Tortious Interference Claims Must be Arbitrated in Texas

This morning, the Texas Supreme Court issued another mandamus opinion compelling arbitration in the face of a trial court and court of appeals refusal to do so. This time the case involves a claim for tortious interference of contract.

James Cashion was an insurance salesman; he signed an agency contract with a health insurance carrier that contained an arbitration clause. The carrier cut Cashion’s commissions and eventually terminated his agent status, apparently pursuant to its sale to another insurance company. Mr. Cashion sued the purchasing insurance company for toriously interfering with his contract with the first carrier.

The Supreme Court notes from the beginning that the essence of a tortious interference claim is that the interfering defendant must in fact not be a party to the contract. However, according to the Supreme Court, the interfering defendant here could compel arbitration based on a contract to which it could not have been a party.

The Court’s rationale for this stems from the relationship between the various parties. Since the tortious interference defendant ultimately purchased the party with which the plaintiff had the contract, the Court uses something like agency analysis to allow the tortious interference defendant to take advantage of the first carrier’s contract with Cashion (notwithstanding the fact the the purchase of the insurance company was presumably the event that triggered the interference in the first place).

The Court writes:

We agree with Cashion that he would not be required to arbitrate a tortious interference claim against a complete stranger to his contract and its arbitration clause. But he did not sue any strangers here; every defendant is a current or former owner, officer, agent or affiliate of States General, with whom he agreed to arbitrate these disputes.

With all due respect, this seems to be a distinction without a difference. Presumably, a “complete stranger to a contract” will not tortiously interfere with it. While some separation from the contract is required for the cause of action to be available, the act of interfering with the contract would logically require some connection to exist. People don’t just randomly tortiously interfere with contracts; there is usually, I would think, a reason, such as a company’s desire to purchase another company but not honor its contracts with its employees. In other words, it seems difficult to imagine a scenario whereby a party toriously interferes with a contract but would not be able to take advantage of the contract’s arbitration clause, under the standard introduced today.

Finally, in an attempt to avoid arbitration, Cashion argued that by litigating for two years before filing a motion to compel arbitration the insurance company waived its right to compel arbitration. The Court notes that the discovery conducted by Cashion would be useful in the arbitration proceeding, and that even though Cashion had expended $200,000.00 in legal fees in litigation, the record does not demonstrate that the litigation had proceeded to the extent necessary for waiver.

In RE Vesta Insurance Group, et al., Cause No. 04-0141