Opinion
No. M2000-03101-COA-R3-CV.
Filed January 30, 2002.
Appeal from the Circuit Court for Williamson County; No. II-99316; Russ Heldman, Judge.
Affirmed; Cause Remanded.
Trevor W. Howell and R. Scott Jackson, Jr., Nashville, Tennessee, for the Appellant, Watson's Carpet and Floor Coverings, Inc.
Alan Mark Turk, Brentwood, Tennessee, for the Appellees, Rick McCormick and Carpet Den, Inc.
Kaz Kikkawa and William A. Blue, Jr., Nashville, Tennessee, for the Appellee, Mohawk Industries, Inc.
Houston M. Goddard, P.J., delivered the opinion of the court, in which Herschel P. Franks and Charles D. Susano, Jr., JJ., joined.
This is a suit by Watson's Carpet and Floor Coverings, Inc., seeking damages for intentional interference with a business relationship and civil conspiracy. The Trial Judge found, under the authority of Nelson v. Martin, 958 S.W.2d 643 (Tenn. 1997), that no such cause of action exists in Tennessee. He also awarded discretionary costs to all of the Defendants, and attorney fees to the Defendants, Rick McCormick and his Corporation, Carpet Den, Inc. The Plaintiff appeals contesting all of the Court's determinations. We affirm.
OPINION
This is a suit by Watson's Carpet and Floor Coverings, Inc., seeking damage against Rick McCormick, his Corporation, Carpet Den, Inc., and Mohawk Industries, Inc., for intentional interference with a business relationship and civil conspiracy.
The principal question raised on appeal is whether interference with a business relationship which is not supported by a contract is a viable cause of action under Tennessee Jurisprudence. The Trial Judge held that it was not.
A succinct statement of facts giving rise to this litigation is set out in the Plaintiff's brief in its statement of the case:
Plaintiff Watson's Carpet and Floor Coverings, Inc. sells, installs and services floor covering products such as carpet. Plaintiff filed suit against Defendant Carpet Den, Inc., which is also a retail carpet dealer, and Defendant Mohawk Industries, Inc., a carpet manufacturer and distributor. Plaintiff alleged that these Defendants committed the tort of intentional interference with business relationship by destroying a nine-year relationship Plaintiff had with a homebuilder called Centex Homes. Specifically, Defendant Mohawk Industries refused to sell Plaintiff a Portico private label carpet required by Centex in all of its homes beginning on January 1, 1999. Plaintiff also alleged that Defendants conspired to destroy Plaintiff's relationship with Centex, constituting the tort of civil conspiracy.
The general rules relative to our review of summary judgments, set out in Byrd v. Hall, 847 S.W.2d 208 (Tenn. 1993), are not applicable in the present case, wherein it is asserted that the Plaintiff's complaint does not state a viable cause of action. Such contention requires that we review the pertinent law and determine whether the Chancellor was correct in finding that no cause of action existed, sustaining the Defendants' motion for summary judgment and dismissing the complaint.
In Nelson v. Martin, 958 S.W.2d 643, 645 (Tenn. 1997), the case relied upon by the Trial Judge, the Supreme Court addressed a case wherein one shareholder sued the other two shareholders of a closely held corporation alleging wrongful termination of his employment and his wrongful removal as an officer and director.
This case holds that such a claim can only be maintained if it is found to be a part of the common law of this State. The Court found that it was not and in the course of the opinion stated the following:
Nelson insists that the trial court and the Court of Appeals erred in dismissing his claim for wrongful interference with a prospective economic advantage. This claim is before the Court on the defendant's motions to dismiss for failure to state a claim on which relief can be granted. Tenn. R. Civ. P. 12.02(6). This claim has been asserted in this Court in two prior cases. In the first, Quality Auto Parts v. Bluff City Buick, 876 S.W.2d 818 (Tenn. 1994), an employee accused of stealing from his company filed a counter-claim of intentional interference with prospective business relations alleging that the accusations were preventing him from obtaining employment. The Court noted that although such a claim has been recognized as a cause of action in other jurisdictions, it has not been recognized nor rejected in Tennessee. The Court found that it was unnecessary to decide whether the claim is a cause of action in Tennessee because it, nevertheless, would "fall because [the] complaint does not allege two essential elements of the tort — (1) the existence of a specific prospective employment relationship and (2) knowledge by [the company] of such a relationship." Id. at 823. In the second case, Kultura, Inc. v. Southern Leasing Corp., 923 S.W.2d 536 (Tenn. 1996), the issue concerned the liability of a company which had filed a financing statement and failed to timely file a termination statement. The Court noted that "intentional interference with prospective economic advantage has not been recognized as a cause of action in this state" but, again, found the issue to be moot because the plaintiff had failed to prove any damages. Id. at 540.
Since the legislature has not enacted a statutory cause of action for interference with a prospective economic advantage, the claim can be maintained only if it is found to be a part of the common law in this State. The tort of intentional interference with a prospective economic advantage is an extension of the principles establishing liability for interference with contract beyond the existing contractual relation to those relations which are "merely prospective or potential." See W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 130, at 1005 (5th ed. 1984). The action for interference with contract is based on society's need for stability in contractual relations. "The tort protects society's interest in preserving the formal integrity of contract and rests on an implicit appreciation of the fundamental, structure-giving significance of contracts in a market economy." John Danforth, Tortious Interference with Contract: A Reassertion of Society's Interest in Commercial Stability and Contractual Integrity, 81 Colum. L. Rev. 1491, 1523 (1981). However, the policy reasons for the tort prohibiting interference with contracts, do not support a tort designed to protect prospective contracts and relationships. In Prosser, the tort for interference with a prospective economic advantage is described as "a rather broad and undefined tort in which no specific conduct is proscribed and in which liability turns on the purpose for which the defendant acts, with the indistinct notion that the purposes must be considered improper in some undefined way." Prosser, § 129 at 979. Danforth makes this further comparison:
[C]ontracts not only embody a bargained-for exchange, but also create a system of predictability in the commercial realm. By guaranteeing future performance, a contract may engender reliance and facilitate long-term planning by parties not directly involved with the contract itself. Whatever social value underlies tortious interference liability, therefore, is contingent upon just this: That the relationship disrupted involved an agreement to be bound to future performance. . . .
. . . Prospective contracts, either existing relationships expected to mature into contracts or expectations of future advantageous relationships, do not involve an agreement to be bound to future performance. Interference with prospective contracts, therefore, does not threaten a societal interest in the formal integrity of contract, and should not be treated as a mere variant of interference with existing contracts.
Tortious Interference with Contract, 81 Colum. L. Rev. at 1515. "Extending the tort to protect prospective contracts [means] diffusing society's general interest in contractual stability and equating it with the aggregate self-interests of particular plaintiffs in the stability of their own contracts." Id. at 1517. See also Francis Bowes Sayre, Inducing Breach of Contract, 36 Harv. L. Rev. 663, 703 (1922-23). Such an extension is inconsistent with the principles of free competition in business relationships found in this state. As one South Carolina judge noted, such a cause of action would "greatly hamper free competition in the marketplace." Crandall Corp. v. Navistar Int'l Transp. Corp., 302 S.C. 265, 395 S.E.2d 179, 181 (1990) (Littlejohn, A.A.J., dissenting) ("I see the choice is clearly for that which promotes freedom of negotiation and competition in the marketplace, which is a cornerstone of our democratic society.") Other general criticisms of the tort of interference with contract are applicable as well:
[The] tort has a highly detrimental effect on commerce and individual liberty. The tort hinders market efficiency, produces erroneous liability rulings, and fosters uncertainty in the law. The courts' interest-balancing approach to the tort is unworkable. Fundamental constitutional rights, including freedom of speech and due process, are impaired. Other rights necessary for a free society, such as freedom of thought, are also detrimentally impacted. Moreover, the tort . . . places an unnecessary burden on an already strained legal system.
Gary D. Wexler, Intentional Interference with Contract: Market Efficiency and Individual Liberty Considerations 27 Conn. L. Rev. 279, 281-82 (1994). The trial court and the Court of Appeals correctly found that the claim of interference with a prospective economic advantage does not state a cause of action under the law of Tennessee.
The Plaintiff raises three additional issues which we will now address.
First, it contends there is material evidence to support the tort of civil conspiracy. It is difficult to conceive how a cause of action would lie for a conspiracy which does not contemplate an illegal or tortious act. Having found there is no cause of action in the first instance, we believe it would necessarily follow that there could be no cause of action for conspiracy to do so.
Next, the Plaintiff contends that the Defendants are not entitled to discretionary costs. Its assertion is predicated upon the assumption that it will prevail on the principal issue. Because the Plaintiff did not prevail, the Defendants are entitled to discretionary costs, the amount of which is not contested.
Finally, the Plaintiff asserts that the Defendants Mr. McCormick and Carpet Den, Inc., are not entitled to attorney fees associated with providing certain documents to the Plaintiff, which the Trial Judge held were discoverable and ordered the Defendants to produce. The documents withheld were pricing documents which Mr. McCormick and his corporation felt would not advance the Plaintiff's prosecution of this case, but would damage them should competitors learn the pricing information.
In this regard the brief of Mr. McCormick and Carpet Den states the following which is supported in the record:
On November 22, 1999, Carpet Den and McCormick moved in accordance with Rule 26.03 of the Tennessee Rules of Civil Procedure for the trial court to issue a Protective Order relieving them from responding to Interrogatory no. 8, Request for Production no. 10, and from further responding to Request for Production no. 1. Carpet Den and McCormick asserted that in accordance with Rule 26.03(7) the information and documents sought constituted "trade secret or other confidential research, development, or commercial information not to be disclosed or be disclosed only in a designated way". T.R.C.P.26.03(7)
Request No. 1 to Carpet Den requests written communications between Carpet Den and the Mohawk. In response to this Request for Production of Documents, these Appellees stated: "Carpet Den has produced all written communications between Carpet Den and Mohawk except invoices which contain pricing information and other confidential information protected by Rule 26.03 of the Tennessee Rules of Civil Procedure . Carpet Den has not withheld any written communications between Carpet Den and Mohawk except these invoices. It is Carpet Den's understanding that Mohawk has also produced all written communications except the confidential and proprietary documents." Carpet Den, at no time, refused to produce its written correspondence with Mohawk. The Appellant's argument that these written communications between Carpet Den and Mohawk were not produced has been asserted to this Court in bad faith. The only documents which Carpet Den withheld in response to Request No. 1, under the terms of the December 17, 1999, Protective Order, were invoices containing pricing information and other confidential information which Carpet Den did not want its direct competitor to obtain. Both Mohawk and Carpet Den, prior to the December 17, 1999, Protective Order, produced all other written communications responsive to Request No. 1. (Emphasis in original.)
Watson's First Set of Interrogatories No. 8 and First Request for Production No. 10 to Carpet Den sought information about revenues and net profits of Carpet Den. Obviously, this is not information Carpet Den wanted to provide its direct competitor. As stated in the Affidavit of McCormick, the Third Affidavit of McCormick, and the Affidavits of various carpet dealers filed by Mohawk, the release of this information to the Plaintiff would cause irreparable harm to Carpet Den and the other carpet dealers and their ability to compete in the marketplace. The information sought in response to Interrogatory No. 8 and Request No. 10 were simply not relevant to the issues raised by Watson's Complaint. Watson's in its Motion to Set Aside Protective Order failed to articulate any basis for compelling the production of this confidential information and/or documents.
These Appellees, in opposition to the Motion to Set Aside, submitted the Third Affidavit of McCormick and Mohawk submitted the affidavits of five other carpet dealers, Carpet Den's direct competitors, all of whom testified under oath that the information and documents sought by Watson's was sensitive commercial and proprietary information and would have a negative impact on a carpet dealer who produced such documents and information.
On July 31, 2000, Carpet Den and McCormick's counsel represented to the Court, as an officer of the Court, that he had already inspected a portion of the invoices responsive to Request For Production no. 10 and information responsive to Interrogatory no. 8 (i.e., the Carpet Den invoices evidencing prices for all Mohawk carpeting from January 1, 1999, through August 1999). Counsel further represented to the Court, that, based upon his review of the invoices already obtained, that to gather the remaining invoices requested by Watson's would take considerable time and effort to gather and review because of the voluminous nature of these invoices. Counsel further represented that of the invoices already segregated and reviewed (January through August 1999), that there was no information relevant or material to the issues raised in Watson's Complaint.
We also think it pertinent that the Trial Judge, after first granting a protective order, later granted a motion to set it aside, warning counsel for Watson's, however, that if the information and documentation was not material nor relevant, then Watson's would bear the expense of its production.
Before concluding, we concede that taking as true the affidavits and depositions of the Plaintiff, Mr. McCormick was guilty of egregious conduct in the extreme and Watson's or Mr. Watson could very have been entitled to prosecute a claim for outrageous conduct or defamation.
It appears at this late date that the applicable statutes of limitation would bar prosecution of either action.
For the foregoing reasons the judgment of the Trial Court is affirmed and the cause remanded for collection of the discretionary costs, attorney fees, and costs below. Costs of appeal are adjudged against Watson's Carpet and Floor Covering, Inc., and its surety.