An Example Of Interference With A Contractual Relationship

One of the trickiest business litigation topics to understand is interference with contractual or economic relationships. In the abstract, it seems beyond simple. After all, no one wants to see a third party causing problems in an otherwise beneficial commercial agreement. In application, however, defining what the issue is and proving or disproving that it specifically happened in your situation can be a challenge for even the most capable business litigation lawyer.

The Elements of Interference

American law demands that a case includes many qualifying factors. Foremost, there had to be an economically beneficial relationship that the defendant knew about. Likewise, a reasonable person would determine that the conduct of the defendant was wrongful. There also has to be intent, meaning the defendant wanted to disrupt the relationship between the plaintiff and another party. Presuming that harm to the plaintiff occurred and a causal line can be drawn between the harm and the defendant's conduct, then interference occurred.

Note that merely interfering is not enough. If the at-fault party just happened to be a total bungler who couldn't wreck the relationship, then there's nothing legally actionable about the case.

A Real-World Example

Pennzoil v. Texaco, a case that went all the way to the Supreme Court, may be one of the most extreme examples of interference. In January of 1984, Pennzoil signed an agreement in principle to acquire the Getty Oil Company. A competitor, Texaco, was ultimately able to woo Getty into merging with Texaco instead. Pennzoil, as you might have guessed, sued.

A jury awarded Pennzoil damages of more than $10 billion. After a series of appeals through the federal courts, the judgment was reduced to a somewhat more reasonable $8.5 billion. A settlement of $3 billion was eventually reached.

Making Sense of Pennzoil v. Texaco

You might wonder if this is a case of all being fair in love and war between massive multinational corporations. After all, isn't aggressive competition in the DNA of American capitalism?

Three things ended up giving Pennzoil a very strong business litigation case. First, there was an agreement in principle to acquire Getty. Second, any reasonable person would have concluded that inducing the Getty Oil Company to breech this agreement would have caused Pennzoil dramatic economic damages. Pennzoil would have lost the prospective earning potential of becoming an industry behemoth. Finally, it was clear that industry news reached Texaco and the company sought to snatch Getty away from Pennzoil.

To learn more about how interference affects a contractual relationship, reach out to a business litigation lawyer.