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Stranger Danger! Project Owners May Be Liable For Subcontractors’ Intentional Interference Claims

September 16, 2020

September 16, 2020

For many subcontractors, project owners, by definition, seem to have greater leverage in nearly all aspects of the project. But that’s not always the case. A new court of appeal decision holds that a subcontractor may assert a claim for intentional interference against a project owner who’s verbal statements directed the general contractor to replace the subcontractor. In Caliber Paving Company, Inc. v. Rexford Industrial Realty and Management, Inc., the Fourth Appellate District clarified existing law and confirmed that “strangers” to a subcontract (a project owner or other non-party) may be sued for the intentional interference of a subcontract regardless of any social or economic interest it claims in the subcontract.

The Underlying Dispute

In Caliber Paving, the project owner (Rexford) contracted with general contractor, Steve Fodor Construction (SFC), for improvements to an industrial property in Carson. SFC subcontracted the paving work to Caliber Paving Company (Caliber). When Caliber attempted to remobilize and access the project on the date scheduled for its second phase of paving work, the work area was not available, and trucks and trailers needed to be moved. Caliber left the project without performing work and a few hours later sent SFC a “move on” charge of $7,500 via email. The charge increased to $15,000 a few hours later. Caliber contended that SFC was contractually required to pay the charge. Unwilling to pay it, SFC cancelled the work a few days later and hired a new paving subcontractor to complete the work. Caliber sued Rexford for intentional interference of the subcontract between Caliber and SFC.

Why sue the project owner? Multiple hearsay statements allegedly established that Rexford directed SFC to fire Caliber. In deposition, Caliber’s president testified that Steve Fodor told him that Rexford directed SFC to “kick Caliber off the job or hire someone else.” Caliber’s Account Executive also testified in deposition that one of SFC’s employees told him “Rexford wanted Caliber off the job.” Not the greatest evidence, perhaps.

The Trial Court Grants The Owner’s Motion, Caliber Appeals

At the trial court level, Rexford prevailed against Caliber on a motion for summary judgment. Relying on specific language in Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal. 4th 503, the trial court ruled that Rexford did not meet the apparent definition of a “non-contracting party” who could be sued for intentional interference. That definition, taken from Applied Equipment, included “strangers” or “outsiders” to the contract who have “no legitimate social or economic interest in the contractual relationship.” Granting Rexford’s motion, the trial court ruled, “It is hard to envision a situation where the alleged interfering party [the project owner, Rexford] does not have a more direct economic interest in a contract than one between its general contractor and a subcontractor over how the property is improved.” Caliber appealed.

The Court Of Appeal Avoids A “Perverse” Result

The court of appeal reversed the trial court and held that, based on the reasoning in Applied Equipment, a defendant who is not a party to the contract, or an agent of a party to the contract, is a “stranger” to the contract and can be sued for intentional interference regardless of its claim of social or economic interest in the contractual relationship. The court of appeal explained that a contracting party’s breach of contract is no different in character when it is induced by a non-contracting party, i.e., a contracting party unjustifiably fails to perform. On the other hand, when a non-contracting party, including one claiming a social or economic interest in the contractual relationship, induces a contracting party to breach, it has engaged in “socially opprobrious” conduct for which tort liability is imposed. The “socially opprobrious” conduct is not avoided simply because one claims a social or economic interest in the contractual relationship. That is, the project owner’s interest in the subcontractor’s work does not prevent liability for the intentional interference with a subcontract because the owner is not a party to the subcontract. The court explained that if a non-contracting party with an economic interest in the subcontract is not held liable for intentional interference, then a perverse result would occur because it is those parties with some type of economic interest in a contract who would have the greatest incentive to interfere with it, yet they would not be held liable in contract or tort law.

As for the not so great hearsay statements which formed the basis of the intentional interference claims against Rexford, only one statement was admissible, but that was enough to defeat Rexford’s motion. Therefore, the trial court’s order was reversed and the case was remanded back to the trial court for further proceedings.

The Takeaway

The holding in Caliber Paving should caution project owners, and all other “strangers” to a subcontract, that despite an obvious economic interest in the subcontractor’s work, their verbal statements may be admissible in court and create liability for the intentional interference with the subcontract. On the other hand, subcontractors should be diligent to memorialize the statements and conduct of project owners, and other “strangers” to their subcontract, if they suspect intentional interference is occurring. Those statements may be just enough to defeat the project owner’s motion for summary judgment.

Aaron J. Flores has been involved in the construction industry for over two decades. He represents public and private clients in all sectors of the construction industry, including heavy industrial, transportation, infrastructure, architectural and engineering, commercial, retail, and residential. If you would like additional information about the subject matter of this bulletin, please contact Mr. Flores at flores@huntortmann.com.

AARON J. FLORES
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