Redfearn v. Trader Joe's Company

Citation: Not availableDocket: B270487M

Court: California Court of Appeal; March 16, 2018; California; State Appellate Court

Original Court Document: View Document

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On March 16, 2018, the California Court of Appeal modified its opinion regarding the case Wayne Redfearn v. Trader Joe’s Company. The court sustained Trader Joe’s demurrer without leave to amend, removing references to prior holdings and analysis. A jury had initially ruled in favor of the plaintiffs for a $780,000 advance and awarded $1.6 million in damages for intentional interference with six subpromoter contracts. However, the appellate court reversed this judgment, affirming all other aspects. The court determined that Stewart and his agents were not liable for interfering with the subcontracts because a contracting party cannot tortiously interfere with their own contract. Additionally, since Stewart had not entered into a binding contract for his performance, the failure of the subcontracts was not attributable to the defendants. The court corrected wording in the discussion section, clarifying that while plaintiffs had legitimate interests in the contracts, Stewart's non-participation did not amount to an intentional act necessary for the tort of interference.

The Supreme Court in Quelimane Co. v. Stewart Title Guaranty Co. found that a complaint alleging a title insurer's refusal to sell insurance on tax sale properties constituted a valid claim for intentional interference with existing contractual relations. The complaint also suggested that this refusal was part of an unlawful conspiracy among title insurers. The Court determined that whether the defendant intended to interfere with land sale contracts by denying title insurance was a triable issue. 

In a related case, Wayne Redfearn appealed the dismissal of his complaint against Trader Joe’s Company for intentional interference with contractual relations, among other claims. Redfearn had acquired Caliber Sales and Marketing Corporation, a food brokerage, and was its largest shareholder until 2014, when Caliber assigned its legal claims against Trader Joe’s to him. Redfearn alleged that Trader Joe’s, which previously worked with Caliber to introduce products from Seneca Foods and Sunsweet Growers, altered its policy in 2010, ceasing to engage brokers for new products while still managing existing accounts. Redfearn's complaint noted that Trader Joe’s executive Jon Basalone falsely accused him of rumor-mongering regarding bribery in a 2014 meeting. The appellate court reversed the trial court's decision and remanded the case with directions.

Redfearn accused Basalone of making false statements to persuade Seneca to discontinue using Caliber as a broker for sales to Trader Joe’s, claiming Basalone threatened that if Seneca did not terminate its relationship with Caliber, Trader Joe’s would cease to be a supplier. Consequently, Seneca ended its contract with Caliber regarding Trader Joe’s products. Additionally, Redfearn alleged that Trader Joe’s pressured Sunsweet with similar falsehoods, leading to Sunsweet's termination of its contract with Caliber for supplying products to Trader Joe’s.

Trader Joe’s filed a demurrer against the first amended complaint, arguing it could not be liable for interfering with contracts because it was not a stranger to the contracts between Caliber and the suppliers; the performance of these contracts relied on Trader Joe’s purchases. Trader Joe’s also contended it could not be held liable for interference with prospective economic advantage for the same reason and asserted that Redfearn failed to adequately plead that its actions were independently wrongful. 

In opposing the demurrer, Redfearn agreed to dismiss the unfair competition claim but contested the interference claims. The trial court upheld Trader Joe’s demurrer without leave to amend, referencing PM Group, Inc. v. Stewart and differentiating from other case precedents. The court concluded Trader Joe’s was not a stranger to the relevant contracts since its purchasing decisions directly impacted their performance. Thus, Trader Joe’s was not liable for intentional interference by refusing to buy from Seneca and Sunsweet if they continued using Caliber. The court also noted that Redfearn did not demonstrate any independently actionable conduct by Trader Joe’s, such as defamation. A judgment of dismissal was entered on January 6, 2016, and Redfearn subsequently filed a timely appeal.

In *Kasparian v. County of Los Angeles*, the court confirmed that individuals who are parties to a contract cannot be held liable for tortious interference with that contract, whether through intentional or negligent actions. This principle extends to prospective economic relationships, as established in *Applied Equipment Corp. v. Litton Saudi Arabia Ltd.* The legal sufficiency of a complaint is tested through a demurrer, which is reviewed independently by the court. Properly pleaded factual allegations are assumed true, while legal conclusions are not. The court considers the complaint in its entirety and allows for amendments unless they would be futile.

Redfearn has successfully stated a cause of action for intentional interference with contractual relations, which requires establishing five elements: (1) a valid contract between the plaintiff and a third party, (2) the defendant's knowledge of that contract, (3) intentional acts by the defendant intended to induce a breach or disruption, (4) actual breach or disruption of the contract, and (5) resulting damages. It is not necessary for the defendant's conduct to be wrongful outside of the interference with the contract itself.

In *Applied Equipment Corporation v. Litton* (1998), the California Supreme Court ruled that a party to a contract cannot be held liable in tort for conspiring to interfere with its own contract. The case involved Applied Equipment, which had a subcontract entitling it to a commission on parts procured for a military contractor. After a contractor directly purchased some parts from a supplier, reducing the commission owed to Applied Equipment, the latter sued both the contractor and the supplier for contract and tort claims, including conspiracy to interfere with contracts.

The Supreme Court reversed the Court of Appeal’s decision, emphasizing that one contracting party does not owe a tort duty to another to avoid interfering with the contract’s performance, as their obligation is to fulfill the contract terms. The Court clarified that the tort duty against interference applies only to those who are "strangers" to the contract—those without a legitimate interest in the contract's performance. It further stated that while a non-party might be liable for intentional disruption, a party merely breaching its contract should only face contractual liability.

The Court's decision emphasized that liability for intentional interference with a contract should be recognized only for outsiders lacking a legitimate economic interest in the contract. However, it clarified that the contractor could still be liable for directly interfering with the purchase order, and the supplier could be liable for interference with the subcontract, provided all elements of the tort are met. This interpretation influenced subsequent cases, such as *PM Group*, which held that if a non-contracting party's performance is essential to a contract, that party has an economic interest and cannot be liable for interfering with the contract's execution.

A lawsuit was initiated by PM Group, Inc. and two subpromoters against singer Rod Stewart and his representatives over a failed nine-city concert tour. The plaintiffs had advanced $780,000 based on assurances from Stewart's representatives, but no agreement was finalized, leading to the lawsuit for the return of funds under claims of unjust enrichment, money had and received, and negligent misrepresentation, along with allegations of interference with subpromoter contracts. A jury awarded the plaintiffs $1.6 million for the advance, finding that Stewart’s agent and attorney intentionally disrupted six subpromoter contracts. However, the court of appeal reversed the interference claim judgment, ruling that Stewart and his agents could not be liable since they had a legitimate interest in the subcontracts and had not entered into a binding contract for Stewart's performance, which made the failure of the subcontracts unavoidable. Other appellate courts have distinguished this case from similar rulings, indicating that entities with ownership interests are not automatically immune from interference claims, as shown in cases like Asahi and Powerhouse, where the courts found that involvement or legitimate interest does not exempt parties from liability for tortious interference.

The court declined to broaden the precedent set in Applied Equipment to shield a noncontracting party with a general economic interest in a contract from tortious interference claims. In Popescu v. Apple Inc. (2016), the court reversed a dismissal against Apple for intentional interference with contractual relations, rejecting Apple's argument that it was not a "stranger" to the plaintiff's at-will employment contract due to its economic interest. The court emphasized that having some interest did not grant Apple immunity from tort liability. In contrast, Trader Joe’s was deemed a "stranger" to Caliber’s contracts with Seneca and Sunsweet, as Caliber's brokerage agreements depended on Trader Joe’s purchasing decisions. The trial court aligned with the PM Group precedent, which stated that a noncontracting party is not considered a stranger when their performance is essential for the plaintiff's contractual obligations. However, the court noted it could diverge from PM Group's reasoning while agreeing with its outcome, pointing out that the plaintiffs in PM Group failed due to insufficient allegations of intentional acts by Stewart, which are necessary for establishing tortious interference.

Stewart's decision not to perform under certain subcontracts led to their failure, but this act was not tortious, as inducing a breach requires intent and knowledge of the contract. If a party's actions are lawful and not intended to induce a breach, they cannot be held liable for any resulting breach. The court found that the absence of a binding contract between Stewart and the concert promoter did not impact the evaluation of whether Stewart interfered with the promoter's operations. Unlike PM Group's claims that Stewart canceled a concert tour based on misrepresentations, Redfearn's allegations stated that Trader Joe’s pressured suppliers Seneca and Sunsweet to cease using Caliber as a broker, allowing Trader Joe’s to eliminate brokerage fees. Trader Joe’s argued, referencing Sweeley and Zimmerman, that a non-contracting party is not liable for interference if they are involved in the broader transaction. Sweeley affirmed that a seller could not be held liable for inducing a breach of contract with a broker while adhering to the statute of frauds. Zimmerman held that a broker could pursue a claim against a bank for inducing a breach of an oral contract, despite the contract being voidable under the statute of frauds, emphasizing that the statute should not protect a party that seeks to disrupt a transaction. The distinction drawn in Zimmerman between the buyer and the bank underscored that the statute of frauds does not shield a party from liability simply by being part of the transaction.

Liability for intentional interference with a contract can be imposed on parties, like Trader Joe's, who are considered "strangers" to the contract, meaning they are neither parties nor agents of the parties involved. A nonparty may still be liable for contract interference if all elements of the tort are met, despite not being a party to the contract. The trial court initially ruled that Trader Joe's had a legitimate economic interest in the contracts between Caliber and Sunsweet, which protected it from liability for both intentional and negligent interference with prospective economic advantage. However, this conclusion does not shield Trader Joe's from liability for intentional interference with the contract itself.

In cases of inducing the termination of at-will contracts, such action constitutes actionable interference. It is established that a defendant's wrongful conduct, apart from the act of interference itself, is not a necessary element of the tort of intentional interference with a contract. Trader Joe's argued that, since the brokerage contracts were terminable at will, Redfearn needed to allege an independently wrongful act to pursue his claim. However, this requirement, which applies in employment contexts as established in Reeves v. Hudson, does not extend to the commercial brokerage situation at hand. The Reeves case involved a former employer and its at-will employees, where recovery for intentional interference was contingent on the current employer's independently wrongful actions. The court reasoned that fostering competition in the job market, including the lawful hiring of at-will employees, is vital, and thus interference with such contracts is primarily viewed as interference with prospective economic advantage, which does not necessitate a legally binding contract. This framework aims to balance the rights of at-will employees with those of employers while protecting against unlawful competitive practices.

The holding in Reeves is specifically confined to cases involving an employer persuading at-will employees to leave their jobs for employment elsewhere. The court in Popescu clarified that claims for interference with at-will employment require an independent wrongful act only when both public policy considerations—employee mobility and fair competition—are relevant, as seen when a former employer sues a current employer for inducing an employee's departure. However, this does not apply when a third party induces a breach of an at-will agreement for a different economic purpose, allowing claims for interference without needing to allege a wrongful act. Redfearn's case diverges further from Reeves since it does not involve an at-will employment agreement and does not touch upon employee mobility or competition rights. Trader Joe’s argument based on Reeves is flawed for two reasons: Redfearn's complaint does not establish that the contracts with Seneca and Sunsweet were at-will, and even if such an allegation were necessary, Redfearn claims that a Trader Joe’s executive made false accusations against him, which constitutes an independently actionable wrong. 

The elements for intentional interference with prospective economic advantage include: (1) an economic relationship with a third party likely to yield future benefits; (2) the defendant’s awareness of this relationship; (3) intentional wrongful acts to disrupt it; (4) actual disruption; and (5) economic harm caused by the defendant's actions. For negligent interference, the elements are similar but focus on the defendant’s failure to act with reasonable care regarding their knowledge of the relationship and its potential disruption.

The distinction between intentional and negligent interference with prospective economic advantage lies in the defendant's intent. For a plaintiff to succeed in such claims, they must demonstrate not only that the defendant interfered with an economic relationship but also that this interference was wrongful by a legal standard beyond the act of interference itself. An act is considered independently wrongful if it violates any determinable legal standard. Such wrongful conduct must also be actionable, meaning there must be a legal basis for enforcing the alleged violation. The wrongful nature of the defendant's conduct is a necessary element of the interference claim. Additionally, the wrongful act can be tortious only concerning a third party and does not need to be wrongful towards the plaintiff. A plaintiff, therefore, does not need to plead a separate tort to establish a claim for interference with prospective economic advantage. In this case, Redfearn sufficiently alleged defamation as an independently wrongful act within his claims. Defamation requires a publication that is false, defamatory, unprivileged, and has a tendency to cause harm. The statement must intentionally refer to the plaintiff, and the existence of any privilege related to the statement is an affirmative defense that can only be raised through demurrer if the complaint itself establishes such a privilege.

Privilege can be raised by general demurrer when its existence is evident. Redfearn claims that Jon Basalone, a Trader Joe’s executive, falsely accused him of spreading rumors about Trader Joe’s employees soliciting bribes, which were intended to coerce Seneca and Sunsweet into terminating their brokerage contracts with Caliber. These statements, if proven false, could harm Redfearn's reputation and business, fitting the definition of slander under California Civil Code section 46, subdivision 3. This subdivision encompasses any language likely to damage a person's reputation, particularly regarding their professional integrity or competence. Allegations of unethical behavior are particularly actionable. Redfearn successfully alleged all elements for his claims related to interference with prospective economic advantage. Consequently, the demurrer regarding these claims should have been overruled. The court reversed the dismissal judgment and remanded the case for the trial court to vacate its order sustaining Trader Joe’s demurrer without leave to amend, and to overrule the demurrer for claims of intentional interference with contractual relations and prospective economic advantage. Redfearn is entitled to recover costs on appeal.