Ventas, Inc. v. HCP, Inc.
647 F.3d 291 (2011)
Rule of Law:
A competitor engages in tortious interference with a prospective advantage when it uses "wrongful means," such as fraudulent misrepresentation or deceit, to interfere with another's business expectancy. A breach of a standstill agreement with a third party, while insufficient on its own, can be considered as part of the evidence demonstrating such wrongful means.
Facts:
- Sunrise Senior Living Real Estate Trust ('Sunrise') held a confidential auction for its assets, requiring bidders, including Ventas, Inc. and HCP, Inc., to sign a Standstill Agreement prohibiting bids outside the auction process.
- Ventas and HCP proceeded as the final two bidders, with a final bid being conditional upon reaching a side-agreement with Sunrise's property manager, SSL.
- Ventas successfully negotiated an agreement with SSL, but HCP's negotiations with SSL failed, leading HCP to withdraw from the auction.
- Ventas then submitted a binding bid of $15.00 per unit, which Sunrise's board accepted, forming a Purchase Agreement subject to the approval of Sunrise's unitholders.
- After the Ventas-Sunrise deal was publicly announced, HCP issued a press release announcing a 'topping bid' of $18.00 per unit.
- HCP's press release stated its offer was 'identical' to Ventas's and had 'greater certainty of completion,' while failing to disclose that its offer was conditional on reaching an agreement with SSL and that the public bid violated its Standstill Agreement with Sunrise.
- Following HCP's announcement, the market price of Sunrise units rose to approximately $18.00, and Sunrise's unitholders subsequently voted against Ventas's $15.00 per unit deal.
- To complete the acquisition, Ventas was forced to increase its offer to $16.50 per unit, which the unitholders then approved.
Procedural Posture:
- Ventas and Sunrise filed applications in the Ontario Superior Court of Justice, which declared that HCP's Standstill Agreement was valid and enforceable, precluding its topping bid.
- The Ontario Court of Appeal affirmed the lower court's decision.
- Ventas filed a diversity action against HCP in the U.S. District Court for the Western District of Kentucky, alleging tortious interference with contract and with a prospective advantage.
- The district court granted HCP summary judgment on the tortious interference with contract claim but allowed the prospective advantage claim to proceed to trial.
- During trial, the district court granted judgment as a matter of law for HCP on the issue of punitive damages, removing it from the jury's consideration.
- A jury returned a verdict in favor of Ventas on the prospective advantage claim, awarding damages of $101,672,807.00.
- The district court entered judgment on the verdict and denied HCP's post-trial motion for judgment as a matter of law.
- HCP appealed the judgment to the U.S. Court of Appeals for the Sixth Circuit, and Ventas cross-appealed the decisions on punitive and other damages.
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Issue:
Does a competitor's public announcement of a non-binding, conditional, and contract-breaching 'topping bid' that contains material misrepresentations and omissions constitute 'improper interference' for a claim of tortious interference with a prospective advantage?
Opinions:
Majority - Clay, Circuit Judge
Yes, a competitor's public announcement of a bid that is conditional, breaches a contract, and contains material misrepresentations and omissions constitutes 'improper interference.' The court found that HCP's conduct went beyond privileged competition and amounted to tortious interference through wrongful means. The court's reasoning was threefold: 1) The evidence was sufficient to support the jury's finding that HCP's public offer was not a truthful statement but was contaminated by fraud, misrepresentations (claiming 'greater certainty' of completion), and material omissions (hiding the SSL condition and the Standstill Agreement breach). 2) The district court's jury instructions were proper; it correctly used Restatement (Second) of Torts § 768 for competition but permissibly used factors from § 767 to define 'wrongful means.' 3) The district court erred by not submitting the issue of punitive damages to the jury, as there was sufficient evidence of fraud (intentional misrepresentation and deceit with intent to cause injury) to warrant jury consideration. The court affirmed the jury's compensatory damage award but reversed the dismissal of the punitive damages claim and remanded for a trial on that issue alone.
Concurring - Merritt, Circuit Judge
Yes, the result is correct. This opinion concurs with the result and most of the majority's reasoning. However, it expresses disagreement with the majority's footnote criticizing the attorneys' conduct without offering them an opportunity to explain their actions. The opinion also notes that the outcome regarding the sufficiency of the evidence would be the same regardless of whether a state or federal standard of review was applied.
Analysis:
This decision clarifies the 'improper interference' standard for competitors under Kentucky law, solidifying that fraudulent and deceptive acts are not protected by the competition privilege. The court affirmed that Restatement § 768 is the primary test for competitors, but § 767's factors can be used to define the crucial element of 'wrongful means.' This case sets a precedent that a superficially truthful statement, like a higher bid price, can still constitute fraud if it is rendered misleading by material omissions and deceptive framing. The ruling serves as a warning that leveraging public markets through misleading press releases to sabotage a rival's concluded deal crosses the line from aggressive competition into tortious liability.
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