Apart from breach of contract claims, California recognizes four types of torts that involve interference with contracts or economic expectancies: Negligent or intentional interference with contract, and negligent or intentional interference with economic relations. One of the big differences between claims based on contract versus tort theories is the potential availability of a much wider range of damages for torts. Naturally, this increased scope of potential damages often encourages aggrieved parties to try to couch their claims under tort theories to the extent possible. California courts have generally put a stop to contracting parties making claims that the other side of the contract “tortiously breached” or otherwise “tortiously interfered” with the contract. California courts are now clear that contracting parties may be liable for breach of contract, but not for the tort of interference with their own contracts.
However, in Woods v. Fox Broadcasting, the California Court of Appeal made clear that the immunity from tort claims enjoyed by a contracting party does not extend to shareholders, directors or officers of a contracting corporation, unless those persons are also individually parties to the contract. Some California cases had suggested that persons closely aligned with the contracting corporation were not “strangers to the contract,” and might also enjoy the contracting party’s immunity to tort claims. But the Woods Court said no — only the contracting party itself (whether corporate, partnership, individual or otherwise) has the immunity. Officers, directors and shareholders of a corporation may enjoy certain privileges recognized by California courts for their conduct, including the ability to show that their conduct was justified because they were only acting in the best interests of the corporation. But those privileges must be pleaded and proved, and cannot be interposed in the same way that immunity for the contracting party can be asserted.
But one piece of good news for directors and officers of corporations is that their corporations often have “D&O Insurance” or other types of insurance that may be invoked to help defend and indemnify them from liability for some tortious interference claims. If you are a corporate director of officer, and have the misfortune of finding yourself on the wrong end of the “v.” in a lawsuit based on your conduct on behalf of the corporation, you would be wise to thoroughly explore the potential for insurance coverage of the claim, as well as the potential substantive defenses that may be available to you.