Salespersons Need to Avoid Tortious Interference with Contracts

In the recent case of Jenni Rivera Enterprises v. Univision Communications, the California Court of Appeal clarified the elements of the tort for tortious interference with contractual relations.

Because listing agreements, buyer representation agreements, and purchase agreements are contracts that can be part of any standard sales transaction, prudent salespersons need to be aware of their obligation to avoid interfering with such contracts.

The appeal in Jennie Rivera Enterprises resulted from a dispute concerning a television production based on the life of the Mexican-American celebrity Jenni Rivera, who died in a plane crash in December 2012. The entity that controlled most of Rivera’s assets, Jenni Rivera Enterprises, LLC (JRE), entered into a nondisclosure agreement ("NDA") with Rivera’s former manager, Pete Salgado ("Salgado"), that restricted his disclosure and use of certain personal information about Rivera and her family.

Alleging Salgado breached that agreement by disclosing information to the producers and the broadcaster of a television series based on Rivera’s life, JRE sued Salgado and the program’s producers for breach of contract, interference with contract, and inducing breach of contract. JRE also sued the program’s broadcaster for interference with contract and inducing breach of contract.

The Appellate Court concluded that JRE satisfied its burden to demonstrate a prima facie case, with reasonable inferences from admissible evidence, that the producers had knowledge of the NDA before taking actions substantially certain to induce Salgado to breach the agreement.

The elements of a cause of action for intentional interference with contractual relations are:

(1) the existence of a valid contract between the plaintiff and a third party;

(2) the defendant’s knowledge of that contract;

(3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship;

(4) actual breach or disruption of the contractual relationship; and

(5) resulting damage.

The defendant’s conduct need not be wrongful apart from the interference with the contract.  Furthermore, a plaintiff need not establish that the primary purpose of the defendant’s actions was to disrupt the contract. The tort is shown even where the actor does not act for the purpose of interfering with the contract or desire it, but knows that the interference is certain or substantially certain to occur as a result of his or her action.

The tort of inducing breach of contract requires proof of a breach, whereas the tort of interference with contractual relations requires only proof of interference.

1.         Valid Contract

JRE alleged the NDA between JRE and Salgado precluded Salgado from disclosing or using certain confidential information about Rivera. The trial court found JRE made a prima facie showing the agreement was valid and enforceable.

2.         Knowledge of the Nondisclosure Agreement

To recover damages for inducing a breach of contract, the plaintiff need not establish that the defendant had full knowledge of the contract’s terms, but the defendant must have knowledge of the contract with which the defendant is interfering, and of the fact that the defendant is interfering with the performance of the contract. 

Knowledge of a contractual relationship is sufficient to show knowledge for the tort of inducing breach of contract.

JRE provided evidence the Producers knew of the NDA when JRE sent a cease and desist letter attaching the agreement. In addition, JRE submitted evidence the Producers knew of the NDA and its likely authenticity before or very soon after production of the Series.

The NDA imposed a continuing obligation on Salgado not to disclose or use confidential information about Rivera without JRE’s consent. The Appellate Court ruled that JRE could state a cause of action based on Salgado’s continuing obligations under the agreement and his breaches of discrete obligations at different times.

4.         Actual Breach or Disruption of the Contract

The trial court recognized the Producers appeared to concede that, if they knew of the NDA when they signed the Co-producers Agreement, they could potentially face liability for the cause of action of intentional interference of the NDA.

The trial court found that Salgado undoubtedly made additional disclosures of the same information to others during the production of the Series, and Salgado undoubtedly “used” protected information without JRE’s authorization.

Given the breadth of the NDA’s restrictions on Salgado’s use and disclosure of protected information, it was a reasonable inference of the trial court from the admissible evidence that Salgado breached the agreement after the Producers had knowledge of it.

5.         Resulting Damage - Causation

Determining whether a defendant’s misconduct was the cause in fact of a plaintiff’s injury involves essentially the same inquiry in both contract and tort cases.

The test for causation in a breach of contract action is whether the breach was a substantial factor in causing the damages.

Similarly, in tort cases, California has definitively adopted the substantial factor test for cause-in-fact determinations.  Under that standard, a cause in fact is something that is a substantial factor in bringing about the injury.

The term ‘substantial factor’ has not been judicially defined with specificity, and indeed it has been observed that it is neither possible nor desirable to reduce it to any lower terms.  A force which plays only an ‘infinitesimal’ or ‘theoretical’ part in bringing about injury, damage, or loss is not a substantial factor. Undue emphasis should not be placed on the term ‘substantial. Further, a substantial factor need not be the only factor contributing to the plaintiff’s alleged harm.  

Causation is ordinarily a question of fact that may be decided as a question of law where the undisputed facts permit only one reasonable conclusion.

The evidence in the record suggested the Producers agreed to many of the “enticements” to Salgado before they knew about the NDA. But once they knew of the agreement, the Producers’ continued payments to Salgado were a substantial factor in bringing about Salgado’s continued breaches.

6.         Damages

JRE alleged the Producers’ interference with the NDA negatively affected the value of the information protected by the agreement and the ability of JRE to use the information for its purposes. JRE further alleged the Producers’ interference limited JRE’s economic opportunities to publish a book or produce or sell a television show or series about Rivera containing the information.   This was sufficient to state a cause of action.

LESSONS:

1.         Interfering with the contractual relations between other parties (e.g., a listing agreement between seller and a salesperson) can expose the offending salesperson to a lawsuit for intentional interference with contractual relations.

2.         Salespersons should always be alert to the contractual relations between other parties, and should be very careful before interacting with one of the parties in a manner that may cause that party to breach a contract.