On February 27, 2014, the Virginia Supreme Court strengthened intentional interference claims by holding that their statute of limitations period is 5-years long, and that they can support a business conspiracy cause of action. Before this ruling, many had argued that the statute of limitations was only 2-years long based on Virginia’s distinction between “personal claims” and “property claims”. Finding that the right to enforce the performance of a contract and to benefit from advantageous business relationships is a “property right,” the court determined that the longer 5-year limitations period applies. The decision is Dunlap v. Cottman Transmission Sys., Record No.131318 (Feb. 27, 2014).
The lawsuit was brought by James Dunlap, an AAMCO franchisee, against Cottman Transmission Systems, LLC (“Cottman”), a competitor transmission repair business owned by a company that purchased a majority interest in AAMCO in 2006. Dunlap alleged that, to prevent competition by AAMCO repair shops, Cottman began conspiring with the parent corporation to close AAMCO locations, including Dunlap’s franchises. Dunlap sued Cottman in the City of Chesapeake Circuit Court for business conspiracy, intentional interference (also called “tortious interference”) with contract, and intentional interference with business expectancies by seeking to disrupt his franchisee-franchisor relationship with AAMCO.
Cottman removed the case to Federal court and sought dismissal of the claims. Cottman argued that a claim of intentional interference need not involve an unlawful act, and thus could not support a business conspiracy claim. It further argued that the appropriate statute of limitation was the 2-year period prescribed for personal actions, and not the 5-year period prescribed for property claims. The district court agreed and dismissed Dunlap’s lawsuit.
On appeal to the U.S. Court of Appeals for the Fourth Circuit, Dunlap argued that both grounds for dismissal asserted by Cottman were wrong. To rule upon the appeal, the Fourth Circuit certified two questions to the Virginia Supreme Court. (Certification is the process by which the Virginia Supreme Court decides questions of Virginia law for the Fourth Circuit’s use in ruling upon an appeal.) These questions were: (1) whether a business conspiracy claim could be based upon intentional interference with a contract or business expectancy, and (2) whether the 2 or 5-year statute of limitations applies to intentional interference claims.
The Virginia Supreme Court ruled that a business conspiracy claim could be based upon an act of alleged intentional interference. In so ruling, the Court declined to accept the “bootstrapping” argument asserted by Cottman that, by allowing a business conspiracy claim to be based on mere interference with a contract, the claim would be broadened to include behavior that is not, strictly speaking, unlawful, but merely violates the terms of a contract. Rejecting this argument, the Court ruled that Virginia law recognizes a common law duty of citizens to respect other parties’ contract rights, and ruled that intentional interference breaches that duty and thus qualifies as an “unlawful act” for purposes of a business conspiracy claim.
In evaluating whether an intentional interference claim constitutes an injury to the person or an injury to the property of a claimant, the Court considered the nature of the claim. Finding that the claim protects contract rights, which are a type of property rights, and that the tort expands the breach-of-contract protection afforded written contract claims (themselves governed by a 5-year limitations period) to the tortious acts of third parties, the Court ruled that a 5-year limitations period rightly applies.
This decision shows how strongly Virginia law protects parties to a contract (and other business relationships) from third parties’ intentional acts to disrupt their transactions. Companies doing business in Virginia should tread lightly when their intentional conduct may interfere with others’ business relationships.