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Fashion Brokerage International, LLC v. Jhung Yuro International, LLC

2011 WL 976478 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

CONTRACTS; TORTIOUS INTERFERENCE — A claim for tortious interference may not be maintained against a party to the underlying contract or business relationship and may not be maintained against an employee of a business that isn’t a party to the underlying contract, if that party is acting within the scope of his, her or its agency.

Two businessmen purveyors of footwear and clothing agreed to engage a company as their nonexclusive sales representative for obtaining orders and promoting the sale of their footwear and apparel. One individual businessman signed the contract on behalf of two businesses, which were described in the contract as Pennsylvania limited liability companies. The contract was for a two year term and did not permit the businesses to terminate the contract except for just cause, such as for fraud or for a material breach. The sales representative sued the businesses and the individual businessman in the United States District Court for breach of contract. The complaint alleged that the businesses had terminated the contract without cause and owed the commissions earned prior to the termination and as well an amount for future lost commissions caused by the termination. The complaint, as first amended, also alleged claims for breach of contract and tortious interference with contract against the individual businessman.

The businesses denied they were limited liability companies. Upon seeing this denial, the sales representative conducted a corporate search and filed a second amended complaint against the businesses as unincorporated proprietorships or partnerships, despite the contract listing them as limited liability companies. The second amended complaint preserved the same claims individually against the businessman.

The businessman filed a motion to dismiss, arguing that he was not a party to the contract. He said he was just the contracting business’s agent. He also argued the tortious interference claim had to be dismissed against him because, as a matter of law, a company’s agent cannot be liable for tortious interference with that company’s contractual obligations if the agent acted within the scope of his authority.

The District Court found that the second amended complaint stated a claim for breach of contract against the businessman because a person can be individually liable for contracts signed under a nonexistent corporate name. This is because a person conducting business on behalf of a nonexistent company holds herself or himself out as an agent of a fictitious principal. The second amended complaint alleged that, at the time the parties entered into the contract, the businessman had misrepresented the businesses as limited liability companies, but nevertheless executed the contract as the “companies’” agent.

The Court dismissed the claim of tortious interference with contract against the businessman. It held that a claim for tortious interference against a party may not be maintained against a party to the underlying contract or to the business relationship, and may not be maintained against an employee of a business that is a party to the underlying contract based on conduct, the party was performing within the scope of his or her employer’s agency.

Therefore, as to the second amended complaint that alleged the businessman had terminated the contract as the agent of the businesses, the court held the businessman could not be liable for tortious interference with contract based on his alleged termination of the contract unless he was acting outside of the scope of his agency.

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