Missouri Court Holds Subcontractor Tortiously Interfered with Contractor’s Agreement with Owner by Seeking Payment Directly from Owner

Environmental Energy Partners Inc. v. Siemens Building Technologies,Inc., et al.
Nos. 26521 & 26702, 2005 Mo. App. LEXIS 1568 (Mo. Ct. App., Oct. 25, 2005)

In Environmental Energy Partners Inc. v. Siemens Building Technologies, Inc., et al., Nos. 26521 & 26702, 2005 Mo. App. LEXIS 1568, a payment dispute arose between a contractor and its subcontractor on a hospital renovation project. When the contractor refused to pay the subcontractor the remaining subcontract balance ($201,178.75) on the basis that the subcontractor’s work was not completed, the subcontractor filed a mechanic’s lien against the property. The subcontractor then filed a petition to enforce its lien, naming the contractor and owner as defendants. Because of the subcontractor’s lien, the owner withheld the last installment payment of $148,475 due to the contractor under their agreement. Thereafter, and unbeknownst to the contractor, the subcontractor and the owner entered into a confidential “Settlement Agreement and Release” under which the owner agreed to pay directly to the subcontractor the $148,475 amount that it was withholding from the general contractor in exchange for a release of the lien upon entry of judgment in the litigation.

The contractor thereafter filed a four-count counterclaim against the subcontractor alleging, among other things, that the subcontractor tortiously interfered with its contract with the owner by entering into the Settlement Agreement and Release. At trial, the jury returned a verdict in favor of the contractor, awarding $26,100 in actual damages and $500,000 in punitive damages.

On appeal to the Missouri Court of Appeals, the subcontractor argued that the contactor’s claim should not have been submitted to the jury since it was justified, as a matter of law, in its conduct in securing the final payment from the owner. Citing Missouri law on the justification element of a tortious interference claim, it argued that it was privileged to interfere with the relationship of the contractor and owner because it was protecting its own valid economic interests.

The Missouri Court of Appeals disagreed. It concluded that, under Missouri law, the type of valid economic interest justifying interference with another’s contract requires a “definite legal right to take without any qualification.” The court further observed that “[c]ontractual provisions can determine the presence, or lack of presence, of justification with respect to a claim of tortious interference.” Applying these principles, the court found that the requisite unqualified legal right to interfere was lacking, particularly since the provisions in the respective parties’ agreements provided otherwise. Under the provisions of a subcontract, for example, the subcontractor was required to submit written requests and certifications of completion of its work as a prerequisite to payment. The subcontractor was further required to cooperate with the contractor in its dealings with the owner on payment issues. Significantly, the subcontract also contained a “pay-when-paid” clause: “No payment due subcontractor unless contractor receives payment.”

Based on these provisions, and the evidence at trial showing that the subcontractor completely failed to comply with these provisions, the court upheld the jury’s finding of tortious interference. It concluded: “By reason of the provisions of its contract with [the contractor], [the subcontractor] lacked the legal right to cause [the owner] to divert the payment that was to be paid to the [general contractor] to [the subcontractor].” It affirmed the jury’s verdict, including the $500,000 award of punitive damages.

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