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Applied Equipment Corp. v. Litton Saudi Arabia Ltd.

Supreme Court of California

March 31, 1994, Decided

No. S030637.

Opinion

 [*507]  [**455]  [***476]    Can a contracting party be held liable in tort for conspiracy to interfere with its own contract? Following [****2]  a line of appellate cases, the  [*508]  Court of Appeal answered this question in the affirmative. Our study of applicable precedent and policy yields a contrary answer. We will therefore reverse the judgment of the Court of Appeal.

FACTS AND PROCEEDINGS BELOW

Plaintiff Applied Equipment Corporation (Applied) entered into a subcontract with defendant Litton Saudi Arabia Limited (Litton) calling for Applied to procure and supply to Litton spare parts that Litton needed to perform Litton's general contract to provide a military defense communication and control system to the Kingdom of Saudi Arabia. Applied was to be compensated under the subcontract on a commission basis--it was entitled to receive a 26 percent markup on the price of items purchased for Litton.

As part of its performance of the subcontract, Applied agreed to procure VA-145E electron tubes--custom-made products manufactured only by defendant Varian Associates Inc. (Varian). With Litton's approval, Applied ordered from Varian 11 VA-145E tubes at a price of $67,500 per unit. Applied issued a purchase order to Varian; Varian accepted and acknowledged the order.

Five months after Litton approved the purchase, two members [****3]  of its finance department criticized the $190,000 markup earned by Applied on the tube purchase and recommended in an internal memorandum that "this situation be reviewed in order to determine  [**456]   [***477]  how Litton might avoid payment of the $190,000."

Litton subsequently contacted Varian directly and renegotiated the Applied/Varian purchase order, eventually obtaining Varian's agreement to sell 12 tubes (rather than 11) at $62,500 each. Six tubes were sold to Applied (subject to the markup in the subcontract); the remaining six were sold directly to Litton (without the markup). The renegotiated purchase order, which resulted in a reduction in Applied's commission, was presented to Applied by Varian as a fait accompli.

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7 Cal. 4th 503 *; 869 P.2d 454 **; 28 Cal. Rptr. 2d 475 ***; 1994 Cal. LEXIS 1216 ****; 94 Daily Journal DAR 4265; 94 Cal. Daily Op. Service 2292

APPLIED EQUIPMENT CORPORATION, Plaintiff and Respondent, v. LITTON SAUDI ARABIA LIMITED et al., Defendants and Appellants.

Prior History:  [****1]  Superior Court of Los Angeles County, No. C579970, Madeleine Flier, Judge.

Disposition: The judgment of the Court of Appeal is reversed. The case is remanded with instructions to direct further proceedings in the trial court in a manner consistent with this opinion.

CORE TERMS

conspiracy, contracting parties, cases, parties, conspiring, tort liability, damages, induce, contractual relationship, conspiracy to interfere, cause of action, contracting, subcontract, breach of contract, purchase order, immunity, civil conspiracy, contract damages, interfere, italics, motives, punitive damages, liable in tort, own contract, conspiracy theory, third party, coconspirator, insurer, inducing breach, contractual

Criminal Law & Procedure, Inchoate Crimes, Conspiracy, Elements, Torts, Concerted Action, Civil Conspiracy, General Overview, Contracts Law, Breach, Commercial Interference, Contracts, Intentional Interference, Defenses, Healthcare Law, Healthcare Litigation, Actions Against Healthcare Workers, Breach of Contract Actions, Business Torts, Elements, Duty, Types of Damages, Compensatory Damages, Remedies, Damages, Measurement of Damages, Foreseeable Damages, Civil Procedure, Punitive Damages, Pain & Suffering, Emotional Distress, Punitive Damages, Aggravating Circumstances, Business & Corporate Compliance, Contracts Law, Types of Contracts, Covenants, Compensatory Damages, Affirmative Defenses, Fraud & Misrepresentation