Day on Torts
Where the evidence clearly established the elements of intent and malice in an inducement of breach of contract case, summary judgment for plaintiff was affirmed. Moreover, the trial court’s ruling that plaintiff could recover attorney’s fees as compensatory damages under the independent tort theory was also affirmed.
In HCTEC Partners, LLC v. Crawford, No. M2020-01373-COA-R3-CV, 2022 WL 554288 (Tenn. Ct. App. Feb. 24, 2022), plaintiff was the former employer of defendant Crawford, who had worked for plaintiff in healthcare information technology recruitment. When Crawford was hired by plaintiff, he signed a “Confidentiality, Non-Competition, and Non-Solicitation Agreement,” which, among other things, provided that he would not work in the same field for 12 months after leaving plaintiff’s employment.
Defendant Rezult made Crawford a job offer while he was still working for plaintiff, which Crawford accepted. Plaintiff communicated to Rezult and Crawford about the Agreement, but Crawford was nonetheless placed in a position that involved healthcare information technology recruiting. Plaintiff thereafter brought this suit asserting breach of contract against Crawford and inducement of breach of contract against Rezult. After entering an injunction, the trial court granted plaintiff’s motion for summary judgment against both defendants, and the Court of Appeals affirmed.
On appeal, the Court first analyzed the breach of contract claims against Crawford, affirming summary judgment, then moved to the inducement of breach claim lodged against Rezult. Plaintiff had chosen to file suit under Tenn. Code Ann. § 47-50-109, which is a “codification of the common law tort action and provides for mandatory treble damages if there is a clear showing that the defendant induced the breach.” (internal citation and quotation omitted). To prove inducement to breach under this statute, a plaintiff must show “that there was a legal contract, that the wrongdoer had sufficient knowledge of the contract, [that] she intended to induce its breach[,] …that the wrongdoer acted maliciously, and that the contract was, in fact, breached, and the alleged act was the proximate cause of the breach, and damages resulted from the breach.” (internal citation omitted).
Rezult’s argument on appeal was that the trial court erred by ruling on the elements of intent and malice at the summary judgment stage. While the Court acknowledged that “intent is often a question of fact,” it determined that the record here clearly established both elements.
When considering inducement of breach of contract, malice means a “willful violation of a known right,” and a plaintiff must only show that “the defendant’s conduct was intentional and without legal justification[.]” (internal citations omitted). Here, Rezult headhunted Crawford and made him an offer while he was still employed by plaintiff; Rezult knew about the agreement and even told Crawford that plaintiff might sue; and Rezult refused to put Crawford in a role that would avoid triggering the agreement, as he essentially did the same job for Rezult as he did for plaintiff. Based on these facts, the Court of Appeals found that malice and intent were established.
In order to prove inducement of breach of contract, a plaintiff must also prove damages. In this case, the trial court ruled that plaintiff could collect its attorneys’ fees as compensatory damages pursuant to the “independent tort theory,” and the Court of Appeals agreed. While “attorney’s fees are not ordinarily an element of damages,” the independent tort theory provides that a plaintiff may recover attorneys’ fees “where the natural and proximate consequence of a tortious act of defendant has been to involve plaintiff in litigation with a third person.” (internal citations omitted). The federal district court for the Western District of Tennessee explained in an unrelated case that “one who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover reasonable compensation for loss of time, attorney fees and other expenditures thereby suffered or incurred in the earlier action.” (internal citations omitted).
While the independent tort theory had not yet been applied in an inducement of breach of contract case in Tennessee, the Court of Appeals affirmed its application here. The Court reasoned:
Rezult’s tortious inducement of Crawford’s breach of the Agreement forced [plaintiff] to act in the protection of its interests. Stated differently, the natural and proximate consequence of a tortious act of Rezult had been to involve [plaintiff] in litigation. The trial court awarded [plaintiff] its attorney’s fees to compensate [plaintiff] for actions it was forced to take to defend its rights under the Agreement, and had Rezult not induced Crawford to breach the Agreement, those fees would not have been expended. Insofar as attorney’s fees are awarded as compensatory damages, as opposed to a reward for [plaintiff] for having prevailed, this decision does not run afoul of the American Rule.
(internal citations and quotations omitted). The Court concluded that “the application of the independent tort theory is consistent with the letter and spirit of the law on inducement of breach of contracts,” and summary judgment on the inducement of breach of contract claim was affirmed.
The Court concluded its opinion by affirming that plaintiff was entitled to treble damages under the inducement of breach of contract statute, Tenn. Code Ann. § 47-50-109. The Court also ruled that the attorney’s fees incurred during the appeal of this case were recoverable as compensatory damages by plaintiff pursuant to the reasoning set out above.
This is an important case on inducement of breach of contract for two reasons. First, it allowed for a finding of intent and malice at the summary judgment stage, despite intent often being a question of fact. Second, and even more importantly, it applied the independent tort theory to this cause of action for the first time and allowed plaintiff’s attorney’s fees to be considered compensatory damages.
This opinion was released 5.5 months after oral arguments in this case.
Note: Chapter 58, Section 1 of Day on Torts: Leading Cases in Tennessee Tort Law has been updated to include this decision.
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