Flagging interference on contracts
- By Carl Peckinpaugh
- Oct 16, 2000
When going after a new contract, most vendors naturally will talk about
themselves. If they speak of their competitors, they are likely to do so
only in passing.
Of course, focusing on itself enables a company to "accentuate the positive"
and focus on "the sell." More important, though, by doing so, companies
can avoid penalties that might result if a competitor claims that the other
company tortiously interfered with the competitor's economic relationships.
Tortious interference with a contract right is a legal principle of
long standing in all states. In general, a legal action for tortious interference
with a contract can be filed any time that a "third party intentionally
and wrongfully induces a party to breach a contract to the damage of one
of the contracting parties," according to Lake Shore Investors v. Rite Aid.
In such cases, a successful plaintiff may be entitled to recover compensation
from the defendant for the contractual benefits it lost because of what
the defendant did or said. If the defendant acted with malice, punitive
damages may be awarded as well.
Some states have restricted the applicability of such cases to those
in which the interference affects an existing contractual relationship.
Other states have extended the rule to cover malicious or wrongful interference
with other economic relationships, including a prospective or future contract.
(See, for example, Natural Design Inc. v. Rouse Co.) In several cases, government
contractors have applied those principles to help police their competitors'
For example, in American Craft Hosiery Corp. v. Damascus Hosiery Mills
Inc., the winner of a government contract to provide socks to the Army successfully
sued the loser for tortious interference with contractual relations after
the loser induced the winner's subcontractor to back out of its arrangement
with the winner. According to the court, the subcontractor had worked exclusively
for the loser in prior procurements. However, the loser's threats against
the subcontractor went beyond the norms of acceptable business behavior
in such circumstances.
In Lockheed Information Management Systems Co. v. Maximus Inc., Maximus,
which was an apparent winner of a state outsourcing contract, sued Lockheed,
whose bid protest led to a decision by the contracting agency to cancel
the procurement. In the bid protest, Lockheed alleged that possible conflicts
of interest by two members of the proposal evaluation committee tainted
the selection of Maximus for the contract award. However, in its suit against
Lockheed, Maximus rebutted those allegations. Maximus recovered $750,000
Cases of this sort can be difficult to prove even in those jurisdictions
that have allowed them. However, in appropriate cases, the ability to bring
a suit of this type might provide a valuable remedy to a contractor that
has been wrongfully deprived of the benefits of its efforts.
Peckinpaugh is corporate counsel for DynCorp in Reston, Va. This column
discusses legal topics of general interest only and is not intended to provide