Texas Tortious Interference with Contract Law: Tortious Interference vs. Fair Competition

October 17, 2006 / By Robert Wood

In our free market economy, it’s a given that competition is a good thing, right? Theoretically, yes, but courts have made it clear that competition, to be lawful, must also be “fair.”  A Texas case shed some light on the difference between fair and unlawful competition.

Renew Data Corporation ("Renew") provided computer forensic services for corporations. Renew would search its clients’ computer networks to assist them in prosecution and defense of litigation, responding to subpoenas, etc.

Shawn Strickler worked for Renew as a Director of Corporate Sales. Strickler had access to Renew’s customer lists and potential “opportunities,” and was intimately familiar with the services offered and prices charged by Renew.

Renew fired Strickler in November 2003. Shortly thereafter, Strickler became employed by one of Renew’s competitors.

A few weeks later, Strickler sent a letter to a potential customer, Computer Associates (with which neither Strickler nor his new employer had ever done any business). Strickler offered to help Computer Associates in connection with some pending government investigations.  Computer Associates indicated that it was willing to consider using Strickler, but it stated that it would also consider having Renew handle the project.

Over the next few days, Strickler, in an attempt to secure business from Computer Associates, began “subtly pointing out” to Computer Associates things he could offer that Renew could not (and he relied upon his intimate knowledge of Renew to make these distinctions). Computer Associates ultimately retained Strickler, rather than Renew, to handle the project.

Renew sued Strickler for tortiously interfering with its “prospective business relations” with Computer Associates. In response, Strickler contended that Renew could not prove one of the essential elements of the claim—that Renew had enjoyed “a reasonable probability that [it] would have entered into a business relationship” with Computer Associates.  After examining all of the evidence—including Computer Associates’ testimony that (a) it had a previous relationship with Renew and (b) had never heard of Stickler or his new employer before Strickler’s initial contact, the Court concluded that Renew could meet this element.

But, Strickler asked on appeal (after a jury verdict against him), “What is wrong with me contacting a potential customer and telling them that we can do the job better?”  How is that wrongful?

Of course, not all competition is wrongful—only “unfair” competition is wrongful.  To prove a claim for tortious interference with “prospective” business relations, a plaintiff must prove that an independently tortious or wrongful act by the defendant prevented the relationship from occurring.   To meet the “independently tortious or wrongful” standard, the defendant need not have committed a criminal act; rather, his conduct must merely be actionable under a different recognized tort.

The court found that Strickler had committed the tort of breach of fiduciary duty, and that this satisfied the “independently tortious or wrongful” element necessary to also make a tortious interference claim.  Significantly, the court noted that Strickler’s post-termination conduct constituted a breach of his fiduciary duty to his former employer, Renew.  The evidence showed, for example, that Strickler had, after his termination by Renew, used and disclosed the latter’s confidential information (including its pricing information) in an attempt to obtain Computer Associates’ business.  The court held that Strickler’s post-termination breach of his fiduciary duty to Renew (which conduct was committed by Strickler to maximize his chance of getting Computer Associates’ business rather than Renew) satisfied the “independently tortious or wrongful” element of the tortious interference claim.

Lessons learned:

1.  As this case illustrates, former employees who are not bound by enforceable non-compete agreements must nevertheless compete fairly, and they can be liable in tort if they fail to do so.

2.  Strickler’s interference with a “prospective” (not actual) business relationship was actionable because, in the course of seeking to obtain the business (and thereby keep Renew from getting it), he committed an independent wrong (breach of his fiduciary duty to Renew).

3.  One’s fiduciary duty can last even beyond the termination of employment, as Strickler found out here.

Renew Data Corporation v. Strickler, No. 03-05-00273-CV, 2006 WL 504998 (Tex. App.—Austin Mar. 3, 2006, no pet.).

 

www.mylawteam.com

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About the Author

Robert Wood has been a Texas trial lawyer since 1993. During that time, he has represented small, mid-sized, and Fortune 100 companies in business and employment litigation matters all over Texas and the United States. He has also advised and represented hundreds of individuals in employment litigation matters. Read more about Robert Wood