Flagging interference on contracts

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'

behavior.

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

in damages.

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

legal advice.

Cases discussed

Lake Shore Investors v. Rite Aid, 509 A.2d 727 (Md. App. 1986); Natural Design, Inc. v. Rouse Co., 485 A.2d 663 (Md. 1984); American Craft Hosiery Corp. v. Damascus Hosiery Mills, Inc., 575 F.Supp. 816 (W.D.N.C. 1983); Lockheed Information Management Systems Co. v. Maximus, Inc., 524 S.E.2d420 (Va. 2000); Nationwide Roofing & Sheet Metal, Inc. v. Trotwood Heating, Inc.,520 N.E.2d 6 (Ohio Ct.App. 1987). See also Della Construction Inc. v.Lane Construction Co., 612 A.2d 147 (Supr. Ct. Conn. 1991).

BY Carl Peckinpaugh
October 16, 2000

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