6030 Sheridan Road, LLC v. Wright Management, LLC, 2011 IL App. (1st) 093282-U examines when a corporate officer is privileged to tortiously interfere with a contract that his company is involved with.
There, the plaintiff real estate developer sued defendants – an LLC property owner and its principal – for tortious interference with business relationship after a planned condominium conversion failed.
The claimed the defendants tortiously interfered with plaintiff’s contracts with a real estate broker and marketing firm of the site.
The appeals court affirmed summary judgment for the defendants.
The tortious interference with contract cause of action stems from the recognition that a person’s business relationships constitute a property interest that should be protected from unjustified interference.
The tort’s elements are: (1) the existence of a valid and enforceable contract between the plaintiff and another; (2) the defendant’s awareness of this contractual relation; (3) the defendant’s intentional and unjustified inducement of a breach of the contract which causes a subsequent breach by the other; and (4) damages. By definition, a party can’t tortiously interfere with its own contract.
A defendant is privileged to interfere with a contract where a corporate officer uses his business judgment and discretion on behalf of his corporation.
This privilege reflects the corporate law axiom that duties owed by corporate officers to their corporation trump their obligations to corporate creditors. (¶¶ 34, 37).
Where a defendant’s conduct is conditionally privileged, the tortious interference plaintiff can overcome the privilege by showing the defendant’s conduct was unjustified or malicious. “Malicious” means conduct that is “totally unrelated” or “antagonistic” to the interest that gives rise to the privilege or that is solely for his own gain or done to harm the plaintiff. (¶ 39).
In Wright Management, the court found for the defendants. Saying that an LLC manager owes comparable duties of loyalty to the LLC as that of an officer to a corporation, the court held the individual defendant was conditionally privileged to interfere with the development contract in to further the LLC’s business interests.
Since there was no evidence that defendant’s dissatisfaction with the real estate broker and the marketing company was pretextual or based on anything other than the quality of their services, the decision to terminate the contracts was a protected business decision.
Since the plaintiff failed to generate evidence to support its claim that the individual defendant acted maliciously when he pulled out of the development agreement, it couldn’t defeat the defendants’ privilege defense. (¶ 44).
Afterwords:
A corporate officer is privileged to interfere with a company contract where he is acting to further a legitimate business interest.