Court of Appeal Holds That Higher-Tiered Party on Construction Project Can be Held Liable for Intent
In Caliber Paving Company, Inc. v. Rexford Industrial Realty and Management, Inc., Case No. G0584406 (September 1, 2020), the 4th District Court of Appeal examined whether a higher-tiered party on a construction project can be held liable for intentional interference with contract when it interferes with the contract between lower-tiered parties even though the higher-tiered party has an economic interest in the contract between the lower-tiered parties.
The Caliber Paving Case
Project owner Rexford Industrial Realty and Management, Inc. owns and operates industrial property throughout Southern California. In 2017, Rexford hired contractor Steve Fodor Construction to perform repaving work at Rexford’s property in Carson, California.
Fodor Construction in turn hired subcontractor Caliber Paving Company, Inc. to perform the repaving work. The subcontract divided the parking lot into four areas, with separate costs to repave each area, and Caliber completed its work in one area in June 2017.
Caliber was to start work in the next area on September 11, 2017 but was unable to due to trucks and trailers parked on the job site. And this is where things get messy. According to Fodor Construction, Caliber arrived earlier than expected and left shortly thereafter. Later that morning Fodor Construction received an email from Caliber claiming a “move on” charge of $7,500. A few hours later, that charge increased to $15,000. According to Fodor Construction, it tried to have discussions with Caliber to resolve the dispute but Caliber refused to return to the job unless the move on charge was paid. Ultimately, Fodor Construction hired another paving subcontractor to complete the work.
According to Caliber, it was prevented from beginning work on September 11, 2017 due to trucks and trailers parked on the job site, that Fodor Construction agreed to reschedule the work to September 14 and 15, 2017, and that while the “move on” charge was authorized under its subcontract that Fodor Construction kicked Caliber off the job after being told that “Rexford wanted Caliber off the job.”
Caliber later sued Fodor Construction for breach of contract as well as Rexford for intentional interference with contract. Rexford in turn filed a motion for summary judgment arguing that: (1) it was not a stranger to the contract and therefore could not be sued for interfering with it; and (2) Caliber’s evidence to prove Rexford interfered with the contract was inadmissible double hearsay.
While ruling that Caliber’s evidence did not constitute double hearsay because they each fell within an exception to the hearsay rule, the trial court granted Rexford’s motion for summary judgment finding that intentional interference with contract applies where an non-contracting party with “no legitimate social economic interest in [a] contractual relationship” intentionally interferes with the contractual relationship with others, and that here “[I]t is hard to envision where the alleged party 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.”
On appeal, the 4th District Court of Appeal, reversed.
In Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, explained the Court of Appeal, the California Supreme Court held that “noncontracting parties” or “a stranger to a contract” can be liable for intentionally interfering with the performance of a contract. However, explained the Court of Appeal, the California Supreme Court also stated that “consistent with its underlying policy of protecting the expectations of contracting parties against frustration by outsiders who have no legitimate social or economic interest in the contractual relationship, the tort cause of action for interference with contract does not lie against a party to the contract.”
While acknowledging that the Courts of Appeal have grappled with the meaning of Applied Material, the Court of Appeal ultimately concluded that “a defendant who is not a party to the contract or an agent of a party to the contract is not immune from liability for intentional interference with contract by virtue of having an economic or social interest in the contract,” because without potential liability a noncontracting party, including one claiming a social or economic interest in the contractual relationship, has no “incentive to refrain from interfering with the contractual relationship.”
So, there you have it. Higher tiered parties on a construction project can be liable for interference with contract, even though they may have a social or economic interest in the contract between lowered-tiered parties, if they intentionally interfere with that contract.