Watson's Carpet and Floor Cov. V. Mccormick

• Decision Date: 18 January 2007
• Docket Number: No. M2004-02750-COA-R3-CV.,M2004-02750-COA-R3-CV.
• Parties: WATSON'S CARPET AND FLOOR COVERINGS, INC. v. Rick McCORMICK, et al.
• Court: Tennessee Court of Appeals

247 S.W.3d 169

WATSON'S CARPET AND FLOOR COVERINGS, INC. v. Rick McCORMICK, et al.

No. M2004-02750-COA-R3-CV.

Court of Appeals of Tennessee, Middle Section, at Nashville.

January 12, 2006 Session.

January 18, 2007.

Permission to Appeal Denied by Supreme Court May 14, 2007. Published Pursuant to Tenn. R.S. Ct. 4(D).

[247 S.W.3d 172]

Alan Mark Turk, Brentwood, Tennessee, for the appellants, Rick McCormick and Carpet Den, Inc.; R. Carl Cannon, William A. Blue, Jr., Kaz Kikkawa, Nashville, Tennessee, for the appellant, Mohawk Industries, Inc.

R. Scott Jackson, Jr., Nashville, Tennessee, for the appellee, Watson's Carpet and Floor Coverings, Inc.

OPINION

PATRICIA J. COTTRELL, J., delivered the opinion of the court, in which WILLIAM B. CAIN and FRANK G. CLEMENT, JR., JJ., joined.

This case involves questions of liability under the recently recognized tort of intentional interference with existing or prospective business relationships. Because a necessary element of that tort is "improper motive" or "improper means," and because refusal to deal is not improper but is, instead, privileged, we reverse the judgment against the supplier. The judgments against both the supplier and the competitor for conspiracy based on the privileged conduct is also reversed. We affirm the judgment against the competitor for intentional interference with business relationships.

I. FACTS

Watson's Carpet and Floor Coverings, Inc. ("Watson") is a retail carpet dealer that purchases carpet from various carpet manufacturers for resale. Among its customers are commercial developers that purchase large quantities of carpet for projects under development. Until 1998, Centex of Nashville ("Centex") had been one of Watson's commercial customers. In the past, Centex purchased carpet manufactured by another manufacturer, Queen, from Watson for the residential projects it was developing. A competitor of Watson, Carpet Den, Inc. ("Carpet Den"), had also supplied carpet to Centex, but the carpet provided by Carpet Den to Centex was manufactured by a different company, Shaw.

In 1999 Centex entered into exclusive carpet purchasing agreements with Mohawk Industries, Inc. ("Mohawk"), a major carpet manufacturer. Centex agreed it would use only Mohawk "Portico" carpet for its residential developments in exchange for certain concessions, including reduced prices. The propriety and legality of the exclusive purchasing agreement is not the subject of dispute. Centex asked Mohawk to make the Portico carpet available to both of Centex's existing dealers — Watson and Carpet Den. This lawsuit arises from Mohawk's decision to allow only Carpet Den to deal in the Mohawk Portico carpet with Centex. As a result, Watson was unable to supply Centex with carpet thus losing Centex as a customer. Mohawk would sell Watson any other carpet it manufactured except the Portico brand for resale to Centex. Mohawk allowed Watson to sell Portico to clients other than Centex. Watson had no contractual relationship with its manufacturer, Mohawk, or its customer, Centex, relevant to this lawsuit.

Thereafter, in 1999, Watson sued Mohawk, Carpet Den, and Carpet Den's owner, Rick McCormick, for tortious interference with business relationships and civil conspiracy. First, according to Watson, Mohawk tortiously interfered with Watson's business with Centex. Second, Watson also alleged that Carpet Den and its owner tortiously interfered with Watson's business relationship with Mohawk and Centex. Finally, Watson alleged that Carpet Den's owner and Mohawk's employees/agents civilly conspired to destroy Watson's business relationships with Mohawk and Centex. According to Watson's complaint, the "object of the conspiracy" was achieved by Mohawk's refusal to sell Watson the Portico carpet required by Centex resulting in the destruction of Watson's relationship with Centex. Thereafter, in 2000, the trial court granted the defendants summary judgment finding that Tennessee did not recognize the tort of intentional interference with a business relationship.

On appeal, the trial court's judgment was originally affirmed because under Nelson v. Martin, 958 S.W.2d 643 (Tenn.1997), Tennessee did not recognize the tort of intentional interference with a non-contractual business relationship. Watson's Carpet and Floor Coverings, Inc. v. McCormick et al., No. M2000-03101-COA-R3-CV, 2002 WL 121626 (Tenn.Ct. App. Jan.30, 2002). Thereafter, in an Opinion on Petition to Rehear, Watson's Carpet and Floor Coverings Inc. v. McCormick, No. M2000-03101-COA-R3-CV, 2002 WL 562577 (Tenn.Ct.App. April 15, 2002) (perm. app. denied Oct. 7, 2002), the Court of Appeals reconsidered and reversed the trial court citing Trau-Med of America, Inc. v. Allstate Insurance Co., 71 S.W.3d 691 (Tenn.2002). Specifically, the Court of Appeals found as follows:

In Trau-Med, the Western Section of this Court found that an action for tortious interference with an ongoing — although not contractual — business relationship was a viable cause of action in this State. The Supreme Court accepted an application to appeal and, as to this point, affirmed the Western Section in an opinion filed in Jackson, March 25, 2002. The Supreme Court opinion narrows the holding of Nelson v. Martin, 958 S.W.2d 643 (Tenn.1997), the case we relied upon in our original opinion.

In light of the foregoing, we deem it appropriate to vacate our previous opinion and instead — because there are disputed issues of material facts bearing on the question of the Defendants' liability which would preclude entry of a summary judgment — remand the case for trial in accordance with the directives of the Supreme Court in Trau-Med.

Watson's, 2002 WL 562577, at *1.

The case was then tried before a jury in July of 2004. The jury gave its verdict in the form of answering eleven (11) special questions. With regard to Mohawk's liability, the jury found that Mohawk "intentionally and improperly interfered" with Watson's business relationship with Centex. With regard to the liability of Carpet Den and its owner, the jury found that they "intentionally and improperly interfered with Watson's . . . business relationship with Mohawk . . . causing Mohawk to refuse to sell Watson carpet for Centex . . . construction projects." The jury declined to find that Carpet Den and its owner interfered with Watson's relationship with Centex. As to the conspiracy, the jury found that all three defendants conspired to "intentionally and improperly" interfere with Watson's prospective business relationship with Centex. The jury found Watson sustained $1,384,180 in past damages and $249,314 in future damages as a result of defendants' actions. Finally, as to punitive damages, the jury found that only Mohawk should be assessed punitive damages of $3,750,000, which the trial court then approved. The defendants filed motions to alter or amend or for a new trial which were denied. This appeal followed.

II. TENNESSEE SUPREME COURT DECISIONS DISCUSSING THE TORT OF INTENTIONAL INTERFERENCE WITH BUSINESS RELATIONSHIPS

There is no question that Tennessee recognizes the existence of a tort that protects contractual relationships. There is both a common law and statutory tort called inducement of breach of contract that allows recovery when a third party causes a breach of contract.¹ Quality Auto Parts Co., Inc. v. Bluff City Buick Co. Inc., 876 S.W.2d 818, 822 (Tenn.1994); Tenn.Code Ann. § 47-50-109. The issue presented in this case involves the parameters of a tort that protects the less defined interests of existing non-contractual business relationships and prospective business relationships.

In Nelson v. Martin, 958 S.W.2d 643 (Tenn. 1997), overruled by Trau-Med of America, Inc. v. Allstate Insurance Co., 71 S.W.3d 691 (Tenn.2002), the Tennessee Supreme Court declined to recognize the tort of wrongful interference with prospective business advantage. At that time, the Court reasoned that while policy reasons supported recognizing the tort of interference with contractual relations, these policy reasons did not support recognition of the tort to protect prospective, i.e. non-contractual, relationships.

The action for interference with contract is based on society's need for stability in contractual relations. "The tort protects society's interest in preserving the formal integrity of contract and rests on an implicit appreciation of the fundamental structure-giving significance of contracts in a market economy."

Nelson, 958 S.W.2d at 645-46, quoting John Danforth Tortious Interference with Contract. A Reassertion of Society's Interest in Commercial Stability and Contractual Integrity, 81 COLUM. L. Rev. 1491, 1523 (1981).

The Court in Nelson was concerned that a tort protecting prospective relationships is "a rather broad and undefined tort in which no specific conduct is proscribed and in which liability turns on the purpose for which the defendant acts, with the indistinct notion that the purposes must be considered improper in some undefined way." Id. at 646, citing W. PAGE KEETON ET AL., PROSSER AND KEETON ON THE LAW OF TORTS § 129, at 979 (5th ed.1984). The crux of the Court's objections to and criticism of the tort was twofold. First, the Court was concerned that protecting prospective economic advantage would weaken the significance and importance of contractual relationships. Nelson, 958 S.W.2d at 646. Second, the Court was concerned that recognizing the tort would weaken the legal principles underlying free competition. Id.

Five years after Nelson, the Tennessee Supreme Court in Trau-Med, supra, "adopted" the tort of intentional interference with existing or prospective business relationships.² Trau-Med, 71 S.W.3d at 701. Trau-Med was a physician practice management company whose purpose was to provide medical care to uninsured and indigent personal injury victims with meritorious claims. Trau-Med got referrals from attorneys and was then paid from either settlements or...