Felsen v. Sol Cafe Mfg. Corp., 24 N.Y.2d 682 (1969)
A parent company, as the sole stockholder of a subsidiary, has a qualified privilege to interfere with the subsidiary’s contract with a third party if the interference is to protect its economic interest and does not involve malicious or illegal means.
Summary
Felsen, employed by Sol Cafe, sued Sol Cafe for breach of contract and Chock Full O’Nuts for malicious inducement of that breach after his termination. Chock Full O’Nuts, the sole stockholder of Sol Cafe, argued it had a privilege to interfere to protect its economic interest. The court held that Chock Full O’Nuts, as the sole stockholder, did have a qualified privilege to interfere with the contract, absent malicious intent or illegal means. The plaintiff failed to prove malice or illegal means, thus the claim against Chock Full O’Nuts should have been dismissed.
Facts
Felsen was employed by Sol Cafe as treasurer, comptroller, and general administrator under a written contract from May 1961 to December 1965. The contract included a salary, benefits, and severance pay if not renewed. Sol Cafe prepared instant coffee for sellers, including Chock Full O’Nuts. Chock Full O’Nuts bought Sol Cafe’s stock in August 1962. In January 1965, Chock Full O’Nuts informed Felsen his contract was terminated.
Procedural History
Felsen sued Sol Cafe for breach of contract and Chock Full O’Nuts for malicious inducement. Sol Cafe claimed discharge for cause. A jury found for Felsen against both. The Appellate Division affirmed. Chock Full O’Nuts appealed to the New York Court of Appeals.
Issue(s)
Whether Chock Full O’Nuts, as the sole stockholder of Sol Cafe, was privileged to interfere with Felsen’s contract with Sol Cafe, absent a showing of malice or illegal means.
Holding
Yes, because as the sole stockholder, Chock Full O’Nuts had an economic interest in Sol Cafe that it was privileged to protect, and Felsen failed to prove that Chock Full O’Nuts acted with malice or used illegal means.
Court’s Reasoning
The court recognized a qualified privilege for a stockholder to interfere with a company’s contract to protect their financial interest. The court cited Morrison v. Frank, 81 N.Y.S.2d 743, stating that a stockholder is privileged to interfere with a contract if their purpose is to protect their own interest and they do not employ improper means. The court noted the importance of identifying a particular interest that provides “just cause or excuse” for interference. It stated: “Procuring the breach of a contract in the exercise of equal or superior right is acting with just cause or excuse and is justification for what would otherwise be an actionable wrong.” (Knapp v. Penfield, 143 Misc. 132, 134-135). Since Felsen did not prove malice or illegal means by Chock Full O’Nuts, his claim for malicious inducement failed. The court found the evidence suggested a reasonable concern by Chock Full O’Nuts regarding the management of Sol Cafe. The court modified the order, dismissing the cause of action against Chock Full O’Nuts.