AMI 403 Issues—Interference with Contractual Relationship or Business Expectancy—Burden of Proo...

When this instruction is used, AMI 404 should be also given.

Do not use the final bracketed paragraph if the case is submitted on interrogatories.

Use the first bracketed paragraph only when the defense of privilege is asserted. When other affirmative defenses are asserted, this instruction should be modified accordingly.

For the elements of this tort, see Baptist Health v. Murphy, 2010 Ark. 358, at 15, 373 S.W.3d 269, 281–82; Mid–South Beverages, Inc. v. Forrest City Grocery Co., Inc., 300 Ark. 204, 205, 778 S.W.2d 218, 219 (1989); Jim Orr and Assocs., Inc. v. Waters, 299 Ark. 526, 531, 773 S.W.2d 99, 102 (1989); Walt Bennett Ford, Inc. v. Pulaski Cnty. Special Sch. Dist., 274 Ark. 208, 214, 624 S.W.2d 426, 429 (1981); Mason v. Funderburk, 247 Ark. 521, 527, 446 S.W.2d 543, 547 (1969); Restatement (Second) of Torts §§ 766, 766B (1965). The formulation of bad faith in Arkansas is affirmative misconduct that is “dishonest, malicious, or oppressive.” Stevenson v. Union Standard Ins. Co., 294 Ark. 651, 654, 746 S.W.2d 39, 41 (1988) (quoting Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 133, 664 S.W.2d 463, 465 (1983)). Furthermore, “in an action for this type of tort, actual malice is that state of mind under which a person's conduct is characterized by hatred, ill will or a spirit of revenge.” Id. at 654, 746 S.W.2d at 41. See also Conway Corp. v. Constr. Eng'rs, Inc., 300 Ark. 225, 231–32, 782 S.W.2d 36, 39 (1989) (citing Stevenson, 294 Ark. 651, 746 S.W.2d 39, for the definition of bad faith in a case involving a claim of interference with contractual expectancy). As a stylistic matter in the 2013 edition, the Committee removed the term “malicious” from the instruction and retained its definition.

This tort requires the involvement of a third party. Faulkner v. Ark. Children's Hosp., 347 Ark. 941, 959, 69 S.W.3d 393, 405 (2002). The tort is “based upon on a defendant's conduct toward a third party.” Navorro-Monzo v. Hughes, 297 Ark. 444, 447, 763 S.W.2d 635, 636 (1989). Thus, a defendant's breach of his own contract with the plaintiff is not actionable. “A party to a contract and its employees and agents, acting within the scope of their authority, cannot be held liable for interfering with the party's own contract.” Faulkner, 347 Ark. at 959, 69 S.W.3d at 405. See also St. Joseph's Reg'l Health Ctr. v. Munos, 326 Ark. 605, 614, 934 S.W.2d 192, 196 (1996) (holding that Fale, the individual defendant, could not be liable for tortiously influencing the termination of Munos's management contract with a partnership in which Munos and St. Joseph's were both partners; although employed by a separate entity, Fale acted as St. Joseph's agent in the area of partnership affairs and with respect to such actions stood in the shoes of St. Joseph's, a party to the contract); Palmer v. Ark. Council on Econ. Educ., 344 Ark. 461, 473, 40 S.W.3d 784, 791 (2001) (holding that human resources consultant hired by employer was “an agent acting at the request of and on behalf of” the employer and could not be liable for tortious interference).

No contractual relationship need exist to maintain an action for tortious interference; the second proposition of this instruction “may be proved by demonstrating either a valid contractual relationship or a business expectancy.” Cross v. Ark. Livestock & Poultry Comm'n, 328 Ark. 255, 261–62, 943 S.W.2d 230, 233–34 (1997). The business expectancy or contractual relationship must be specified in the pleadings, Country Corner Food & Drug, Inc. v. First State Bank & Trust Co. of Conway, Ark., 332 Ark. 645, 653–54, 966 S.W.2d 894, 898 (1998), as must the facts supporting its existence, Hunt v. Riley, 322 Ark. 453, 458–59, 909 S.W.2d 329, 332 (1995). For an extensive consideration of the “business expectancy” element, see Stewart Title Guar. Co. v. American Abstract & Title Co., 363 Ark. 530, 215 S.W.3d 596 (2005).

The court has held, in the context of real estate transactions, that a tortious interference claim will not lie for an expectancy subject to a contingency, the maturity of which causes the loss of the expectancy. Windsong Enterprises, Inc. v. Upton, 366 Ark. 23, 28, 233 S.W.3d 145, 150 (2006) (expectancy of real estate development was subject to the contingency of a possible amendment to provisions of subdivision's Bill of Assurance and Dedication); Donathan v. McDill, 304 Ark. 242, 244, 800 S.W.2d 433, 434 (1990) (owner's timely exercise of right of redemption was a contingency that prevented the plaintiff from acquiring property). Donathan, supra, was distinguished in Benny M. Estes and Associates, Inc. v. Time Ins. Co., 980 F.2d 1228 (8th Cir. 1992), where the court held that the termination of an employment relationship by at-will sub-agents was controlled by Mason v. Funderburk, supra, not Donathan. More recently, the Arkansas Court of Appeals, citing Windsong Enterprises, Inc., supra, has extended the subject-to-contingency doctrine beyond the real estate transaction context to include the possibility that the party with whom the plaintiff claims to expect to do business will choose instead not to do business with the plaintiff. See Mercy Health Sys. of Nw. Ark., Inc. v. Bicak, 2011 Ark. App. 341, at 12–13, 383 S.W.3d 869, 876 (ruling that Mercy Health System's business expectancy with its patients “was subject to a contingency—that its patients might [or might not] return to it for health care in the future”); see also Deck House, Inc. v. Link, 98 Ark. App. 17, 29, 249 S.W.3d 817, 827–28 (2007) (ruling as an alternative ground for decision that because the plaintiff home designer's contract with the purchasers “contemplate[d] the possibility that the [purchasers] would elect to not purchase [the designer's] package,” the contingent nature of the expectancy defeated plaintiff's claim). But see Baptist Health v. Murphy, 365 Ark. 115, 124, 226 S.W.3d 800, 808–09 (2006) (affirming preliminary injunction against Baptist Health's non-competition policy on physicians' claim that the policy would tortiously interfere with doctor-patient relationships).

To satisfy the element of causation, the court has said there must be proof that a third person either failed to continue or refused to enter into a contractual relationship with the claiming party as a result of the defendant's unauthorized conduct. Navorro-Monzo, 297 Ark. at 447, 763 S.W.2d at 636. However, the court has also affirmed liability when the defendant's unlawful conduct prevented the claiming party from performing his contractual obligations owed to a third party. United Bilt Homes, Inc. v. Sampson, 310 Ark. 47, 52–53, 832 S.W.2d 502, 504 (1992) (holding that United Bilt, mortgagee and loss payee, was liable for tortious interference to Sampson, the insured mortgagor; the tortious conduct was United Bilt's refusal to release insurance proceeds which caused Sampson to default on his contract with the third party hired to repair his home following a fire loss). The United Bilt court quoted with approval W. Page Keeton, Prosser and Keeton on Torts, § 129 at p. 991 (5th ed. 1984), which states that provided the interference causes harm and was unjustified, “no actual repudiation of contract is necessary for liability, and it is enough that the contract performance is partly or wholly prevented, or made less valuable, or more burdensome by the defendant's unjustified conduct.” United Bilt, 310 Ark. at 52, 832 S.W.2d at 504.

In order to be actionable, the interference must be improper. Mason v. Wal–Mart Stores, Inc., 333 Ark. 3, 969 S.W.2d 160 (1998). See AMI 404.

The defendant may assert an affirmative defense of privilege. Arkansas courts recognize a privilege to compete. See Kinco, Inc. v. Schueck Steel, Inc., 283 Ark. 72, 77–78, 671 S.W.2d 178, 181–82 (1984) (citing W. Prosser, Law of Torts, § 130 (3rd ed. 1971) and Restatement (Second) of Torts, § 768); see also Office Machs., Inc. v. Mitchell, 95 Ark. App. 128, 234 S.W.3d 906 (2006) (privilege to compete); Conway Corporation v. Construction Engineers, Inc., 300 Ark. 225, 782 S.W.2d 36 (1989) (discussing the privilege of acting without bad faith to protect the public interest or a third person to whom the defendant has a relationship of responsibility). For a discussion of other potential privileges or justifications for conduct alleged to be improper, see Restatement (Second) of Torts §§ 768 to 773 (1965) and Prosser, supra, pp. 985–989.

In Quality Petroleum, Inc. v. Windward Petroleum, Inc., 2011 Ark. App. 116, at 7–8, 378 S.W.3d 818, 822–23, the court held that an accord and satisfaction on the underlying contract does not extinguish an independent claim for tortious interference.