QUESTION:
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Ken,
Would you please opine on the subject of contract interference, more specifically “tortious” contract interference.
As we all know many alarm companies “invest” in the production of new accounts by charging a new customer less for an alarm system than the actual cost to the company for materials, labor, overhead etc. One method of “protecting” the company’s investment is to require the new customer to sign a multi-year contract with auto-renewal periods (unless company or customer notifies of intent to not renew). Hopefully the new customer will comply with the original contract period as well as a number of renewal periods so that an acceptable return on the original investment is produced. Unfortunately, and all too often, the potential of “return on investment” is adversely impacted by another alarm company who “targets” current alarm customers for the purpose of convincing the alarm customer to switch their alarm monitoring to another company.
We all know that the customer is typically incented to transfer monitoring service with promises of lower monitoring rates, added equipment, upgraded equipment, etc. or in some cases nothing more than a high-pressure sales pitch. In some cases the targeting company is blatant enough to influence the customer to disregard their contractual obligations during an initial or renewal term. In other cases, the targeting company may ask the customer to determine the expiration date on their current contract and then “counsel” the customer on how/when to cancel service with their current security provider so that a switch can occur.
In any case the originating company loses potential for ROI as well as a contract/customer with a value approximating $1000 due solely to the intentional interference by another company into an existing and/or ongoing contractual relationship owned by the originating company.
I fully recognize that there may be occasions where the customer may initiate a search for another monitoring provider and of course this is every customer’s right. I do however question the ethics and legality of an alarm company and/or a sales representative who simply targets current customers of other alarm companies as “low hanging fruit” and then attempts to create problems within the existing contractual relationship which did not/would not exist without the active interference by a third party.
I would be interested in your opinion as to whether or not you would consider interfering, meddling, etc. in an existing contractual relationship by a third party as an actionable offense. Thanks and I look forward to your response.
Sean O'Keefe
Texana Security
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ANSWER:
Tortious interference of contract is a cause of action in a lawsuit alleging that one party wrongfully caused another to breach a contract which would not, but for the interference, have been breached. So the plaintiff alarm company would be suing the defendant alarm company claiming that the defendant caused plaintiff's subscriber(s) to terminate their contracts with plaintiff and sign up with defendant. This type of lawsuit is not easily pursued, and here's why.
The "players" in this type of lawsuit are going to be the righteous plaintiff alarm company who lost its subscriber, the marauding unethical alarm company prowling the neighborhood looking for lawn signs and stickers of its favorite alarm company to lout the subscriber, and the subscriber. It's the subscriber that makes the case difficult. Unless that subscriber is unhappy with the new company it's not going to be easy to elicit the testimony necessary to support a tortious interference case.
There is a fine line between lawful [and ethical] competition, and tortious interference. As those distinctions may apply to the alarm industry the plaintiff alarm company would need to be able to show that the defendant alarm company knew about an existing contract, willfully set out to cause the subscriber to breach that contract, and most likely also that some deceptive representation was made.
Let's look at a few scenarios. Salesman rings front door bell and says I'm from your alarm company and we are upgrading, or we are merging with this other company and need to upgrade, or we are here to convert your system, etc; sign here. Obviously there is something amiss here and if you can prove this is what happened you can sue.
Salesman rings bell. Says I don't know if you have alarm service but I am offering it for well below all our competition, at $xx. I can convert you over today and you can start saving. Sign here. This is less certain a winner case.
Salesman rings bell. I see you have alarm service. How much your company charging, I'd like to beat that price. By the way, your alarm company was just cited by the attorney general for deceptive business practices. Sign here. Better case.
No one in business likes to lose a customer, especially to a competitor. No one likes competitors who low ball prices, sometimes services, which tends to affect the entire industry negatively. It happens in most business however. Planning against it, at least on an industry level, may be met with anti trade objection because you're not suppose to stifle competition by price fixing.
Your damages for loss of a subscriber is another issue. You'll have to prove the contract and your loss in no longer having that contract. Will you get the balance of the contract payments less your expense in providing the service, or will you be able to claim that the subscriber contract had a value of xx times the monthly, no matter how long was left on the contract? More likely the former method, though I'd take shot at the latter.
If you have companies raiding your accounts you may have no choice but to sue that company. Hopefully your pockets will be deeper than theirs because the litigation is going to be costly, and not likely on contingency.