What recourse does someone have when a third-party causes another person to breach a contract? Tennessee recognizes two types of claims for tortious interference with contracts.
- Common The first kind of claim arises under common law. The term “common law” refers to the body of decisions developed in the courts going back decades—and sometimes even centuries—which courts rely on today.
- The second kind of claim arises under state statute. Specifically, Tennessee Code § 47–50–109 makes it “unlawful for any person, by inducement, persuasion, misrepresentation, or other means, to induce or procure the breach or violation, refusal or failure to perform any lawful contract by any party” to the contract.
Elements. Plaintiffs may sue for either of these types of claims simultaneously. Both claims require the plaintiff to prove the same elements to win on their claim, including:
- The existence of a legal contract;
- The defendant’s knowledge of the contract’s existence;
- The defendant’s intent to induce a breach of the contract;
- Malicious actions by the defendant;
- The actual occurrence of the breach;
- That defendant’s actions were the proximate cause of the breach of contract; and
- Injuries resulting from the breach of contract.[1]
Statute of Limitations. Both the common law and statutory claims expire after three years under the statute of limitations at Tennessee Code § 28-3-105.[2]
Types of Damages. Although the common law and statutory claims have many similarities, the primary, crucial distinction between the claims is the type of damages which plaintiffs can be awarded.
First, plaintiffs who successfully sue for common law tortious interference with a contract may recover both compensatory and punitive damages. While courts award compensatory damages to make injured persons “whole,” the purpose of punitive damages is to “deter misconduct,” punish the defendants, and make an example of them for others.[3]
Deciding on the appropriate amount of punitive damages is a rigorous process. Courts hold a second phase of the trial to consider several different factors, including:
- the defendants’ financial status and net worth;
- the nature and reprehensibility of their wrongdoing;
- their awareness of the harm they caused;
- the duration of the misconduct and whether the defendants attempted to conceal their actions;
- the expense the plaintiffs incurred;
- whether the defendants profited (in which case the punitive damages may need to exceed the profit);
- whether the defendants tried to make amends;
- and any other relevant circumstances.[4]
If courts fail to assess these criteria, their decisions may be overturned or remanded on appeal.[5]
Conversely, plaintiffs who successfully recover under the statutory claim are entitled to treble—or “triple”— damages.[6] Treble damages are a mandatory statutory award of damages three times the actual damages that the jury or court determines is owed.[7] Because treble damages are a cold calculation without regard to the defendants’ financial status, some courts have viewed treble damages as a “severe penalty.”[8]
Ultimately, in practice, the primary difference between the two is that while an award of punitive damages requires the court to carefully consider at least nine factors, an award of treble damages is relatively simple math.
Burden of Proof. However, both the common law punitive and statutory treble damages awards require a heightened burden of proof.
To obtain compensatory relief at common law, plaintiffs only need to prove their case by a preponderance of the evidence.[9] The preponderance of the evidence standard is the most common burden of proof in civil trials. A preponderance of the evidence is “[t]he greater weight of the evidence [ . . . ] that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[10] In other words, a preponderance of the evidence is a likelihood of greater than 50% that the claim is true—regardless of whether the jury imagines this likelihood percentage as 99%, 51%, or even 50.0000001%.
However, to obtain punitive damages at common law or treble damages under the statute, a plaintiff must prove that the defendant acted intentionally, fraudulently, maliciously, or recklessly by “clear and convincing” evidence—a higher burden of proof.[11] Clear and convincing evidence is “evidence in which there is no serious or substantial doubt about the correctness of the conclusions drawn from the evidence.”[12] “While the ‘clear and convincing evidence’ standard does not require as much certainty as the ‘beyond a reasonable doubt’ standard” used in criminal trials, “it is more exacting than the ‘preponderance of the evidence’ standard.”[13] “In contrast to the ‘preponderance of the evidence standard,’ clear and convincing evidence demonstrates that the truth of the facts asserted is ‘highly probable,’ as opposed to ‘more probable than not.’”[14] Importantly, the statute automatically awards treble damages for plaintiffs who meet the clear and convincing evidence standard.[15]
Damages Election. The next question, then, is what decides whether plaintiffs receive punitive or treble damages? If a plaintiff is awarded both punitive and treble damages in a bifurcated hearing, the plaintiff has the option to elect whether to take punitive or treble damages—but the plaintiff cannot have both.[16] There is no hard and fast rule for whether an award of punitive damages or treble damages will be greater. Plaintiffs who have suffered a significant financial injury will likely want to receive triple their monetary damages. However, plaintiffs whose actual damages are nominal but who were injured by particularly egregious conduct may prefer that the jury award punitive damages.
Given these complexities and the 3-year statute of limitations, parties who have been injured by a third-party’s inducement of a breach of contract or have been accused of doing so should act quickly to preserve their rights or defenses and retain counsel to navigate them through the intricacies of prosecuting or defending these common law and statutory claims.
[1] See, e.g., Whalen v. Bourgeois, No. E2013-01703-COA-R3-CV, 2014 WL 2949500 at *10 (Tenn. Ct. App. June 27, 2014) (citations omitted).
[2] Tigg v. Pirelli Tire Corp., 232 S.W.3d 28, 31, n.1 (Tenn. 2007). Note, however, that some authorities have questioned whether the statutory claim should instead fall under the one (1) year statute of limitation at Tennessee Code § 28–3–104(a). See, e.g., Misco, Inc. v. U.S. Steel Corp., 784 F.2d 198, 204 (6th Cir. 1986).
[3] Whalen, 2014 WL 2949500 at *17; see also DAMAGES, Black’s Law Dictionary (11th ed. 2019). Generally, punitive damages are only available against a defendant if the defendant acted intentionally, fraudulently, maliciously, or recklessly.
[4] Whalen, 2014 WL 2949500, at *17 (citations omitted).
[5] See, e.g., id.at *17–18.
[6] Polk & Sullivan v. United Cities Gas Co., 783 S.W.2d 538, 542 (Tenn. 1989); Buddy Lee Attractions, Inc. v. William Morris Agency, Inc., 13 S.W.3d 343, 359 (Tenn. Ct. App. 1999).
[7] See, e.g., DAMAGES, Black’s Law Dictionary (11th ed. 2019).
[8] Emmco Ins. Co. v. Beacon Mut. Indem. Co., 204 Tenn. 540, 550, 322 S.W.2d 226, 231 (1959)).
[9] Edwards v. Travelers Ins. of Hartford, Conn., 563 F.2d 105, 120 (6th Cir. 1977) (citing Emmco, 204 Tenn. at 550).
[10] PREPONDERANCE OF THE EVIDENCE, Black’s Law Dictionary (11th ed. 2019).
[11] Hodges v. S.C. Toof & Co., 833 S.W.2d 896, 901 (Tenn. 1992) (common law); Buddy Lee Attractions, Inc. v. William Morris Agency, Inc., 13 S.W.3d 343, 359 (Tenn. Ct. App. 1999) (citing Emmco, 322 S.W.2d 226) (statute).
[12] Hodges, 833 S.W.2d at 901 n. 3.
[13] Duran v. Hyundai Motor Am., Inc., 271 S.W.3d 178, 207 (Tenn. Ct. App. 2008) (citing Hodges, 833 S.W.2d at 901 n. 3.)
[14] Id. (citing Teter v. Republic Parking Sys., Inc., 181 S.W.3d 330, 341 (Tenn.2005); Hibdon v. Grabowski, 195 S.W.3d 48, 62–63 (Tenn.Ct.App.2005)).
[15] Buddy Lee Attractions, 13 S.W.3d at 359–60.
[16] Id. at 359.