a managerial contract with the breaching party at the time defendant induced the breach of contract with plaintiff [internal citations omitted].
Rather attempted – unsuccessfully — to circumvent the economic interest defense by claiming that CBS was motivated by malice.  The maxim that a sustained finding of malice serves as an exception to the economic interest defense has its genesis in decades-old precedent.  Specifically, in Foster v. Churchill,[3] the Court of Appeals reiterated its rule of law highlighted in its 1969 decision in Felsen v. Sol Cafe Mfg. Corp.:[4]
The imposition of liability in spite of a defense of economic interest requires a showing of either malice on the one hand, or fraudulent or illegal means on the other [citing Felsen].  To defeat a claim of tortious interference under Felsen, respondents need to establish that their actions were taken to protect an economic interest.  While the lower court found that respondents did not show good faith in their actions, and may have acted in bad faith, there was no evidence that independent torts were committed, nor were respondents’ actions advanced to serve some personal interest. Respondents were clearly acting in the economic interest of Microband, which was on the brink of insolvency. To the extent that respondents acted to preserve the financial health of an ailing Microband, their actions were economically justified.
In that light, the First Department rejected Mr. Rather’s malice claim out of hand: “Rather’s bare allegations of malice do not suffice to bring the claim under an exception to the economic interest rule”.  Indeed, there is a long line of authority which confirms that sparsely detailed allegations of malice are insufficient to trigger the exception to the economic interest defense; the Rather court cited Ruha v. Guior[5] for the proposition. Practitioners in federal district court pursuing claims premised upon malice have two obstacles to overcome.  There are many instances where a federal district court has dismissed claims premised upon malice: see, e.g., United States District Court Judge Preska’s December 2009 Order which cited the First Department’s decision in Rather in rejecting a tortious interference claim by merely characterizing the alleged offensive conduct as “malicious” and “without justification”.  Without more, Judge Preska rejected the claim.[6] The claimant’s pleading burden in federal district court has been reinforced, generally, with the United States Supreme Court decision in Ashcroft v. Iqbal,[7] which ruling confirmed that the pleading standard in is now more challenging than ever:
“To survive a motion to dismiss,” a counterclaim “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ “ Ashcroft v. Iqbal, — U.S. —-, —-, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). In making this determination here, this Court is mindful of two corollary rules. “First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Id. In other words, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555). “Second, only a complaint that states a plausible claim for relief survives a motion to dismiss.” Id. at 1950 (citing Twombly, 550 U.S. at 556). The Supreme Court has noted that “[d]etermining whether a complaint states a plausible claim for relief will … be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. (citation omitted).[8]
In fact, Judge Preska additionally cited Iqbal in concluding that the tortious interference claim must be dismissed because the claimant’s “conclusory allegations do not meet the pleading standard set forth in Iqbal”.[9]  In this light, claims of malice are ripe for attack by the defense bar on two fronts: first, whether the claims meet common law standards constituting malice; second, the party claiming, inter alia, malice, must likewise convince the Court, at the pleading stage, that the claim is “plausible” in the corresponding “context-specific” environment. That “context-specific” analysis served as a basis for dismissal of a tortious interference with prospective business advantage in Bayer Schera Pharma AG v. Sandoz, Inc. 2010 WL 1222012 (S.D.N.Y. 2010).[10]  In Bayer, defendant Sandoz pursued a counterclaim against Bayer premised upon tortious interference; Sandoz alleged that it had “a continuing economic advantageous relationship with others for the supply of its generic products.”  In response, Bayer urged that dismissal was appropriate because Sandoz failed to identify a “particular, existing relationship” which was interfered with by Bayer. Southern District Judge Paul G. Gardephe, citing Iqbal, agreed with the defense.
Sandoz has not identified any specific business entities with which it had business relationships.[11] “New York courts have dismissed complaints that failed to allege the specific business relationship that was interfered with.” Johnson & Johnson, 552 F.Supp.2d at 464-65 (collecting cases). Prior to Iqbal, New York district courts disagreed as to whether a plaintiff was required to identify specific business relationships in order to make out a claim for tortious interference with prospective economic advantage. See id. at 465 (collecting cases). After Iqbal, it is clear that a claim such as this-which merely “offers ‘labels and conclusions’ [and] ‘a formulaic recitation of the elements of a cause of action’ “-will not survive a motion to dismiss. See Iqbal, 129 S.Ct. at 1949. Although Sandoz has alleged that it has a “continuing economic advantageous relationship with others for the supply of its generic products,” and that Bayer has interfered with those relationships (Yasmin Cntrcl. ¶ 87; Yaz Cntrcl. ¶ 85), it is entirely unclear whether the “others” referenced are entities that purchase generic drugs from Sandoz, third-party business entities that market Sandoz’s products, business entities that supply the raw materials Sandoz uses to manufacture its products, or another type of business. Because Sandoz offers only “[t]hreadbare recitals of [an] element[ ] of a cause of action, supported by mere conclusory statements,” see Iqbal, 129 S.Ct. at 1949, its counterclaims for tortious interference with prospective economic advantage will be dismissed.
In the First Department’s Advanced Global Technology, LLC v. Sirius Satellite Radio, Inc., 44 A.D.3d 317, 843 N.Y.S.2d 220 (1st Dep’t 2007), it was alleged that Sirius warned an electronics manufacturer that it was running the risk of losing Sirius’s business if the electronics manufacturers did business with Plaintiff.  As a result, the electronics manufacturer broke off negotiations with AGT, which in turn sued Sirius, alleging tortious interference.  The First Department, in affirming the CPLR 3211(a)(7) dismissal, confirmed that:
the allegations, on their face, show that Sirius’s interference was neither wrongful nor motivated solely by malice, as opposed to its normal economic interest (see Carvel Corp. v. Noonan, 3 N.Y.3d 182, 190, 785 N.Y.S.2d 359, 818 N.E.2d 1100 [2004]), specifically, that a major facilitator of its business (KRI) not do any manner of business with a major facilitator (AGT) of its sole competitor’s (XM) business ( see id. at 191-192, 785 N.Y.S.2d 359, 818 N.E.2d 1100 [so long as defendant is motivated by legitimate economic self-interest, it should not matter if the parties are, or are not, competitors in same marketplace]; cf. Sumitomo Bank of N.Y. Trust Co. v. DiBenedetto, 256 A.D.2d 89, 681 N.Y.S.2d 248 [1998], lv. denied 93 N.Y.2d 804, 689 N.Y.S.2d 17, 711 N.E.2d 202 [1999] [threats by defendants town attorneys that if a prospective vendor did not withdraw its proposal to town, “its ability to do business thereafter with the Town … would be severely compromised,” insufficient to sustain claim for tortious interference by plaintiff Trustee of noteholders where town’s liability on notes depended on whether it was unable to procure contract for type of services provided by vendor] ).
Conclusion Despite the traditional deference provided to a claimant at the initial pleading stage, ….
[1] 886 N.Y.S.2d 121, __ A.D.3d ___ (1st Dep’t 2009). [2] 8 N.Y.3d 422 (2007). [3] 87 N.Y.2d 744 (1996). [4] 24 N.Y.2d 682 (1969). [5] 277 A.D.2d 116, 717 N.Y.S.2d 35 (2000). [6] IMG Fragrance Brands, LLC v. Houbigant, Inc., 2009 WL 5171741 (S.D.N.Y. 2009) [7] 129 S.Ct. 1937 (2009).   [8] Bayer Schera Pharma AG v. Sandoz, Inc., 2010 WL 1222012 (S.D.N.Y. 2010). [9] 2009 WL 5171741, at 7 (S.D.N.Y. 2009) [10] 2010 WL 1222012 (S.D.N.Y. 2010). [11] Judge Gardephe made an interesting observation in response to Sandoz’ explanation for failing to specifically identify business relationships which were harmed by Bayer.  Sandoz claimed that the failure to identify specific business relationship was not inadvertent but was due to the “the strict confidentiality ascribed to contracts for the supply of API [active pharmaceutical ingredients] in the pharmaceutical industry.” [internal citations omitted].  The Court rejected the viability of any such excuse: “Protection of trade secrets or other proprietary information can, of course, be accomplished through entry of a protective order and/or a sealing order. In any event, confidentiality concerns do not excuse a failure to plead the elements of a cause of action.”




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