Uptown Heights Associates Ltd. Partnership v. Seafirst Corp.

EDMONDS J.,

concurring in part, dissenting in part.

In this appeal from a judgment of dismissal under ORCP 21A(8), plaintiffs argue that the trial court erred when it dismissed their claims for tortious breach of the duty of good faith and fair dealing (first claim for relief), breach of the contractual duty of good faith and fair dealing (second claim for relief), tortious interference with a contractual relationship (third claim for relief), and tortious interference with an economic relationship (fourth and fifth claims for relief). The majority affirms the trial court’s ruling on the first two claims. I would affirm the trial court’s ruling on all claims.

The gravamen of the first claim is the allegation that there was a “special relationship of trust and confidence” among the parties that imposed a duty on defendants “not to harm plaintiffs’ interests by its conduct,” and that defendants breached that duty by initiating a foreclosure action and seeking a court ordered receivership regarding a loan made by defendants to plaintiff. Although the complaint is not explicit, it appears from the tenor of the allegations that plaintiffs concede that they were in default and that the loan agreement confers the right to defendants to seek a receiver and foreclose in the event of a default. The claim is predicated on the argument that the nature of the relationship among the parties imposed a standard of care on defendants that was independent of the terms of the contract. The majority holds that the allegations do not allege a breach of duty as a matter of law, because plaintiffs do not allege sufficient facts to constitute an estoppel or to imply a good faith duty under the circumstances. It reasons that to imply such a duty would be inconsistent with the express terms of the agreement that gives defendants the right to foreclose on default.

In Georgetown Realty v. The Home Ins. Co., 313 Or 97, 831 P2d 7 (1992), the court discussed when a tort remedy lies for breach of a duty independent of the terms of the contract. It said:

“When the relationship involved is between contracting parties, and the gravamen of the complaint is that one party caused damage to the other by negligently performing its obligations under the contract, then, and even though the relationship between the parties arises out of the contract, the injured party may bring a claim for negligence if the other party is subject to a standard of care independent of the terms of the contract. If the plaintiffs claim is based solely on a breach of a provision in the contract, which itself spells out the party’s obligation, then the remedy normally will be only in contract, with contract measures of damages and contract statutes of limitation. That is so whether the breach of contract was negligent, intentional, or otherwise. In some situations, a party may be able to rely on either a contract theory or a tort theory or both. See Ashmun v. Nichols, 92 Or [223, 234-35, 178 P 234, 180 P 510 (1919)].” 313 Or at 106.

An example in which a parly might rely on both theories would be when a tenant suffers personal injury as the result of basement steps that were left in a dangerous condition by the landlord. Under the lease, the condition of the steps would be a breach of the landlord’s covenant to maintain the premises in good repair. Alternatively, the law imposes an independent duty on the landlord to maintain the premises in an habitable conditions. See ORS 90.320. Another example occurred in Georgetown Realty Inc. v. The Home Ins. Co., supra. There, an insured brought a claim against an insurer alleging that the insured was negligent when it failed to settle a claim against the insured for the limits of the coverage under the policy. The court held that, when the liability insurer undertook to defend, the law imposed a duty independent of the policy to use reasonable care, and the failure to exercise that standard gave rise to a claim for negligence.

These examples are instructive when plaintiffs’ allegations about “the special relationship of trust and confidence” among the parties are considered. The gist of their claim is that because of the ongoing nature of the relationship with defendants, a duty was imposed on defendants not to foreclose under the circumstances, even though plaintiffs were in default. Whatever that duty was, it was part of the loan agreement and not independent of it. No tort remedy exists in the absence of an independent duty, and the trial court correctly granted defendants’ motion to dismiss the claim.

The second claim alleges a breach of a contractual implied duty of good faith not to seek a receivership or foreclose when defendants knew that the foreclosure would “destroy plaintiffs’ ability to recover their investment.” The majority holds that an implied duty of good faith does not exist if it is inconsistent with an express right under the agreement. It reasons that because the agreement gives defendant the absolute or unqualified right to foreclose on default, it is immaterial what defendant’s motive was. I agree and comment only to point out that the majority’s reasoning is consistent with the court’s opinion in U.S. National Bank v. Boge, 311 Or 550, 814 P2d 1082 (1991). In that case, the borrower counterclaimed against a bank that had sued him on several delinquent promissory notes. He asserted that the bank had breached its duty of good faith by, in part, foreclosing on his loan. The court said:

“The obligation of good faith does not vary the substantive terms of the bargain * * *, nor does it provide a remedy for an unpleasantly motivated act that is expressly permitted by contract * * 311 Or at 567.

The third claim for relief is for tortious interference with a contractual relationship in that “Defendants intentionally interfered with plaintiffs’ contractual relations with a buyer for the Uptown Heights Apartments * * A necessary predicate for an action for interference with a contractual relationship is an existing contract. Luisi v. Bank of Commerce, 252 Or 271, 449 P2d 441 (1969). According to plaintiffs’ complaint, defendants initiated a foreclosure action and requested appointment of a receiver on August 2, 1991. A sale was scheduled for December 20, 1991. It was not until after November 7, 1991, that plaintiffs entered into a binding sales agreement with a purchaser. Any claim for tortious interference with a contractual relationship must necessarily have arisen from defendants’ actions after the sales agreement was signed.

Plaintiffs make only one allegation of interference against defendants that pertains to that time period. “Sea-first refused to allow any extension of the foreclosure time period and continued to demand that it be paid in full prior to the foreclosure sale.” In Top Service Body Shop v. Allstate Ins. Co., 283 Or 201, 582 P2d 1365 (1978), the court said:

“In summary, [a claim for intentional interference with contractual or other economic relations] is made out when interference resulting in injury to another is wrongful by some measure beyond the fact of the interference itself. Defendant’s liability may arise from improper motives or from the use of improper means. They may be wrongful by reason of a statute or other regulation, or a recognized rule of common law, or perhaps an established standard of a trade or profession. No question of privilege arises unless the interference would be wrongful but for the privilege; it becomes an issue only if the acts charged would be tortious on the part of an unprivileged defendant. Even a recognized privilege may be overcome when the means used by defendant are not justified by the reason for recognizing the privilege.” 283 Or at 209-10. (Footnote omitted.)

A defendant is entitled to a dismissal of a claim that does not allege the necessary factual elements of the tort. If the facts giving rise to a recognized privilege appear on the face of the pleading, then the pleader must plead facts that demonstrate that the means used by the defendant are not justified by the reason for recognizing the privilege. Ramirez v. Selles, 308 Or 609, 612, 784 P2d 433 (1989).

There is no allegation in the third claim that defendants breached their loan agreement with plaintiffs by refusing to extend the sale, nor is there an allegation that the loan agreement is contrary to law or public policy. In other words, the refusal to extend the sale was a privilege bestowed on defendants by the terms of the loan agreement. Therefore, the means of the interference was proper. Plaintiffs also allege that ‘ ‘ [t]he defendants’ motive in such interference was to injure the contractual relations and make the sale for their own benefit, to the detriment of plaintiffs.” Thus, the issue is whether plaintiffs have stated a claim for intentional interference with a contractual relationship when they do not allege an interference by improper means, but do allege conduct that is privileged under the loan agreement, albeit improperly motivated.

So far as I can determine, that precise question has not been expressly answered by the Oregon appellate courts. The majority believes the issue has been answered in Ramirez v. Selles, supra. However, there the court concluded that the allegations about the defendant’s actions “do not on their face show that [his] acts would be privileged as those of a competitor.” 308 Or at 614. Consequently, the allegations about improper motive sufficed to state a claim. This case is inapposite to Ramirez because as alleged, defendants’ conduct was authorized by the parties’ agreement. Therefore, the privilege does exist here and the question becomes whether defendants’ motive is material in light of the nature of the privilege. Moreover, the majority appears to believe that I support a general rule that whenever a privilege exists, the actor’s motive will always be immaterial. That is incorrect, because I understand the court in Top Service Body Shop v. Allstate Ins. Co., supra, to say that a purpose to harm the injured party is but one factor that could make the interference improper. 283 Or at 207. The materiality of an improper motive will depend on the particular privilege involved.

Because of our standard of review in this case, any ruling must be confined to the facts that appear on the face of the complaint and the inferences that can be drawn therefrom. The analysis begins with a basic legal proposition: ‘ ‘Not all interferences with economic relationships are tortious.” For instance, the allegation in this claim that defendants ‘ ‘made the sale for their own benefit’ ’ could hardly be characterized as an improper interference by defendants in the absence of allegations that suggest that the procurement of a foreclosure judgment under the circumstances was improper. The loan agreement was in default, and defendants were entitled to be paid. Moreover, the claim does not allege that defendants received at sale more than what was owed to them including principal, interest and the cost of the foreclosure proceeding.

The second legal proposition that is pertinent to the analysis is that a distinction exists between situations in which the actor’s conduct is privileged and in which it is unprivileged. See Top Service Body Shop v. Allstate Ins. Co., supra, 283 at 210. When the conduct is unprivileged, then the interference may be improper because the actor had an improper motive or employed improper means to effect the interference. When the conduct is privileged but the actor employed improper means to carry out the interference, the privilege is lost. See Ramirez v. Selles, supra, 308 Or at 612. There is no public policy reason to provide a defendant with tort immunity when he acts with improper means. However, different policy concerns come into play when the defendant’s conduct is privileged, and he acts within the law or as authorized by a consensual arrangement such as a contract. If a party to a contract does what the law and the agreement permit him to do, should he be guilty of a tort because of his motivation? To answer that query, it is important to look at the underlying purpose for providing a tort remedy for an interference with a contractual relationship.

In Oregon, the tort of interference with a contractual relationship finds its origin in section 766 and section 766A of Restatement (Second) Torts. Although the comments to those sections might be read as suggesting that the presence of an improper motive can create liability despite the privileged nature of the conduct, to promulgate such a rule under the circumstances of this case would be contrary to public policy. The justification for tort liability depends on an “improper” interference with an economic relationship. The impropriety of the interference under the allegations pled in his case disappears because defendants’ conduct is privileged by the agreement of the parties. See Maynard v. Caballero, 752 SW2d 719 (Tex App 1988). Plaintiffs’ tortious interference claim is predicated on conduct which involves no more than the exercise of an absolute legal and contractual right by defendants arising from the agreement with plaintiffs. In a legal sense, plaintiffs have previously consented to the conduct about which they now complain.

A contrary holding in this case sends a message that promotes instability of contractual obligations, litigious interference with traditional legal and contractual remedies of creditors, and havoc with how commercial and private lenders do business. See Perlman, “Interference with Contract and Other Economic Expectancies,” 49 Chi L Rev 61 (1982). “The result becomes even more incongruous in view of the fact that punitive damages could also attach.” Circo v. Spanish Gardens Food Mfg. Co., Inc., 643 F Supp 51, 56 (WD Mo 1985).¹ Policy wise, the majority’s decision on the facts alleged means that lenders can perform fully all of their obligations under a loan agreement and still be unable to enforce contractual remedies. A privilege like the one in this case cannot be lost because of defendants’ “improper thoughts.” As a matter of law and policy, no one is liable for a tort when they sought to foreclose on security after a default occurred if they acted in accordance with the law and their rights under a loan agreement. For this reason, I disagree with the majority’s holding that plaintiffs’ third claim states a cause of action.

There is another defect in the pleading of the third claim that exists because of the conclusory nature of plaintiffs’ allegations. In Conklin v. Karban Rock, Inc., 94 Or App 593, 767 P2d 444, rev den 307 Or 719 (1989), the defendant alleged that it had entered into a written lease with a third party (Jenkins) which allowed the defendant to apply for a conditional land use permit to quarry rock on land owned by Jenkins. Thereafter, the defendant and Jenkins entered into an oral modification of the lease to include additional land that was adjacent to that covered by the written lease. Jenkins also agreed to aid the defendant when it applied for a permit to quarry rock on the additional land. After the oral agreement was reached, the defendant pursued an application for a conditional use permit for the enlarged site. The plaintiff led the opposition to the application. Before the oral agreement could be memorialized, Jenkins notified the defendant that she considered the initial lease terminated because of the defendant’s failure to make minimum monthly royalty payments. Jenkins then sold the land to the plaintiff.

The plaintiff filed an action for a declaration that the lease was terminated. He alleged that the defendant was in breach of the lease because of the failure, among other things, to make royalty payments. The defendant denied that the lease was terminated and counterclaimed against the plaintiff alleging that he had intentionally interfered with its economic relationship with Jenkins. The gravamen of the claim was that the plaintiff knew of the lease and the alleged oral modification, that he induced Jenkins not to perform her agreement by offering to buy the property from her for more than she would get from the defendant, and that he agreed to indemnify, defend and hold Jenkins harmless from the defendant’s claims that Jenkins had breached the lease. The counterclaim was dismissed under ORCP 21A(8) for failure to state a claim, and the defendant appealed.

On appeal, we held that there were insufficient allegations that the plaintiff had acted by improper means.² We then turned to the question of whether the defendant had pled that the plaintiff had acted with an improper motive. It alleged that the plaintiffs motive in purchasing the land was to prevent the land from being quarried and in conclusory terms, that the plaintiff had acted with the motive and intent of harming the defendant. We observed that in Top Service Body Shop v. Allstate Ins. Co., supra, the court had held that although the plaintiff had alleged in that case that the motive of the defendant was to harm the plaintiff, when the proof was that the defendant had pursued only a legitimate business objective, no claim existed. Accordingly, we said:

“Here, the facts alleged by [the defendant] in its counterclaim and brief show that [the plaintiff] engaged in conduct on behalf of an environmental protection group that was opposed to the quarrying of rock on the property and that his motive was predominantly to protect the land in question from quarrying. [The defendant] alleges a specific course of conduct engaged in by [the plaintiff] designed to protect that land, yet it makes only a single conclusory allegation that [the plaintiffs] motive was to injure [the defendant]. If [the defendant] was injured, its injury was only incidental to [the plaintiffs] prevention of quarrying by anyone. Taken as a whole, the pleadings fail to allege sufficient facts to show an improper motive on the part of [the plaintiff].” 94 Or App at 602.

The allegations about defendants’ motive are conclusory just as they were in Conklin. There, the allegation was that the plaintiffs motive was to injure the defendant. Here, plaintiffs allege that defendants’ motive was to injure plaintiffs’ contractual relations and make the sale for their own benefit. How defendants benefitted beyond what they were entitled to as a result of the legal remedies available to them is not alleged. It is impossible to discern from the pleading what facts plaintiffs claim demonstrate that defendants’ motives were “legally improper.” We should affirm the trial court on either basis.

The fourth claim is for tortious interference with the “existing and future business relationship” between plaintiffs and their buyers because defendants sought a receiver and foreclosed on plaintiffs’ loan. It alleges that:

“The defendants’ motive in such interference was to injure the business relations and make the sale for their own benefit, to the detriment of plaintiffs.”

The same analysis applies here. The Restatement recognizes that prospective economic relationships are afforded less protection than existing contractual relationships. Restatement (Second) Torts § 766B, comment e (1979). Based on the facts alleged by plaintiffs, the pursuit of a foreclosure judgment after default and the requesting of the appointment of a receiver are not improper interferences because those acts are permitted by the loan agreement. Plaintiffs plead no facts that allow the reader to infer that the interference that resulted from defendants’ exercise of their rights was improper. Plaintiffs’ economic self-interest in developing prospective business relations must yield to their established contractual obligations. See Ramirez v. Selles, supra, 308 Or at 613. Moreover, the fourth claim does not state a cause of action because of the conclusory nature of the allegation about defendants’ purported improper motive and the absence of any supporting factual allegations. I would hold that the trial court did not err in dismissing it.

The fifth claim alleges that defendants interfered with an economic relationship between one of the plaintiffs and a third party who was negotiating with defendants for a loan. It claims that defendants refused to loan monies to the third party unless the third party removed plaintiff as “its joint venture partner.” The claim asserts that defendants’ “motive in such interference was to injure the business relations to the detriment of plaintiffs and defendants acted in bad faith.”

Again, our ruling depends on the facts alleged in the claim. The general rule is that the mere refusal to make a loan to a third party is not tortious conduct. See Restatement (Second) Torts § 766, comment b at 8 (1979). In that sense, defendants’ conduct was privileged. Because it appears on the face of the claim that defendants’ conduct was privileged, plaintiffs must allege facts which show that their privilege should not be recognized under the circumstances. Ramirez v. Selles, supra, 308 Or at 612. The Restatement also recognizes that economic pressure is a common means of inducing one person not to deal with another and that not all economic pressure is an “improper interference.” The question of whether the interference is improper is

“[a]nswered in the light of the circumstances in which it is exerted, the object sought to be accomplished by the actor, the degree of coercion involved, the extent of the harm that it threatens, the effect upon the neutral parties drawn into the situation, the effects upon competition, and the general reasonableness and appropriateness of this pressure as a means of accomplishing the actor’s objective.” Restatement (Second) Torts § 767, comment c at 31 (1979).

The issue is whether plaintiffs have alleged enough facts to plead a required element of the tort; that defendants’ privilege to make the loan to the third party conditional was forfeited by improper economic pressure. To supply that requirement, plaintiffs rely on the allegation that defendants imposed the condition “to injure the business relations” of the plaintiffs and that they “acted in bad faith.” The latter allegation is a bald conclusion. The former alleges an improper motive, not improper means. I cannot discern from the pleading how the privilege was forfeited when it is not alleged how defendants used an improper means of economic pressure. Even if defendants’ motive was to injure the plaintiffs’ business relationship, their motive is immaterial because of the nature of the interference. Again, I would conclude that the plaintiffs have failed to allege sufficient facts to state a claim in its fifth claim.

For these reasons, I disagree with the majority’s holdings regarding the third, fourth and fifth claims.

Landau, J., joins in this concurring and dissenting opinion.

1 In Maynard v. Caballero, supra, the court held that an interference with contractual relations is privileged when it results from the exercise of a party’s own rights or where the party possessed an equal or superior interest to that of the plaintiff in the subject matter. In other jurisdictions, there is disagreement as to whether a claim for tortious interference with a contract can be predicated on an act which involves no more than the exercise of an otherwise absolute legal right. In Colorado Interstate Gas v. Natural Gas Pipeline, 885 F2d 683, 691 (10th Cir 1989), cert den 498 US 972 (1990), the court held that a motive can be a determinative factor in converting otherwise lawful behavior into “improper conduct” for which the defendant can be liable. However, in Edwards Transports v. Circle S Transports, 856 SW2d 783 (Tex App 1993), the court held that if a defendant’s interference is justified as a matter of law, a finding of actual malice is irrelevant. See also Circo v. Spanish Gardens Food Mfg. Co., Inc., supra.

2 We said:

“Improper means are those which are independently wrongful, notwithstanding the injury caused by the interference. They may be wrongful by reason of statutory or common law and included violence, threats, intimidation, deceit, misrepresentation, bribery, unfounded litigation, defamation and disparaging falsehood.” 94 Or App at 601. (Citation omitted.)