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Tortious Interference & Mergers and Acquisitions

mergers and acquisitions

Tortious interference can take place in a variety of settings, but the most common cases involve interference with contracts, potential business relationships, or existing economic relationships. Courts only allow claims for tortious interference with contract, in the context of mergers and acquisitions, when a real breach of the contract has occurred. Under New York law, the standard test for finding if a defendant has committed tortious interference with contract is: “(1) the existence of a valid contract between plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional procuring of the breach, and (4) damages.”[1] Despite this bar, New York Courts will attempt to only strictly interpret these when dealing with mergers and acquisitions.[2]

To support a claim for tortious interference with a contract, courts typically will not accept interference with a merger agreement by a third party that causes the acquiring party to pay a higher price for the target entity. There is typically no breach of contract to support a claim for tortious interference with contract in the event that the target entity is ultimately purchased by the acquiring entity, even at a price that is higher than anticipated.[3] New York courts have consistently found that a change in a price agreed to, even if because of interference by a third party, will not be enough to support a claim for tortious interference with contract. Additionally, Courts will generally refuse a claim for tortious interference of contract where a party pulls out of a merger agreement because of interference by a third party, so long as there was a clause allowing a party to leave said agreement of their own accord.[4] That is because, in this context, there was no actual breach of contract.[5] Simply put, courts hold a very strict and narrow interpretation of tortious interference of contract, especially in the context of mergers and acquisitions. A breach of contract, consistent with the New York standard, must be caused by a third party in order for a plaintiff to prevail on their claims.

In the context of a merger, the potential acquiring company typically needs to demonstrate that the third party engaged in intentional interference by employing "wrongful or unlawful means to secure a competitive advantage" in order to establish a tortious interference with economic relations claim.[6] Just like claims for tortious interference with prospective business relations in the employment contract context, merely showing that a third-party was acting for financial gain as a primary motivation is not enough for a plaintiff to prevail on their claim. For example, if there are competing parties trying to either merge or acquire the same entity, there is little chance a party can prevail if trying to sue the other for tortious interference with prospective contract, as both parties are simply acting out of financial motivation.

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[1] Foster v. Churchill, 87 N.Y.2d 744, 749–50, 665 N.E.2d 153, 156 (1996).

[2] Teena-Ann V. Sankoorikal, 2022 in New York Business Litigation 437–468 (2022).

[3] Viacom Int'l Inc. v. Tele-Commc'ns, Inc., No. 93 CIV. 6658 (LAP), 1994 WL 561377 (S.D.N.Y. Oct. 12, 1994).

[4] NBT Bancorp Inc. v. Fleet/Norstar Fin. Grp., Inc., 87 N.Y.2d 614, 664 N.E.2d 492 (1996).

[5] See id.

[6] See Icahn v. Lions Gate Ent. Corp., 31 Misc. 3d 1205(A), 929 N.Y.S.2d 200 (Sup. Ct. 2011). (Finding that “Defendants did not engage in the use of wrongful or unlawful means to secure a competitive advantage over plaintiffs, and did not act for the sole purpose of inflicting intentional harm on plaintiffs.”

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