Rite Aid Corp. v. Lake Shore Investors

Brief Fact Summary.

After a determination that Rite Aid Corp. and Rite Aid of Maryland (Defendants) were liable for the torts of injurious falsehood as it pertains to disparagement of real property and interference with a land sale contract, the highest appellate court examined the manner of measuring damages for these two torts.

Synopsis of Rule of Law.

1) In a contract interference action, damages may include the pecuniary loss of the benefits of the contract, consequential losses for which the tortious act is the legal cause, emotional distress and actual harm to reputation, if they are reasonably to be expected to result from the tortious act, and, in appropriate circumstances, punitive damages. 2) Punitive damages may be available under appropriate circumstances in an action for interference with a contract and an action for injurious falsehood where compensatory damages were awarded and actual malice was found.

Facts.

Lake Shore Investors (Plaintiff) had entered into an agreement to sell property to BTR Realty, Inc. Defendants claimed, falsely, that they held a valid lease agreement with Plaintiff on that property. As a result of these representations, BTR Realty, Inc. insisted on a clause in the purchase agreement allowing it to withdraw if Plaintiff could not provide a written release from Defendants. Defendants would not provide such a release and BTR Realty, Inc. withdrew from the purchase agreement. Plaintiff sued, alleging that Defendants had committed injurious falsehood as it pertains to disparagement of real property and interference with a land sale contract. The trial court found for Defendants, the state’s intermediate appellate court reversed. The highest state appellate court granted review as to the appropriate measure of damages for these two torts. [The remainder of the procedural history is not included in the casebook excerpt.]

Issue.

1) What types of damages are appropriate for the tort of interference with a contract? 2) Are punitive damages available in an action for interference with a contract and an action for injurious falsehood where compensatory damages were awarded and actual malice was found?

Held.

(Orth, J.) 1) In a contract interference action, damages may include the pecuniary loss of the benefits of the contract, consequential losses for which the tortious act is the legal cause, emotional distress and actual harm to reputation, if they are reasonably to be expected to result from the tortious act, and, in appropriate circumstances, punitive damages. Three primary lines of cases address the availability of damages for interference with contract. In the first, the court uses a contract measure of damages, limiting recovery to those damages within the parties’ contemplation when the original contract was made. In the second, the court uses a tort measure of damages, limiting recovery to those damages considered sufficiently “proximate.” In the third line of cases, the one most widely used, courts use a tort measure that treats the tort as an intentional tort, allowing recovery for unforeseen expenses, as well as for mental suffering, damage to reputation, and punitive damages. Professor Prosser and the Restatement (Second) of Torts § 774A (1979) adopt this last approach, expressly stating that benefit-of-the-bargain damages are not to be considered in cases of intentional interferences with contracts. This is also the approach used by the intermediate court in its finding that Plaintiff should have been permitted to prove damages that would reasonably flow from the tortious contractual interference by Defendants. While the intermediate appellate court was correct, it should have more specifically noted the types of damages that might reasonably flow form intentional contractual interference. These include the pecuniary loss of the benefits of the contract, consequential losses for which the tortious act is the legal cause, emotional distress and actual harm to reputation, if they are reasonably to be expected to result from the tortious act, and, in appropriate circumstances, punitive damages. This measure of damages holds the tortfeasor to the more extensive damages since the tort is an intentional one, but does not impose liability without limit. [The court also found punitive damages available under appropriate circumstances in cases of injurious falsehood as it pertains to disparagement of real property.] Affirmed as to this issue.

2) Yes. Punitive damages may be available under appropriate circumstances in an action for interference with a contract and an action for injurious falsehood where compensatory damages were awarded and actual malice was found. The recovery of punitive damages requires an award of compensatory damages, although in the tort of interference with a contract even a nominal award of compensatory damages is sufficient. The recovery of punitive damages also requires that the tortious act be committed with actual malice. The defendant must have caused the contract to be broken with the sole and deliberate intention of harming the plaintiff. Affirmed as to this issue.

Discussion.

The court also ruled that the trial court erred in failing to distinguish between the damages to be recovered for each of the two torts alleged. When real property is disparaged, the existence of special damages is an element of the cause of action. In such an action, therefore, an award of nominal compensatory damages is not sufficient to permit punitive damages. The plaintiff recovers nothing unless he proves special damages. On the other hand, the tort of interference with a contract requires only a nominal compensatory award to allow punitive damages.