Contracts: The Importance of Distinguishing a Contracting Party from a Stranger

Although the law generally does not allow a contracting party to bring a tort claim against another party to the same contract, this protection does not extend to persons or entities that are classified as “strangers” to the contract. Thus, a contracting party may maintain a viable claim for tortious interference with contractual relations against a stranger to the agreement. In practice, however, the performance of a contract is often contingent on the acts and approval of persons or entities that did not formally enter into the agreement. This makes it difficult to distinguish between a protected contracting “party” and an unprotected “stranger.”

 

The popular Trader Joe’s grocery chain recently found itself pushed into the murky realm of being classified as a “stranger” to a contract between two parties to which Trader Joe’s had close business ties. In Redfern v. Trader Joe’s Company, 20 Cal. App. 5th 989, 2018 WL 1062596 (2018), the evidence showed that Caliber Sales and Marketing Corporation, a food broker, entered into contracts with various manufacturers of food products and attempted to place those food products in Trader Joe’s stores.  Trader Joe’s worked with Caliber in finding new products for its stores. In Redfern, Caliber’s assignee alleged that a Trader Joe’s executive falsely accused Caliber of spreading a rumor that the store’s employees were soliciting bribes from brokers, and that this false accusation tarnished Caliber’s professional reputation to such an extent as to cause two food suppliers to terminate their contracts with Caliber to supply food to Trader Joe’s. The complaint asserted tort causes of action against Trader Joe’s for intentional interference with contractual relations and intentional and negligent interference with prospective economic advantage.  Trader Joe’s sought to dismiss the action by asserting that only a stranger to a contract may be held liable for tortious interference, and that Trader Joe’s was not a stranger to Caliber’s contracts with the food suppliers because the performance of those contracts depended on Trader Joe’s purchase of the food suppliers’ products. 2018 WL 1062596, at *1.

 

The trial court agreed with Trader Joe’s position and dismissed the case. On appeal, the California Court of Appeals reversed the trial court’s order. In so doing, the appeals court emphasized that Caliber’s assignee did not allege that Trader Joe’s simply stopped purchasing from the two food supplier, thereby disrupting Caliber’s food brokerage contracts. Id. At *6.

 

Instead, it was contended that Trader Joe’s “pressured the two suppliers to stop using Caliber as a broker, which allowed Trader Joe’s to purchase food product directly from [the two suppliers] while eliminating the cost of brokerage fees.” Id. In effect, the court concluded that Caliber’s assignee stated viable tortious interference claims against Trader Joe’s by alleging that Trader Joe’s engaged in intentional acts designed to induce a breach in Caliber’s contracts with the two food suppliers. Because Trader Joe’s was neither a party to the contracts nor an agent of the contracting party, Trader Joe’s was “as “stranger’ for purpose of the tort of intentional interference with contract.” Id. At *7 (footnote omitted).

 

Redfern signified a willingness by courts to impose tort liability against a defendant that is closely involved in, but technically not a party to, a contract between the plaintiff and a third party. For this to occur, the plaintiff must take care to allege that the defendant engaged in some type of independently wrongful act, such as intentionally denigrating the plaintiffs business conduct or pressuring the third party to terminate its contractual relationship with the plaintiff. Artful pleading of the complaint is of key importance in avoiding the dismissal of such tort claims.