Tortious Interference Arising from Filing or Threatening to File a Lawsuit: The Privilege Defense in Flux
By H. Victor Thomas
Before threatening or filing a lawsuit which may cause the breach or termination of a contract, every attorney and client should know what protection the “privilege defense” affords them. There are two kinds of privilege defenses that may be applicable to actions for tortious interference with contracts or prospective contracts, a “qualified” privilege and an “absolute” privilege. The “qualified” privilege provides that a party is immune from liability and justified in interfering with another’s contract if it exercises its own legal rights or a good faith claim to a colorable legal right, even though that claim ultimately proves to be mistaken.1 The “absolute” privilege provides that any communication, oral or written, uttered or published in the due course of a judicial proceeding is absolutely privileged and cannot form the basis for a cause of action. Generally, the immunity afforded by the absolute privilege means that any statement made in the trial of any case cannot constitute the basis for an action, regardless of the negligence or malice with which it is made.2 The difference between the qualified privilege and the absolute privilege is that a showing that communication was made in good faith is an element of the defense of the qualified privilege, but it is not an element of the absolute privilege defense.3 The purpose of this article is to discuss Texas law pertaining to the application of these privileges and immunities to actions for tortious interference arising from the threat or filing of a lawsuit.
Many a deal or contract has been hindered by a third party threatening or filing a lawsuit claiming some interest in the subject matter of the contract or prospective contract. For example, a contract to purchase property is not consummated because a third party files suit claiming an interest in the property. An employee is fired because a former employer sends a letter threatening suit alleging that the employee is in violation of covenant not to compete. A company’s agreed merger or sale of its assets is thwarted by a minority shareholder’s threat of or filing of a suit. These situations raise the question of whether the sending of demand letters and the filing of lawsuits are protected by a qualified privilege or an absolute privilege. Although this issue has existed for decades, surprisingly, a split of authority awaits resolution by the Texas Supreme Court.
Evolution of the Application of the “Absolute Privilege” to Tortious Interference Actions
Originally, the absolute judicial proceeding privilege was applied only to defamation actions.4 Certain courts of appeals, however, began to extend this absolute privilege to actions other than defamation actions. In Kropp v. Prather, the court recognized that although an action for slander of title is different from an action for personal defamation, essentially the same privileges are applied in relation to both torts.5 For that reason, the court applied the judicial proceeding privilege to a slander of title action. The court held, for the first time, that the recording of a notice of lis pendens6 is a part of the judicial proceeding and therefore absolutely privileged because it is specifically authorized by statute and has no existence separate and apart from the litigation of which it gives notice.7 The next expansion of the privilege came in Griffin v. Rowden, where the Dallas court held that Kropp’s holding that the recording of a notice of lis pendens is absolutely privileged also applied to an action for tortious interference with contract.8 The court rejected the argument that the language of the Supreme Court’s decision in Reagan v. Guardian Life Insurance Co.9 limited the application of the privilege to defamation actions.10 Similarly, in Prappas v. Meyerland Community Improvement Association the Houston court held that the filing of a lis pendens could not give rise to a tortious interference and slander of title action because such filing was absolutely privileged.11 In Sharif-Munir-Davidson Development Corporation v. Bell, the Dallas court reaffirmed its recognition of an absolute privilege for the filing of a notice of lis pendens, disallowing a malicious prosecution suit which arose from the filing of a lis pendens.12 To the argument that dire consequences follow the recordation of a lis pendens, the court responded: “Those consequences, however, also follow actual or constructive notice of the pending lawsuit.”13 This response arguably presumes that the filing of the lawsuit is absolutely privileged.
But based on the Bird v. W.C.W. decision,14 it is arguable that the courts of appeals got ahead of the Supreme Court in expanding the judicial proceeding privilege beyond defamation actions. In addressing the issue of whether the privilege applied to a negligence action, the Supreme Court stated:
“The privilege afforded against defamation actions is founded on the ‘theory that the good it accomplishes in protecting the rights of the general public outweighs any wrong or injury which may result to a particular individual.’ (citations omitted). However, James, 637 S.W.2d at 918, declined to expand the privilege beyond libel and slander. See also City of Brady v. Bennie, 735 S.W.2d 275, 279 (Tex. App.-Eastland 1987, no writ) (recognizing a ‘qualified privilege’ in an action for tortious interference in connection with a letter written by an attorney during the course of a prior libel suit).”15
The Supreme Court, however, noted that the plaintiff’s damages are basically defamation damages and cited with approval Doe v. Blake, a case that extended the privilege beyond defamation actions to avoid “circumvention [of the policy behind the privilege] by affording an almost equally unrestricted action under a different label.”16 It further stated that “it would be ironic if an individual could avoid all the constitutional restrictions on defamation actions merely by disguising such claim in negligence terms.”17 These statements seem to imply that the privilege would also apply to other actions which are in essence a disguised defamation action. But the Court narrowly stated its holding as follows:
“The public has a strong interest in protecting children, especially protecting them against physical and sexual abuse. By extending the privilege of in court communication to mental health professionals engaged in examining and diagnosing abuse of children, we further the public’s strong interest in helping to eradicate child abuse. Furthermore, the administration of justice requires ‘full and free disclosure from witnesses unhampered by fear of retaliatory lawsuits.’”18
Thus, it is arguable that unless the public policies of preventing child abuse or protecting witnesses from retaliatory lawsuits are implicated, the privilege does not extend beyond defamation actions. It is also significant that the Supreme Court made no mention of the lower court decisions which, without any qualifications, had expanded the privilege beyond defamation actions.
Notwithstanding the Bird decision, the courts of appeals continued to move towards expanding the judicial proceeding privilege beyond defamation actions. In Bayou Terrace Investment 601 Corp. v. Lyles, which involved an action for tortious interference, the Houston court recognized that a lis pendens is part of judicial process and that the resulting absolute privilege bars a suit for damages arising from the filing of the lis pendens.19 In Chale Garza Investments, Inc. v. Madaria, an action for tortious interference with a contract to sell real property, the San Antonio court held that both the filing of the suit and the recording of a notice of lis pendens are absolutely privileged:
“Appellant’s second counterclaim seeks recovery of damages for tortious interference with an earnest money contract to sell the property. Specifically, appellants complain of the Madarias’ filing of the instant suit and the filing of a Notice of Lis Pendens. A lis pendens is absolutely privileged in an action for tortious interference of contract and does not constitute interference as a matter of law. (Citations omitted). Therefore, the Madarias were privileged as a matter of law in exercising their legal right as owner of the property by filing the instant suit and the lis pendens.”20
Significantly, this decision recognized that the act of filing the suit was absolutely privileged. Similarly, in Hernandez v. Hayes the court stated:
“Although the [immunity from suit for statements made during a quasi-judicial proceeding] arises as a defense to defamation, it must be applied to all of appellant’s causes of action. The privilege would be lost if the appellant could merely drop the defamation causes of action and creatively replead a new cause of action. The United States Supreme Court and the Texas Supreme Court have firmly held that a privilege in a defamation cause of action also extends to all other torts plead by the plaintiff.”21
Evolution of the Application of the Absolute Privilege to Out-of-Court Statements
In addition to applying the judicial proceeding privilege beyond defamation actions, the courts of appeals also began applying the privilege to statements made outside of a judicial proceeding. In Russell v. Clark the absolute judicial proceeding privilege was extended for the first time to out-of-court statements made by attorneys in connection with a judicial proceeding.22 The court’s rationale was as follows:
“Although Texas has not yet extended the doctrine of absolute privilege to out-of-court communications made by attorneys preliminary to a judicial proceeding, or in connection therewith, we think the doctrine should be so extended. Public policy demands that attorneys be granted the utmost freedom in their efforts to represent their clients. To grant immunity short of absolute privilege to communications relating to pending or proposed litigation, and thus subject an attorney to liability for defamation, might tend to lessen an attorney’s efforts on behalf of his client.”23
Based on these principles, the court of appeals held that an attorney’s letter sent to the plaintiff-investors seeking evidence for use in pending litigation was absolutely privileged.24
Other courts of appeals have adopted the Russell decision and held that the absolute judicial proceeding privilege applied to out-of-court demands made by attorneys.25
Thus, there is now precedent that both the sending of a demand letter and the filing of a suit are absolutely immune from liability for tortious interference, as well as any other tort.
The Split of Authority
However, not every court has joined the trend of expanding the judicial proceeding privilege. In City of Brady v. Bennie, the court held that the absolute judicial proceeding privilege applies to libel and slander claims, but that it does not apply to an action for tortious interference with a contract.26 As support, the court cited Sakowitz, Inc. v. Steck,27 which it characterized as recognizing that a qualified privilege, but not an absolute privilege, may be urged in a suit for tortious interference.28 It is also arguable that the Supreme Court approved the Bennie decision by citing it in Bird v. W.C.W.29
Similarly, in International Shortshop, Inc. v. Rally’s, Inc. the Fifth Circuit, also relying on the Sakowitz decision, rejected the argument that the filing of a lawsuit was protected by the absolute judicial proceeding privilege.30 It further stated:
“The district court was not persuaded by the intermediate appellate court decisions holding that a lis pendens is absolutely privileged. See Prappas v. Meyerland Community Improvement Association, 795 S.W.2d 794 (Tex. App.1990, reh’g of writ overruled) (filing of the lis pendens, even if not authorized by statute, is absolutely privileged and ‘does not turn on the presence or absence of good faith’); Griffin v. Rowden, 702 S.W.2d 692 (Tex.App.1985, writ ref’d n.r.e.) (lis pendens absolutely privileged). Nor are we. See Hughes v. Houston Northwest Medical Center, Inc., 680 S.W.2d 838 (Tex. App.1984, error ref’d n.r.e.), cert. denied, 474 U.S. 1020, 106 S.Ct. 571, 88 L.Ed.2d 555 (1985) (‘Litigation is a powerful weapon, and when instituted in bad faith for the purpose of causing damage or loss, it is a wrongful method of interference.’)”31
In Sakowitz the plaintiff, Steck, brought suit against her former employer, Sakowitz, for tortious interference with her employment contract.32 Steck alleged that Sakowitz sent a letter to Steck’s current employer, Oshman’s, complaining that Steck’s employment was a breach of her prior non-competition agreement with Sakowitz. The letter to Oshman’s threatened Oshman’s with a lawsuit, and Oshman’s terminated Steck’s employment upon receipt of the letter.33 The Supreme Court recognized that one is privileged to interfere with a contract of another if it is done in the bona fide exercise of his own rights and that this privilege extends to the actual assertion or threatened assertion of rights.34 The Supreme Court held that Sakowitz’s letter was protected by the qualified privileged pertaining to tortious interference claims because it asserted a colorable legal right.35
However, in Sakowitz the Supreme Court did not address whether the letter was also protected by the absolute judicial proceeding privilege. That argument was never presented to the Supreme Court. It is arguable that both the Eastland Court of Appeals and the Fifth Circuit erred in failing to recognize that the qualified defense of justification or privilege and the absolute judicial proceeding privilege are not mutually exclusive in tortious interference actions, and that the absolute privilege may also apply if the alleged act of interference is related to or part of a judicial proceeding.
Furthermore, the Bennie decision was expressly rejected as incorrectly decided by the Houston court in both Laub v. Pesikoff36 and Crain v. Unauthorized Practice of Law Committee.37
“Appellants rely on City of Brady v. Bennie, 735 S.W.2d 275 (Tex. App.—Eastland 1987, no writ), for the proposition that the judicial communication privilege is limited to libel and slander cases, and does not extend to a case where tortious interference is alleged. We disagree. This Court has held that the judicial privilege is not limited to claims of libel or slander, and it should be applied to claims arising out of communications made in the course of judicial proceedings, regardless of the label placed on the claim. Laub, 979 S.W.2d at 689.”38
Awaiting a Final Answer from the Supreme Court
How the Supreme Court will ultimately resolve these issues is not yet clear. There is a compelling argument, based on the Bird v. W.C.W.39 decision, that the courts of appeals have gone out on a limb and have expanded the privilege beyond what the Supreme Court will ever accept. However, in a fairly recent opinion the Supreme Court appears to indicate that a complete, as opposed to a qualified, privilege may be applicable in a tortious interference action. In Wal-Mart Stores, Inc. v. Sturges, the Supreme Court held that to recover for tortious interference with a prospective business relation a plaintiff must prove that the defendant’s conduct was independently tortious or wrongful.40 The Supreme Court explained the ramifications of this holding on the privilege defense as follows:
“The concepts of justification and privilege are subsumed in the plaintiff’s proof, except insofar as they may be defenses to the wrongfulness of the alleged conduct. For example, a statement made against the plaintiff, though defamatory, may be protected by a complete or qualified privilege. Justification and privilege are defenses in a claim for tortious interference with prospective relations only to the extent that they are defenses to the independent tortiousness of the defendant’s conduct.” 41
Thus, the Supreme Court appears to recognize in dicta that a complete or absolute privilege, such as the judicial proceeding privilege, may be applicable to a tortious interference action that arises from a defamatory statement. But there are two questions on which the Supreme Court has not yet provided guidance: (1) whether the judicial proceeding privilege may be applied to tortious interference actions which are not based on defamatory statements, and (2) whether sending a demand letter threatening suit or filing suit is part of the judicial proceeding and therefore absolutely privileged. In making these determinations, the Supreme Court will be required to weigh competing values and policies. The Dallas Court of Appeals believes that it is necessary to extend the absolute judicial proceeding privilege to out-of-court statements by
attorneys made in connection with a judicial proceeding in order to grant attorneys the utmost freedom in their efforts to represent their clients.42 Furthermore, logic dictates this extension of the absolute privilege. If an attorney’s statements made in court and in pleadings and the filing of a notice of lis pendens are absolutely privileged,43 then there is no reason that demand letters and the act of filing suit should not also be absolutely privileged. It is also arguable that such an extension of the privilege is necessary to implement the Texas constitution’s open courts provision. In Prappas v. Meyerland Community Improvement Association, the court noted that “[a]lthough the Griffin opinion did not refer directly to the Texas Constitution’s Open Courts provision, art. I, § 13, that legal policy was implicit in the tribunal’s decision.”44
On the other hand, the Fifth Circuit reasonably believes that the privilege ought to be qualified, not absolute, because “[l]itigation is a powerful weapon, and when instituted in bad faith for the purpose of causing damage or loss, it is a wrongful method of interference.”45 In other words, a qualified privilege provides adequate protection of the zealous prosecution of claims in view of the enormous economic harm that a frivolous, bad faith suit may cause. Furthermore, stare decisis demands that the absolute privilege not be extended to demand letters and the filing of suit. Although the court did not address the potential applicability of the judicial proceeding privilege, several decisions have expressly or implicitly recognized that demand letters and filing suit may serve as the basis for a tortious interference action. This precedent includes Supreme Court authority.46 But, as discussed herein, more recent Texas courts of appeals precedent is to the contrary.
Another consideration is whether an action for tortious interference is necessary to remedy any interference with a contract resulting from the filing of a suit, given that defendants who are harmed by a frivolous bad faith suit are afforded certain relief as provided for by Rule 13 of the Texas Rules of Civil Procedure and Chapter 10 of the Texas Civil Practice & Remedies Code. These provisions authorize the imposition of sanctions and attorney’s fee awards for groundless, bad faith pleadings. But they do not expressly permit the recovery of lost profits resulting from their violation and are, therefore, arguably not an adequate remedy.
The Supreme Court will be required to balance the need to protect freedom of speech related to the prosecution of claims and the need to encourage attorneys to zealously represent their clients against the need to remedy and deter groundless, bad faith demands or suits that cause significant economic damages. Hopefully, the Supreme Court will settle these thorny issues soon.
1. Texas Beef Cattle Co. v. Green, 921 S.W.2d 203, 210-11 (Tex.1996). 2. Bird v. W.C.W, 868 S.W.2d 767, 771 (Tex.1994); James v. Brown, 637 S.W.2d 914, 916 (Tex.1982). 3. Id.; Goodman v. Gallerano, 695 S.W.2d 286, 287 (Tex. App.—Dallas 1985, no writ). 4. Reagan v. Guardian Life Ins. Co., 166 S.W.2d 909, 912-13 (Tex.1942). 5. 526 S.W.2d 283, 286 (Tex. Civ. App.—Tyler 1975, writ ref’d n.r.e.). 6. The recording of a lis pendens notice acts as constructive notice to everyone of the pendency of the suit and its nature and it is part of the “judicial proceeding.” Id. 7. Id. 8. 702 S.W.2d 692 (Tex. App.—Dallas 1985, writ ref’d n.r.e.). 9. Reagan, 166 S.W.2d at 912-13. 10. Kropp, 526 S.W.2d at 695 (citing Reagan, 166 S.W.2d at 912-13). 11. 795 S.W.2d 794, 797-98 (Tex. App.—Houston [14th Dist.] 1990, writ denied). 12. 788 S.W.2d 427 (Tex. App.—Dallas, 1990, no writ). 13. Id. at 430 n.1. 14. 868 S.W.2d at 771. 15. Id. 16. Bird, 868 S.W.2d at 772 (citing Doe v. Blake, 809 F.Supp. 1020, 1028 (D.Conn.1992)). 17. Id. at 772 n.7. 18. Id. at 772 (quoting James v. Brown, 637 S.W.2d at 917) (footnote omitted). 19. 881 S.W.2d 810, 818 (Tex. App.—Houston [1st Dist.] 1994, no writ). 20. 931 S.W.2d 597, 600 (Tex. App.—San Antonio 1996, writ denied) (emphasis added). 21. 931 S.W.2d 648, 654 (Tex. App.—San Antonio 1996, writ denied) (citations omitted); see also Laub v. Pesikoff, 979 S.W.2d 686, 691-92 (Tex. App.—Houston [1st Dist.] 1998, writ denied) (applying absolute immunity to causes of action for intentional interference, civil conspiracy, intentional infliction of emotional distress, and negligence, where “the essence of each of these claims is that [the plaintiff] suffered injury as a result of the communication of allegedly false statements during a judicial proceeding”) (citation omitted). See also Laub v. Pesikoff, 979 S.W.2d 686, 691-92 (Tex. App.—Houston [1st Dist.] 1998, writ denied) (applying absolute immunity to causes of action for intentional interference, civil conspiracy, intentional infliction of emotional distress, and negligence, where “the essence of each of these claims is that [the plaintiff] suffered injury as a result of the communication of allegedly false statements during a judicial proceeding.”). 22. 620 S.W.2d 865 (Tex. App.—Dallas 1981, writ ref’d n.r.e.). 23. Id. at 869. 24. Id. 25. See Thomas v. Bracey, 940 S.W.2d 340, 343 (Tex. App.—San Antonio 1997, no writ) (applying the absolute judicial proceeding privilege to an attorney’s letter demanding that the addressee cease and desist from trespassing on certain property); Randolph v. Walker, 29 S.W.3d 271, 278-79 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (applying the absolute judicial proceeding privilege to an attorney’s letter and telephone call which demanded that an investigative reporter be given access to certain information and asserted that the denial of such access violated the law (citing Kanengiser v. Kanengiser, 590 A.2d 1223, 1231 (N.J.Super.Ct. Law Div. 1991) (holding that statements typically found in an attorney’s demand letter related to an imminent judicial proceeding are absolutely privileged)); see also Hefland v. Coane, 12 S.W.3d 152, 157 (Tex. App.—Houston [1st Dist] 2000, pet. denied) (recognizing that the absolute privilege was potentially applicable to a letter written by an attorney to an opposing counsel). 26. 735 S.W.2d 275, 279 (Tex. App.—Eastland 1987, no writ). 27. 669 S.W.2d. 105 (Tex. 1984). 28. Bennie, 735 S.W.2d at 279. 29. 868 S.W.2d 767, 771 (Tex.1994). 30. 939 F.2d 1257, 1268-69 (5th Cir. 1991). 31. Id. at 1269 n.12. 32. 669 S.W.2d at 106. 33. Id. 34. Id. 35. Id. at 107. 36. 979 S.W.2d 686, 689 (Tex. App.—Houston [1st Dist.] 1998, writ denied). 37. 11 S.W.3d 328, 335 (Tex. App.—Houston [1st Dist.] 1999, pet. denied). 38. Id. 39. 868 S.W.2d 767, 771 (Tex.1994). 40. 52 S.W.3d 711, 726 (Tex. 2001). 41. Id. at 726-27 (emphasis added). 42. Russell v. Clark, 620 S.W.2d at 869. 43. See James v. Brown, 637 S.W.2d at 916-17. 44. 795 S.W.2d at 797 (citing Griffin v. Rowden, 702 S.W.2d 692 (Tex. App.—Dallas 1985, writ ref’d n.r.e.)). In Griffin, the court held that the recording of a notice of lis pendens is absolutely privileged and that this privilege applied to an action for tortious interference with contract. Id. at 695. 45. International Shortshop, Inc. v. Rally’s, Inc., 939 F.2d at 1268-69. 46. See Sakowitz, Inc. v. Steck, 669 S.W.2d. 105 (Tex.1984) (tortious interference action based on demand letter); Texas Beef Cattle Co. v. Green, 921 S.W.2d 203 (Tex.1996) (tortious interference action based on filing of suit); Houston Northwest Medical Center, Inc.,680 S.W.2d 838 (Tex.App.-Houston [1st Dist.] 1984, writ ref’d n.r.e.) (filing of a lawsuit may serve as the basis for a tortious interference action); Tidal Western Oil Corp. v. Shackelford, 297 S.W. 279, 28081 (Tex. Civ. App.—Fort Worth 1927, writ ref’d) (tortious interference action based on demand letter, but protected by qualified privilege).
H. Victor Thomas is a partner in the litigation section of Jackson Walker L.L.P., where his practice focuses on business and securities litigation and civil appeals. He is a former staff attorney with the Fourteenth Court of Appeals and is Board Certified in Civil Appellate Law by the Texas Board of Legal Specialization. He earned a B.B.A., magna cum laude, from Baylor University and his J.D. from Southern Methodist University Dedman School of Law.
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