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Tortious Interference with Contract and Unfair Competition Causes of Action Proven–Elements Explained—Punitive Damages Not Warranted–Purpose Explained

The First Department, in a full-fledged opinion by Justice Sweeney, determined that the trial judge (bench trial) properly found that JC Penney (JCP) had tortiously interfered with the exclusivity provision of a contract between Macy’s and Martha Stewart Living Omnimedia (MSLO), but that the trial judge had improperly dismissed the cause of action alleging tortious interference with the confidentiality provision of the contract and the cause of action for unfair competition. The First Department agreed with the trial judge that punitive damages were not warranted.  Macy’s had entered a contract with MSLO which gave Macy’s the exclusive right to manufacture and sell MSLO products. JCP was found to have knowingly and forcefully engaged in negotiations with MSLO which resulted in MSLO’s breaching both the exclusivity and confidentiality provisions of the Macy’s contract:

To sustain its claim of tortious interference with contract, Macy’s must prove (1) that it had a valid contract with MSLO; (2) that JCP had knowledge of Macy’s contract with MSLO; (3) that JCP intentionally induced MSLO to breach its contract with Macy’s; (4) that MSLO breached its contract with Macy’s; (5) that MSLO would not have breached its contract with Macy’s absent JCP’s conduct; and (6) that Macy’s sustained damages … .

* * * On the record before us, the evidence establishes that JCP had, as the court found, a “certainty” or “substantial certainty” that it actions would result in a breach, particularly in light of the unambiguous language of the contract requirement that all MSLO goods in the Exclusive Product Categories, including all such goods sold in any MSLO Store, had to be manufactured by Macy’s. * * *

… Macy’s alleges that JCP induced MSLO to disclose the terms of its agreement and confidential financial information. This was a violation of the confidentiality provision of the agreement. Macy’s sufficiently demonstrated that the material disclosed does not fall under any exception to the confidentiality provisions as required by law or legal processes. Further, Macy’s demonstrated that the scope of disclosure was not properly limited with respect to the information provided and the personnel receiving it. As noted, JCP sought this information almost from the inception of its discussion with MSLO. The information was tantamount to trade secrets, as JCP’s executives acknowledged. * * *

It is well settled that “the primary concern in unfair competition is the protection of a business from another’s misappropriation of the business’ organization [or its] expenditure of labor, skill, and money'” (Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663, 671 [1981]…). Indeed, “the principle of misappropriation of another’s commercial advantage [is] a cornerstone of the tort” (52 NY2d at 671). Allegations of a “bad faith misappropriation of a commercial advantage belonging to another by exploitation of proprietary information” can give rise to a cause of action for unfair competition … .

Here, the agreement between Macy’s and MSLO provided Macy’s with valuable exclusive rights to the Martha Stewart trademark and MSLO’s designs in the Exclusive Product Categories, which, as the court found, gave Macy’s a competitive advantage. It is conceded that the MSLO brand had significant value in the retail world, and the record shows JCP was fully aware of Macy’s commercial advantage as the exclusive distributor of these branded products. JCP’s actions in attempting to misappropriate this commercial advantage by inducing MSLO to breach its agreement falls squarely within Ruder and Finn’s definition of unfair competition … . * * *

…In order to be entitled to punitive damages, a private litigant “must not only demonstrate egregious tortious conduct by which he or she was aggrieved, but also that such conduct was part of a pattern of similar conduct directed at the public generally … . Punitive damages are “a social exemplary remedy, not a private compensatory remedy” Macy’s Inc v Martha Stewart Living Omnimedia Inc, 2015 NY Slip Op 01728, 1st Dept 2-26-15

 

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