North Nash

California Supreme Court Holds Act of Interference with At-Will Contract Must Be Wrongful

California Supreme Court Holds Act of Interference with At-Will Contract Must Be Wrongful

Posted: August 11, 2020 | News

One of the most litigated causes of action in California business litigation are those related to interference with contract or prospective economic relations.  California recognizes two different torts involving interference with economic relations (i) interference with performance of a contract and (ii) interference with prospective economic advantage.  Originally California courts treated these two torts as basically one and the same – the only difference being that interference with contractual relations required the existence of a binding contract.  In 1995, however, the Supreme Court held that a plaintiff suing on a claim for interference with a prospective contractual or economic relationship (one that has not yet ripened into an actual contract), had to plead and prove that the defendant's conduct was independently wrongful for reasons other than the act of interference. See Della Penna v. Toyota Motor Sales U.S.A., Inc., 11 Cal. 4th 376 (1995).  

On the one hand, contacts were being interfered with (e.g., defendant induced a breach of contract) and on the other hand, there were mere prospective economic relationships interfered with. Given the latter was more amorphous, courts required the act of interference itself to be wrongful. 

But what about contracts that are terminable at-will? Are they more like a firm contract or a prospective economic relationship?  In fact they occupy a sort of middle ground between these two torts. This led to the question of whether a plaintiff, suing on a claim for tortious interference with an at-will contract must plead, and that the interference was independently wrongful.  

On August 4, 2020, the California Supreme Court held that tortious interference with an at-will contract does require independent wrongfulness. Ixchel Pharma, LLC v. Biogen, Inc., 2020 Cal. LEXIS 4876.

In its reasoning, the Court recognized in an at-will contract, the parties have more of an expectation of continuity of the relationship than when no contract exists. But it concluded that there is no legal basis in either case, the prospective economic advantage case or the at-will case, to expect continuity from the perspective of a third-party.  In addition, the Court found that legitimate business competition could be chilled, if independent wrongfulness is not required.  

In so holding, the Court disapproved of two earlier decisions of the Court of Appeal to the extent that they are inconsistent - Redfearn v. Trader Joe's Co., 20 Cal. App. 5th 989 (2018) and Popescu v. Apple, Inc., 1 Cal. App. 5th 39 (2016).

Author: North, Nash & Abendroth’s Attorney and Partner