Tag: privilege

Nevada LLC Members’ Privilege to Tortiously Interfere with Business Relationships Has Limits – IL ND

When the former President of a lighting company started a competing venture, his former employer sued for damages under the Illinois Deceptive Trade Practices Act (IDTPA) and for breach of contract. The ex-President then countersued for unpaid commissions under the Illinois Wage Payment and Collection Act (IWPCA) and sued the individual members of the LLC plaintiff for tortious interference with advantageous business relationship. All parties moved to dismiss.

Green Light National, LLC v. Kent, 2018 WL 4384298, examines, among other things, the extra-territorial reach of the IWPCA and the scope of a corporate officer’s privilege to interfere with a rival’s business relationships.

An IDTPA plaintiff can only bring a claim where the wrongful conduct occurred “primarily and substantially in Illinois.” Factors include: (1) the place of plaintiff’s residence, (2) where the misrepresentation was made, (3) where the damage occurred, and (4) whether the plaintiff communicated with the defendant in Illinois.

Here, the court found factors (1) and (3) pointed toward Illinois as the locus of the challenged conduct. Plaintiff alleged the defendants used plaintiff’s lighting installations on the competitor’s website. And since plaintiff was an Illinois corporate entity, it was likely that plaintiff sustained damage in Illinois.  This made the case different from others where the lone connection to Illinois was a nationwide website. On the current record, the court wasn’t able to determine whether factors (2) and (4) weighed towards a finding that defendants’ misconduct happened in Illinois. As a result, the Court held that the plaintiff alleged a sufficient IDTPA claim to survive defendants’ motion to dismiss.

Next, the court sustained plaintiff’s breach of employment contract claim. The defendants moved to dismiss this claim on the basis that a 2013 Employment Agreement was superseded by a 2015 Operating Agreement which documented plaintiffs’ corporate restructuring. Under Illinois law, an earlier contract is superseded by a later contract where (1) both contracts deal with the same subject matter, (2) two contracts contain inconsistencies which evince the conclusion that the parties intended for the second contract to control their agreement and vitiate the former contract, and (3) the later contract reveal no intention of the parties to incorporate the terms of the earlier contract.

There were too many facial dissimilarities between the 2013 and 2015 documents for the court to definitively find that the former agreement merged into the latter one.

Turning to the defendant’s counterclaims, the Court sustained the tortious interference claim against two of the LLC members. In Illinois, corporate officers are protected from personal liability for acts committed on behalf of the corporation. Corporate officers and directors are privileged to use their business judgment in carrying out corporate business. So long as a corporate officer is acting in furtherance of a corporation’s legitimate business interest, the officer is shielded from individual liability. The same rule that protects corporate officers for decisions made on behalf of their company applies with equal force to LLC member decisions made for the LLC.

This LLC member privilege to interfere isn’t inviolable though.  Where the member acts maliciously – meaning intentionally and without justification – he abuses his qualified privilege. Here, the defendant alleged two LLC members made knowingly false statements about the defendant. These allegations, if true, were enough to make out a tortious interference with business relationships claim. The

The Court then denied the plaintiff’s motion to dismiss defendant’s IWPCA claim. The plaintiff argued that since defendant was not an Illinois resident, he couldn’t sue under the IWPCA since that statute lacks extraterritorial reach. The Court rejected this argument as Illinois law allows non-residents to sue under the IWPCA where they perform work in Illinois for an Illinois-based employer. The counter-plaintiff’s allegations that he made approximately 15 trips to Chicago over several months to perform work for the defendant was enough – at the motion to dismiss stage – to provide a hook for an IWPCA claim.

Afterwords:

1/ Where a later contract involves the same subject matter as an earlier contract and there are facial inconsistencies between them, a Court will likely find the later agreement supersedes the earlier one;

2/ Corporate officers (and LLC members) are immune from suit when taking action to pursue a legitimate business interest of the corporate entity. The privilege is lost though where a corporate officer engages in intentional and unjustified conduct;

3/ A non-resident can sue under the IWPCA where he/she alleges work was performed in Illinois for an Illinois employer.

‘Substantial Truth’ Defeats Wisconsin Plaintiff’s Tortious Interference Suit – 7th Circuit

In Wesbrook v. Ulrich 2016 WL 6123534, the Seventh Circuit examined the reach of the truth defense to a tortious interference with contract action stemming from a bitter dispute between a prominent Wisconsin medical clinic and one of its high-level employees.

The plaintiff sued a former co-worker and ex-supervisor for tortious interference with contract claiming the two worked in concert to engineer the plaintiff’s firing from the clinic.  The plaintiff claimed the defendants repeatedly made critical statements about him to third parties that resulted in his being ostracized by clinic staff and ultimately let go.  The District Court granted summary judgment for the clinic and the plaintiff appealed.

Held: Affirmed.

Reasons:

To prove tortious interference with contract in Wisconsin, the plaintiff must show (1) a valid contract or a prospective contractual relationship with a third party, (2) defendant’s interference with that relationship, (3) interference by the defendant that was intentional, (4) a causal connection between the interference and damages, and (5) the defendant wasn’t justified or privileged to interfere.

To sue a co-worker for tortious interference, the plaintiff must show (1) that the employer did not benefit from the co-worker’s/defendant’s statement, and (2) the co-worker’s act was independently tortious (i.e., fraudulent or defamatory).

Whether conduct or a statement is privileged is a fact-driven question that looks at the nature, type and duration of the conduct and whether the conduct was fair under the circumstances.  But where the challenged statement is true, it is privileged as a matter of law.  There can be no cause of action aimed at a true statement; even one motivated by ill will toward a plaintiff.

The same holds for “substantially true” statements.  Even where a statement isn’t 100% accurate, so long as it’s true in most of its particulars, it’s still privileged and will defeat a tortious interference claim.  Tort law does not demand “artificial precision” in common use of language.

Here, the defendants’ challenged statements concerning plaintiff were substantially true.  Defendants’ verbal and written assertions that plaintiff had an autocratic management style, threatened his subordinates, and that several employees had lodged complaints against him were true enough to defeat plaintiff’s claims.  While there were arguably some factual specifics that were either embellished or omitted from the statements, the Court viewed their substance as sufficiently accurate to negate plaintiff’s tortious interference suit.

The Seventh Circuit also based its decision granting summary judgment for the defendants on policy grounds.  It reasoned that if a plaintiff could sue a co-worker every time he believed that co-worker instigated or contributed to the firing decision, it would swallow up the general rule that at-will employees cannot sue for breach of contract where they are fired without warning or cause.

Afterwords:

1/ An interesting case in that it examines the tortious interference tort in the factually anomalous setting of an at-will employee suing his co-workers instead of his employer after a discharge;

2/ The key holding from the case is that truth is a defense not only to defamation but also to tortious interference with contract under Wisconsin law;

3/ A statement’s truth is construed flexibly: it doesn’t have to be completely accurate.  Even if there are exaggerated aspects of a statement, so long as the statement meets the substantially true test, the speaker will be privileged to tortiously interfere.