Slater Numismatics, LLC v. Driving Force, LLC
2012 COA 103, 310 P.3d 185, 2012 Colo. App. LEXIS 1001 (2012)
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Rule of Law:
A defendant may be liable for intentional interference with contractual relations even if their actions do not cause a formal breach or render performance impossible. Liability can arise if the defendant improperly and intentionally causes a third party to fail in a significant aspect of its contractual performance, such as by depriving it of the means to perform.
Facts:
- Slater Numismatics, LLC (Plaintiff) had a business relationship where it sent coins to Independent Coin Grading Company (ICG) for grading, which were then sold to Cable Shopping Network (Cable).
- Plaintiff and ICG entered into a Referral Agreement, wherein Plaintiff referred Cable's business directly to ICG in exchange for a referral fee of 25% of the net grading fees ICG received from Cable.
- James Taylor and Brett Williams were high-level executives at ICG who were aware of the confidential Referral Agreement and the importance of the Cable account.
- After a failed attempt to buy ICG, Taylor left the company, formed Driving Force, LLC, and purchased ANACS, a direct competitor of ICG. Williams also left ICG to become CFO of ANACS.
- Under Taylor's leadership, ANACS hired away all but two of ICG's employees, knowing there were very few qualified coin graders in the country, thereby crippling ICG's operational capacity.
- Using their confidential knowledge of the 25% referral fee, Taylor and Williams, through ANACS, approached Cable and offered a lower price for coin grading services.
- As a result of ANACS's actions, Cable transferred its business from ICG to ANACS.
- The loss of Cable's business meant ICG could no longer generate the grading fees from which it paid Plaintiff's 25% referral fee.
Procedural Posture:
- Slater Numismatics, LLC sued Driving Force, LLC (d/b/a ANACS) in a Colorado trial court, asserting claims for intentional interference with contractual relations and unjust enrichment.
- ANACS moved for summary judgment on all claims.
- The trial court granted summary judgment in favor of ANACS on both claims and entered an order awarding costs to ANACS.
- Slater Numismatics, LLC (as appellant) appealed the trial court's grant of summary judgment to the Colorado Court of Appeals.
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Issue:
Does a defendant's conduct that significantly impairs a third party's ability to perform its contractual obligations, but does not cause an outright breach or render performance impossible, constitute tortious interference with contractual relations?
Opinions:
Majority - Judge Terry
Yes, a defendant's conduct that significantly impairs a third party's ability to perform its contractual obligations can constitute tortious interference. The court held that liability for this tort is not limited to instances where the defendant induces a formal breach of contract or makes performance entirely impossible. Relying on the Restatement (Second) of Torts § 766, the court reasoned that the tort covers conduct that 'improperly interferes with the performance of a contract ... by inducing or otherwise causing the third person not to perform.' The court clarified that earlier Colorado precedents suggesting a breach or impossibility was required were merely expressing two possible ways to prove the tort, not the exclusive ways. The court found that ANACS's actions—hiring away nearly all of ICG's specialized employees and using confidential information to undercut ICG's pricing—were improper means intended to cripple ICG's ability to serve Cable. This 'substantially interfered' with ICG's ability to perform its Referral Agreement with Plaintiff, thus constituting actionable interference.
Analysis:
This decision clarifies and arguably broadens the scope of the tort of intentional interference with contractual relations in Colorado. By moving away from a strict requirement of 'breach' or 'impossibility,' the court aligns with a more modern interpretation that focuses on the impropriety of the defendant's conduct and its effect on the plaintiff's contractual interests. The ruling signals that predatory business tactics, such as poaching an entire specialized workforce or misusing confidential information to steal a major client, can be legally actionable even if they do not cause a technical breach of the underlying contract. This provides greater protection for parties whose contractual benefits are undermined by a competitor's wrongful interference with their business partners.
