Francis Hospitality, Inc. v. Read Properties, LLC

PRESENT: All the Justices
FRANCIS HOSPITALITY, INC., ET AL.
OPINION BY
v. Record No. 170894 JUSTICE ELIZABETH A. McCLANAHAN
November 21, 2018
READ PROPERTIES, LLC, D/B/A
COLDWELL BANKER COMMERCIAL READ & COMPANY
FROM THE CIRCUIT COURT OF THE CITY OF LYNCHBURG
John T. Cook, Judge
Read Properties, LLC (“Read Properties”) filed a complaint against Francis Hospitality,
Inc. (“Francis Hospitality”) and Delta Educational Systems, Inc. (“Delta”) asserting claims for
breach of contract, intentional interference with contract, and statutory business conspiracy under
Code §§ 18.2-499 and -500. The circuit court found in favor of Read Properties on all claims
and entered judgment against Francis Hospitality and Delta on an award of three-fold damages
and attorney’s fees pursuant to Code § 18.2-500.
Francis Hospitality and Delta contend that the circuit erred in ruling that they were liable
for tortiously interfering with their own contract and, therefore, in finding that their tortious
interference could serve as the predicate unlawful act for statutory business conspiracy. We
agree with appellants and will reverse the circuit court’s judgment against them as to the claims
for tortious interference and statutory business conspiracy and will enter final judgment in favor
of Read Properties as to its claims for breach of contract on which it prevailed in the circuit
court.
I. BACKGROUND
In 2002, Richard Read, a commercial real estate broker with Coldwell Banker
Commercial Forehand & Co. (“Forehand”), assisted in negotiating a lease agreement between
Creekside Development Company, Inc. (“Creekside”), as lessor, and Delta, as lessee. The
agreement, dated September 25, 2002, provided for the lease of approximately 2.668 acres with a
building containing 21,600 square feet located on Creekside Lane in Lynchburg. The term was
five years with an option to renew the lease agreement under the same terms and conditions for
two additional periods of five years each. Creekside and Delta renewed the lease agreement in
2007 and 2012, with the second extension expiring on September 30, 2017.
As relevant here, the lease agreement required payment of a monthly leasing fee to
Forehand. Specifically, the agreement stated that the parties “acknowledge that Coldwell Banker
Forehand & Co. and Rick Read are licensed Realtors in the State of Virginia and are representing
the LESSEE in this transaction” and that “Coldwell Banker Forehand & Co. is to receive a
leasing fee equal to five percent (5%) of the gross rents as received during the Lease term or
applied options (not to exceed $810 monthly).” The lease agreement also stated that “[t]he
terms, conditions and covenants” of the agreement “shall apply to, inure to the benefit of and be
binding upon the parties hereto, their respective successors in interest and legal representatives.”
Pursuant to the terms of the lease agreement, Forehand received a monthly leasing fee of
$810 through December 2010, when Read Properties, a limited liability company formed by
Richard Read, purchased Forehand’s commercial real estate division. On December 22, 2010,
Read Properties and Forehand entered into an asset purchase agreement under which Forehand’s
rights and obligations with regard to certain contracts were assigned to Read Properties. The
Creekside property was listed as one of the contracts included in the assignment. Beginning in
January 2011, Read Properties received the $810 monthly leasing fee provided for in the lease of
the Creekside property.
In 2013, Creekside entered into a real estate purchase agreement with Francis Hospitality
for the sale of the property under lease to Delta. The real estate purchase agreement was made
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subject to the lease agreement and its amendments, which were attached as exhibits to the real
estate purchase agreement. On March 19, 2014, the sale of the Creekside property closed and
Creekside assigned the lease agreement to Francis Hospitality. Read Properties did not receive a
leasing fee in April 2014 or thereafter.
Read Properties filed a warrant in debt against Francis Hospitality and Delta in the
Lynchburg General District Court in June 2014, seeking damages for breach of the lease
agreement. On August 27, 2014, Francis Hospitality and Delta executed a third amendment to
the lease agreement, in which the provision for payment of the leasing fee was eliminated.
Francis Hospitality and Delta also executed an indemnification agreement whereby Francis
Hospitality agreed to indemnify Delta “against all losses, claims, damages, liabilities, cost or
expenses, arising out of” the third amendment to the lease agreement and the lawsuit filed by
Read Properties. Read Properties nonsuited the general district court action and filed the current
action in the circuit court.
Read Properties asserts three causes of action in its complaint. In Count I, Read
Properties alleges breach of contract by Francis Hospitality and Delta and asserts that as the
successor-in-interest to Forehand, an intended third-party beneficiary of the lease, it was entitled
to receive the leasing fees through September 30, 2017. In Count II, Read Properties alleges
intentional interference with contract by Francis Hospitality and Delta and asserts that Francis
Hospitality and Delta tortiously interfered with Read Properties’ right to receive the leasing fees
under the lease agreement when they entered into the third amendment to the lease, terminating
the provision for payment of leasing fees. In Count III, Read Properties alleges a statutory
business conspiracy by Francis Hospitality and Delta in violation of Code §§ 18.2-499 and -500
and asserts that Francis Hospitality and Delta conspired to tortiously interfere with Read
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Properties’ right to receive the leasing fees under the lease agreement, entitling it to three-fold
damages and attorney’s fees.
After a bench trial, the circuit court issued a letter opinion in which it separately
“address[ed] each of the causes of action.” Finding that Forehand “transferred the right to the
leasing fees to Read Properties,” the circuit court ruled in favor of Read Properties as to its claim
in Count I that Francis Hospitality and Delta breached the lease agreement under which Read
Properties was entitled to the leasing fees as an intended third-party beneficiary. Therefore, with
regard to Read Properties’ claim of “$34,020 of leasing fees until the end of the lease in
September of 2017,” the circuit court found that “Delta and Francis Hospitality are jointly liable
for the leasing fees.”
With regard to Count II for intentional interference with contract, the circuit court ruled
that Read Properties “proved all elements of this cause of action against both Francis Hospitality
and Delta.” The circuit court rejected the appellants’ argument that “they cannot intentionally
interfere with their own contract,” ruling that “Francis Hospitality and Delta interfered with each
other’s obligation to pay Re[a]d the leasing fee.”
Regarding Count III, alleging statutory business conspiracy under Code §§ 18.2-499 and
-500, the circuit court found that the tortious interference with the lease agreement by Francis
Hospitality and Delta satisfied the statute’s requirement of an underlying unlawful act.
Concluding that Read Properties “proved by clear and convincing evidence all the elements of
the civil conspiracy claim against Francis Hospitality and Delta,” the circuit court awarded
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“three-fold damages under Va. Code § 18.2-500 in the amount of $102,600 and attorney’s fees of
$34,020.” 1
II. ANALYSIS
On appeal, Francis Hospitality and Delta contend the circuit court “erred in finding the
defendants liable for tortious interference with a contractual right” and “in finding the defendants
liable for business conspiracy” in violation of Code § 18.2-499 and -500. 2 Among other
grounds, the appellants argue that they cannot tortiously interfere with their own contract. We
find this ground dispositive of their appeal.
Since first recognizing a cause of action for tortious interference with a contract in
Chaves v. Johnson, 230 Va. 112 (1985), we have made clear that only a party outside the
contractual relationship with the plaintiff is subject to liability as an interferor.
One who intentionally and improperly interferes with the performance
of a contract (except a contract to marry) between another and a third
person by inducing or otherwise causing the third person not to perform the
contract, is subject to liability to the other for the pecuniary loss resulting to
the other from the failure of the third person to perform the contract.
Id. at 120 (quoting Restatement (Second) of Torts § 766 (1977) (emphasis added)). We have
explained that “tortious interference with contract and tortious interference with business
expectancy are intentional torts predicated on the common law duty to refrain from interfering
1
In addition to Francis Hospitality and Delta, the complaint named Malcomb David
Francis and Charles P. Brissman as defendants. At the bench trial, the evidence was struck as to
the claims against Brissman. Subsequently, the circuit court found that Francis was not
“personally liable.” Both individuals were dismissed with prejudice in the final order. In
addition, a third-party complaint and third-party counterclaim were severed from this action.
2
The appellants also assigned error to the circuit court’s rulings that Read Properties
“was an intended third party beneficiary” of the lease agreement and that Francis Hospitality and
Delta “were liable for breach of contract” in failing to pay the leasing fees to Read Properties.
We refused those assignments of error.
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with another’s contractual and business relationships,” which duty “does not arise from the
contract itself.” Dunlap v. Cottman Transmission Sys., 287 Va. 207, 218 (2014) (emphasis
added). 3
Therefore, as we stated unequivocally in Fox v. Deese, 234 Va. 412, 427 (1987), “[a]
person cannot intentionally interfere with his own contract.” For example, in Fox, where the
plaintiff alleged that defendant, an employee of the City of Richmond, intentionally interfered
with the plaintiff’s contract with the City, we held that defendant could only be held liable for
tortious interference with the contract if he was acting outside the scope of his employment with
the City. Otherwise, “the City’s contract was also his contract, and he could not interfere with
it.” Id. 4
Similarly, Francis Hospitality and Delta cannot be held liable for tortiously interfering
with their own contract. Read Properties alleges, and the circuit court found, that Francis
3
We have stated that “[t]he necessary elements to establish a prima facie case [of tortious
interference with a contractual relationship or business expectancy] are: ‘(1) the existence of a
valid contractual relationship or business expectancy; (2) knowledge of the relationship or
expectancy on the part of the interferor; (3) intentional interference inducing or causing a breach
or termination of the relationship or expectancy; and (4) resultant damage to the party whose
relationship or expectancy has been disrupted.’” Dunlap, 287 Va. at 216 (citation omitted).
4
See also Beco Const. Co. v. J-U-B Eng’rs, Inc., 184 P.3d 844, 849 (Idaho 2008) (stating
that “[s]ince a party cannot interfere with its own contract, it follows that an action for
intentional interference with contract can only lie against . . . . a stranger to the contract with
which the defendant allegedly interfered and to the business relationship giving rise to the
contract”); Holloway v. Skinner, 898 S.W.2d 793 (Tex. 1995) (stating that “[b]y definition [of
tortious interference with contract], the person who induces the breach cannot be a contracting
party”); Houser v. Redmond, 586 P.2d 482, 484 (Wash. 1978) (stating that “a party to a contract
cannot be held liable in tort for interference with that contract” and “the remedy available against
a party to the contract for wrongful action on its part . . . is an action for breach of contract”);
Board of Trustees v. Holso, 584 P.2d 1009, 1017 (Wyo. 1978) (noting that theories of intentional
interference with prospective advantage, contractual relations, and business expectancy “do not
apply to actions between parties to an existing contract—they lie only against outsiders who
interfere with the contractual expectancies of others”) (emphasis in original).
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Hospitality and Delta breached the lease agreement by failing to pay the leasing fees in
accordance with the agreement under which Read Properties was an intended third-party
beneficiary. To support its claims of tortious interference against Francis Hospitality and Delta,
Read Properties alleges that Francis Hospitality and Delta intentionally interfered with Read
Properties’ right to receive the leasing fees under this same agreement by entering into the third
amendment to the lease agreement terminating the payment of leasing fees to Read Properties.
An action for tortious interference with a contract or business expectancy, however, does not lie
against parties to the contract, but only lies against those outside the contractual relationship, i.e.,
strangers to the contract or business expectancy. Accordingly, Francis Hospitality and Delta
cannot be held liable for tortious interference with the lease agreement and the circuit court erred
by ruling in favor of Read Properties on Count II asserting these claims.
Read Properties’ claims against Francis Hospitality and Delta for statutory business
conspiracy pursuant to Code §§ 18.2-499 and -500 are predicated on its claims against Francis
Hospitality and Delta for tortious interference with the lease agreement. See Dunlap, 287 Va. at
215 (holding that a cause of action for tortious interference with contract may qualify as the
requisite unlawful act to proceed on a statutory business conspiracy claim under Code §§ 18.2-
499 and -500). 5 Because Read Properties’ underlying claims of tortious interference with
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Code § 18.2-500(A) states that “[a]ny person who shall be injured in his reputation,
trade, business or profession by reason of a violation of [Code] § 18.2-499, may sue therefor and
recover three-fold the damages by him sustained, and the costs of suit, including a reasonable fee
to plaintiff’s counsel.” Code § 18.2-499(A) imposes criminal liability on
[a]ny two or more persons who combine, associate, agree, mutually undertake
or concert together for the purpose of (i) willfully and maliciously injuring
another in his reputation, trade, business or profession by any means whatever
or (ii) willfully and maliciously compelling another to do or perform any act
against his will, or preventing or hindering another from doing or performing
any lawful act.
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contract against Francis Hospitality and Delta fail, its claims of statutory business conspiracy
under Code §§ 18.2-499 and -500 also must fail. Accordingly, the circuit court erred in ruling
that appellants were liable under Count III of the complaint and in awarding Read Properties
three-fold damages and attorney’s fees pursuant to Code § 18.2-500.
III. CONCLUSION
For the foregoing reasons, we will reverse the judgment of the circuit court awarding
three-fold damages and attorney’s fees to Read Properties. The circuit court’s ruling that Francis
Hospitality and Delta are jointly liable for the remaining leasing fees of $34,020 due under the
lease agreement remains undisturbed. Therefore, we will enter final judgment for Read
Properties in the amount of $34,020.
Reversed and final judgment.
“To recover in an action under these statutes, a plaintiff must establish: ‘(1) a combination of
two or more persons for the purpose of willfully and maliciously injuring plaintiff in his
business[;] and (2) resulting damage to plaintiff.’” Dunlap, 287 Va. at 214 (quoting Allen Realty
Corp. v. Holbert, 227 Va. 441, 449 (1984)). Furthermore, such action will only lie if plaintiff
sustains damages as a result of an underlying unlawful act. Id. at 215-16.
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