MEMORANDUM OPINION AND ORDER
PAUL R. WALLACE, Judge.
Plaintiff Kable Products Services, Inc. ("Kable") filed suit against Defendants TNG GP ("TNG"), Comag Marketing Group, LLC ("Comag"), and Hudson News Distributors, LLC ("Hudson," and collectively with TNG and Comag, "Defendants"). Kable brings three counts against Defendants: Count I — Conspiracy; Count II — Tortious Interference with Contractual Relations; and Count III — Tortious Interference with Prospective Contractual Relations.
Before the Court are the Defendants' Motions to Dismiss. TNG and Comag assert that: (1) Kable's claims include a single allegedly tortious act that does not meet the requirement of a significant act causing the breach of contract required for Count II; (2) mere refusal to deal is not enough to support Count III; and (3) since both Counts II and III fail, there is no underlying tort to support the allegation of a civil conspiracy in Count I. TNG additionally claims that because it had no part in Comag's ultimate denial of Kable's application for wholesaler status, it should be dismissed entirely. Hudson asserts that it took no actions that would give rise to a valid claim against it, and that any facts in the complaint that include Hudson are not enough to survive a motion to dismiss.
Because Kable has not pled sufficient facts to show that there was a valid and enforceable contract to be interfered with, has not pled sufficient facts to show a significant act interfering with prospective contractual relations, and cannot, therefore, support a claim for civil conspiracy, the Court
II. FACTUAL AND PROCEDURAL BACKGROUND
A. INDUSTRY BACKGROUND; KABLE AND HGR BUSINESS MODEL.
Kable is in the product fulfillment and repackaging business for consumer products. It provides logistic and delivery service for the magazine publishing industry.
In February 2015, Michael Duloc ("Duloc") acquired all of Kable's assets.
At the time of the discussion between Duloc and HGR, TNG already provided some of HGR's news distribution services.
In or around mid-late 2015, "upon information and belief," HGR notified a number of the major publishers and national distributors that used HGR as a distribution outlet that HGR was considering a business strategy that would result in structural changes to the news distribution industry.
Based upon subsequent discussions with HGR representatives, Kable alleges several publishers informed HGR they would support HGR's new business model. Kable further alleges additional retailers expressed interest about pursuing a possible business relationship depending on how Kable's business with HGR evolved.
Kable claims that the proposed changes would "directly challenge [HGR's] current wholesale suppliers by reducing the need for their services."
B. THE KABLE-HGR SERVICE AGREEMENTS.
On November 13, 2015, HGR and Kable entered into a Master Services Agreement ("the November MSA").
On or about November 16, 2015, HGR formally notified Defendant TNG that it would not renew its contract with TNG after the contract's December 31, 2015 expiration.
After HGR did not renew its contract with TNG, Comag notified HGR "that it would refuse to distribute [Comag's] clients' titles to [HGR] through [Kable instead of TNG] since [HGR] was not on the `[Comag] approved wholesaler list.'"
Kable alleges Comag "knew that it could exert pressure on [HGR] because the [Comag] client titles . . . account for a significant percentage of [HGR's] business."
On or about December 4, 2015, Kable and HG Wholesale entered into a revised Master Services Agreement ("the December MSA").
C. DEFENDANTS ALLEGEDLY THREATEN KABLE AND INTERFERE WITH ITS AGREEMENTS.
Kable claims that shortly after Kable and HG Wholesale entered the December MSA, Defendants "concurrently continued to urge HG Wholesale to breach the December MSA" through a series of "closely coordinated calls reflecting an agreed-upon course of concerted action . . . sought to cajole and then coerce [Kable] into forfeiting certain of its rights under the December MSA."
What Kable does say is that on or about December 29, 2015, Michael Korenberg ("Korenberg," vice-chair of the Jim Pattison Group, which holds TNG and Comag) called Duloc to inquire if Duloc would be available for a call with him and James Cohen of Hudson.
Duloc agreed to the call. Kable argues that Korenberg and Cohen acknowledged the existence of the December MSA during that call and understood its material terms, but again, offers no factual support for those contentions.
Kable claims Korenberg and Cohen sought a standstill of the Kable-HG Wholesale relationship to "protect [Kable's] economics" and "work out issues" with Kable.
On December 31, 2015, TNG's David Parry allegedly called Duloc with his concerns about the December MSA. Parry asked if TNG could do something "to satisfy [Kable's] business interest in exchange for [Kable's] agreement to withdraw from and/or modify its contractual relationship with HG Wholesale."
As a result of these phone calls, Duloc apparently told Korenberg, Cohen, and Parry that he was committed to being transparent with HG Wholesale. Kable alleges Duloc suggested a meeting with representatives of TNG, Comag, Hudson, and HG Wholesale to discuss the various proposals. That meeting never happened.
D. DEFENDANTS ALLEGEDLY CONSPIRE AND INTERFERE WITH THE DECEMBER MSA.
Kable claims that because TNG lost its contract with HGR, Defendants wanted to prevent HG Wholesale from fulfilling its obligations under the December MSA.
Kable claims that in early January 2016, TNG contacted a number of publishers whom it believed may want to enter the distribution process with HG Wholesale. Kable alleges TNG "suggested the publishers refrain from doing so as the new business model would harm TNG and require TNG to increase the prices it charged publishers in order to offset" the loss of HGR's (and others') business.
On or about January 18, 2016, Kable alleges one of its representatives encountered Cohen by mere chance. Kable alleges that at that time, Cohen "made disparaging remarks" about HGR and HG Wholesale, "asserted in words and substance that [Kable] was `trying to destroy the wholesale distribution system' and claimed that major publishers would refuse to supply [Kable] with product for distribution."
Around that same time, HG Wholesale completed its application to appear on Comag's "approved wholesaler list."
Comag's rejection and refusal to list HG Wholesale as an approved wholesaler precluded all of its client publishers from distributing through Kable to HG Wholesale. Kable claims this was a "critical component" of the Defendants' efforts to cause HG Wholesale to breach the MSA.
Kable claims the Defendants warned other publishers who previously supported Kable's new model to "refrain from entering into contractual relations with HGR, lest they suffer adverse economic consequences."
III. PARTIES' CONTENTIONS
Defendants argue Kable claims a single allegedly tortious act (Comag's denial of HG Wholesale's application) resulted in breach of the December MSA. Further, they say, Count II fails because if there was any contract at all, it was an option contract that cannot be interfered with — not a final, enforceable contract — barring Count II.
Defendants also claim that Count III is not supported, because mere refusal to deal, as Comag did, is not enough to support a claim of tortious interference with prospective contractual relations. Further, conclusory statements about prospective business and a "perception" that such business would come to fruition is not enough to sustain the Count. Lastly, Defendants argue that they were privileged to openly compete in the market against Kable.
Defendants argue that the conspiracy alleged in Count I ultimately fails because, once Counts II and III don't survive dismissal, there is no actionable underlying tort to support civil conspiracy.
In response, Kable asserts that the three Defendants entered into a de facto agreement with one another in order to deprive Kable of the benefits it sought to obtain from a new market structure and its contracts with HGR and HG Wholesale. Kable says that the Defendants knew of the contract between Kable and HG Wholesale and caused HG Wholesale to breach that contract. Kable says it thereby suffered damages both from loss of that contract and from loss of other prospective, similar contracts.
IV. STANDARD OF REVIEW
In considering a motion to dismiss pursuant to Superior Court Civil Rule 12(b)(6), the Court will:
If the claimant may recover under this standard of review, the Court must deny the motion to dismiss.
As noted, under Rule 12(b)(6), the Court must accept as true all well-pleaded allegations.
A. TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS.
In order to establish that Comag, TNG, and Hudson tortuously interfered with Kable's contract with HG Wholesale, Kable must show: (1) the existence of a valid and enforceable contract; (2) "about which the defendant knew"; (3) "an intentional act that [wa]s a significant factor in causing the breach of [the] contract"; (4) that that act was done "without justification"; and (5) that the act "cause[d] injury" to the plaintiff.
1. To Sustain a Claim for Tortious Interference with Contract, Kable Must Show a Valid and Enforceable Contract Existed at the Time of the Alleged Interference.
For there to be tortious interference with contractual relations, there must be an underlying contract that Kable could enforce. Comag and TNG assert that the November and December MSAs were only "option contracts for the benefit of HG Wholesale and were unenforceable by [Kable.]"
The Restatement explains how tortious interference can be applied to an option contract, stating
Comag and TNG assert that the December MSA is a mere option contract by virtue of the language in a number of recitals in the document itself.
On the other hand, Kable argues that the December MSA was an enforceable, finalized contract between the parties and that it was breached due to the Defendants' conduct.
The December MSA was executed between Kable and HG Wholesale when Kable was already aware that HG Wholesale was not an approved Comag wholesaler.
Kable argues that Defendants tortuously interfered with the December MSA by ensuring that HG Wholesale did not achieve Comag wholesaler status, rendering the December MSA inoperative and harming Kable. However, the December MSA was essentially conditioned on HG Wholesale achieving Comag wholesaler status — a designation decision that is solely within Comag's right as a business competitor to give or retain. In essence, the December MSA was an option contract that required a number of contingencies to fall into place before it could be an enforceable and final contract between the parties.
2. Defendants Must Have Known of the Contract Allegedly Breached.
As to the level of knowledge necessary for a tortious interference with contract claim, Delaware courts follow § 766 of the Restatement (Second) of Torts.
According to Comag and TNG, Kable fails to allege that Comag was "aware that its refusal to designate HG Wholesale as an `approved wholesaler' would interfere with the [December] MSA."
Even if Defendants knew of the specific terms of the December MSA, the single act alleged here falls within their privilege to compete with Kable and HG Wholesale in the business world.
3. Defendants Did Not Interfere with the December MSA.
Kable must show an intentional act on the part of the Defendants that amounted to being a significant factor in bringing about the alleged breach of contract to establish its claim. It fails to do so.
TNG and Comag argue that neither party could breach the December MSA because none of the contingencies that would have given rise to a performance requirement of that MSA came to fruition.
4. An Option Contract Can Be the Subject of Tortious Interference, But There is No Such Interference Here.
The alleged intentional act that Comag, TNG, and/or Hudson undertook (here, their refusing to deal with HG Wholesale) must have improperly resulted in a breach of contract in order to sustain a tortious-interference-with-contract-claim. Section 767 of the Restatement cites the following factors to consider when determining if intentional interference with another's contract is improper or without justification:
"Deliberately and at his pleasure, one may ordinarily refuse to deal with another, and the conduct is not regarded as improper, subjecting the actor to liability. One may not, however, intentionally and improperly frustrate dealings that have been reduced to the form of a contract."
Defendants claim that Comag was privileged to compete with Kable and was therefore justified in its decision to deny HG Wholesale's application, and is therefore justified in its actions.
The interference Kable complains of must be improper in order to establish a cause of action.
The first factor looks to Comag's means. Comag's refusal to deal with HG Wholesale does not support a claim of tortious interference, as explained above. Even viewed in the best light for Kable, Comag was under no obligation to accept HG Wholesale's application to be an approved wholesaler in order to ensure Kable could sufficiently perform under the December MSA.
The second factor looks to Comag's motive. "Only if the defendant's sole motive was to interfere with the contract will this factor support a finding of improper interference."
The third factor looks to whether the underlying relationship that Comag interfered with violates public policy or justified the inducement of the breach. Kable knew that it could not obtain Comag's approval on its own (because it tried and failed), so it attempted to get that approval through HG Wholesale. The fact that it did not succeed does not make that failure tortious.
The fourth factor looks to the interests Comag sought to promote through its denial. Kable admits that it was a threat to the business. Accordingly, Comag was protecting itself.
The fifth factor "permits the Court to consider the social utility of the interests sought to be advanced by each of the litigants."
The sixth factor looks to the degree of separation between the action and the consequence of Comag's actions. Here, Hudson claims that any damage done by Comag's action was done to HG Wholesale, not to Kable. Because of the derivative nature of Kable's damages, Comag's actions are, at least, once-removed from any alleged damage.
The seventh factor allows the Court to look at the relationships between any parties involved in the suit to see if the interference is improper. Kable alleges that Comag denied HG Wholesale's application to benefit TNG and Hudson, as Comag is an affiliate of TNG and Hudson. But, Comag is privileged to do business with the companies it chooses. And, given the nature of the December MSA, Comag was under no obligation (contractual or other) to do business with HG Wholesale or Kable. Choosing a better deal absent any obligation to perform otherwise does not tortious interference make. Given the allegations presented and drawing every reasonable inference in Kable's favor, Kable still would not be entitled to recover for tortious interference with contractual relations under any reasonably conceivable set of circumstances.
B. TORTIOUS INTERFERENCE WITH PROSPECTIVE CONTRACTUAL RELATIONS
To establish a claim for tortious interference with prospective business relations, Kable must establish "() the reasonable probability of a business opportunity, () the intentional interference by defendant with that opportunity, () proximate causation, and () damages, all of which must be considered in light of a defendant's privilege to compete or protect his business interests in a fair and lawful manner."
1. Kable Had No Reasonable Expectation of Prospective Business Relations.
The most crucial element to tortious interference with prospective business opportunity is the existence of an actual, prospective business opportunity. The type of business opportunities protected by this rule are "any prospective contractual relations . . . if the potential contract would be of pecuniary value to the plaintiff."
In its attempt to show that it had prospective business opportunities in its new business model, Kable contends: (1) that several major publishers and national distributors "expressed favorable opinions" to HGR regarding HGR's intent to have magazines shipped directly to it through an out-sourced relationship that Kable proposed,
Hudson claims the first argument cannot stand because the expressions of interest were not made to Kable. It claims Kable does not allege any relationship between itself and the entities that were "favorable" toward HGR or any expressions made to anyone in a relationship with Kable. As such, Hudson claims Kable had a perception of HGR's perception of the opportunities.
Hudson claims Kable's second argument cannot stand either, because the statements were made to HGR, not Kable. Further, any interest that was directly expressed to Kable was contingent on its successful performance of its work with HGR. Hudson argues that this expectancy was not reasonable at the time of the alleged interference. Hudson claims that such success with a new business model was mere speculation, and cannot sustain the allegation that it was reasonably expected.
The significant act relates back to Comag's refusal to designate HG Wholesale as an approved wholesaler. Comag was privileged to do so. A claim of tortious interference with any prospective opportunity is subject to the defendant's privilege to compete with the plaintiff.
2. Defendants Did Not Improperly Interfere With Any Prospective Contractual Relations If They Did Exist.
Even if Kable establishes that there was a reasonable probability of a business opportunity created by their new system, there is a "privilege enjoyed by competitors in the same market to compete aggressively for market share."
The same analysis used to decide whether or not there was improper interference with contractual relations applies here. Thereunder, no charge of improper interference with prospective contractual relations can be sustained. So, again, given the specifics alleged, Kable would not be entitled to recover under any reasonably conceivable set of circumstances. And so, the Court
C. CIVIL CONSPIRACY
Delaware law defines civil conspiracy as "the combination of two or more persons or entities either for an unlawful purpose, or for the accomplishment of a lawful purpose by unlawful means, resulting in damage."
The essence of Kable's civil conspiracy claim is that Comag refused to grant HG Wholesale approved wholesaler status because Defendants worked together to keep Kable and HG Wholesale out of the market. On the facts as presented by Kable, Defendants neither tortuously interfered with the December MSA nor tortuously interfered with any prospective contractual relations Kable had because they merely acted as business competitors and chose a better deal. As both these claims lack evidentiary support, Kable cannot establish an underlying wrong on which to hang his civil conspiracy claim.
On the record before the Court, there is insufficient pleading of fact to support any of Kable's claims against the Defendants. There are no specific facts supporting claims of intentional action to improperly interfere with the December MSA or any alleged prospective business relations. And what is pled would not allow Kable to recover on the interference claims under any reasonably conceivable set of circumstances. Because these two claims fail, the civil conspiracy claim fails as well. Accordingly, for the reasons stated above, the Defendants' Motions to Dismiss are