Lake Shore Investors v. Rite Aid Corp.

Gilbert, C. J., delivered the opinion of the Court. For the last seventy-five years it has been clear that one who wrongfully interferes with the contractual rights of another is liable to the injured party in an action of tort. Knickerbocker Ice Co. v. Gardiner Dairy Co., 107 Md. 556 , 69 A. 405 (1908). 1 What is not so clear is by what standard damages arising from that interference are to be measured. ¹⁷³ We are called upon in this case to decide whether these damages are in contract or in tort. The Facts Lake Shore Investors (LSI), a limited partnership, was formed for the purpose of acquiring lands in the Lake Shore area of Anne Arundel County and erecting and operating a shopping center to be known as Lake Shore Plaza.

A fifteen acre tract was purchased by LSI in 1975 for $509,000. Settlement, however, did not occur until two years later. In 1978, LSI acquired an additional fifteen acre tract at an auction sale for a bid of $100,000. That property was located across the road from the first obtained parcel.

The original fifteen acres were described as being "flatter and better suited for development, while the second tract was hilly and marshy.” After the acquisition of the second tract, LSI began to develop the first parcel as a shopping center, and in furtherance of that goal it entered into a lease with Safeway Supermarket Company. Safeway, we are told, was to be an "anchor tenant.” LSI also negotiated with Read’s, Inc., the predecessor of Rite Aid Corporation. It was proposed that Read’s would lease 12,000 square feet of space next to the Safeway. Such a "Lease” between Read’s and LSI was signed, but it was subject to agreement on certain plans and specifications for construction of the store.

No agreement as to these plans and specifications was apparently ever reached. Rite Aid, in April, 1977, entered upon the scene as successor to Read’s. At that time John Schmitt, a Rite Aid executive, informed LSI that Rite Aid did not want to lease 12,000 square feet but would lease 8,000 square feet. That figure was subsequently reduced by Rite Aid to 6,000 square feet.

When that proposal was rejected, Rite Aid countered with the proposition that it lease the 12,000 square feet, but that it be allowed to sublease 6,000 square feet from that space. LSI rejected the Rite Aid suggestion. LSI, however, offered Rite Aid 6,000 square feet of space at the opposite end ¹⁷⁴ of the shopping center, but Rite Aid insisted on being next door to the Safeway. According to the testimony produced by LSI, Rite Aid and LSI severed negotiations and went their "different ways.” No further contact was had between Rite Aid and LSI for some two years, until January, 1979.

During the interim, LSI entered into a lease for approximately 17,000 square feet with Drug Fair, Inc. That transaction was reported in a trade journal. In January, 1979, Robert E. Statkiewicz, a partner in LSI, encountered John Schmitt at a shopping center seminar in New Orleans. A "red-faced” Schmitt allegedly told Statkiewicz that he, Schmitt, was very upset over LSI’s leasing space to Drug Fair in Lake Shore Plaza. Schmitt allegedly said that Randy White, another LSI partner who was the person who attempted to negotiate the lease with Rite Aid, was "going to be sorry.” According to Statkiewicz, Schmitt said that, "we’ll fix him.” Charles Slane of Rite Aid wrote to LSI in March, 1979, advising that he had read an article in a trade publication in which it was reported that LSI planned a ground breaking in the Spring of 1979.

Slane threatened litigation unless LSI agreed to build Rite Aid a store in the shopping center. LSI responded that no lease existed between it and Rite Aid. Finding itself short of funds required to finish the project, LSI, on August 31,1979, agreed to sell the entire thirty acre property to BTR Realty, Inc. (BTR), for $900,000 cash. Additionally, BTR agreed to purchase a $66,000 certificate of deposit that LSI had pledged to New York Life Insurance Company as a "commitment fee” on the mortgage that New York Life was to carry on the property.

BTR’s counsel learned of the Slane letter written in March, 1979, on behalf of Rite Aid in which it threatened litigation. BTR insisted upon a clause in its purchase agreement with LSI to the effect that BTR could withdraw from that agreement if LSI could not furnish BTR with a written release from Rite Aid. Obviously, BTR was not interested in purchasing litigation. Drug Fair’s corporate counsel, Robert N. Weinstock, was contacted by Franklin Brown of Rite Aid.

Brown allegedly ¹⁷⁵ told Weinstock in an "intimidating” tone of voice that Drug Fair could either yield its lease or be in the same shopping center with Rite Aid. Brown, according to Weinstock, said that Drug Fair’s plan to be the only drug store in the shopping center "was not about to happen.” In reply to telephone calls from BTR’s lawyer, Brown remained insistent that Rite Aid had a valid lease with LSI. The upshot of Rite Aid’s refusal to release BTR and LSI from any claim against the property resulted in BTR’s withdrawal from its agreement with LSI. LSI, in November, 1979, sued Rite Aid Corporation and Rite Aid of Maryland, Inc. (Rite Aid), in the Circuit Court for Baltimore City 2 for unlawful interference in LSI’s contractual relationship with BTR.

LSI asserted that it was entitled to $25,000,000 in damages. While the suit was pending, LSI sold the original tract to St. John/Litty for $840,650, but LSI retained ownership of the secondly acquired fifteen acre parcel. At trial LSI claimed "out of pocket” damages, accounting from October 1, 1979, as follows: "OUT-OF-POCKET DAMAGES Interest expenses on mortgages and loans which would have been paid in full at BTR settlement* $293,351.50 Real Estate Taxes and County Assessments against the property since 10/2/79 23,560.40 Insurance on the property since 10/2/79 816.95 ¹⁷⁶ Architectural, engineering, leasing and management expenses on the property since 10/2/79 44,360.96 TOTAL OUT-OF-POCKET DAMAGES $362,089.81 *does not include mortgage interest expense and real estate taxes since 4/1/82” The trial judge refused to admit evidence of "out-of-pocket damages,” ruling instead that the measure of damages was the contractual "benefit of the bargain rule.” The judge defined "benefit of the bargain” to mean the difference between the fair market value of the property at the time of Rite Aid’s interference with the BTR contract and the contractual price of $900,000. LSI calculated its loss under the "benefit of bargain” rule in the following manner: "LOSS ON SALE OF PROPERTY Total consideration on BTR contract $966,000 Less sellers’ settlement expenses 6,325 Net proceeds on BTR sale $959,675 Total consideration on St. John/Litty contract* 850,000 Less sellers’ settlement expenses 9,350 Net proceeds on St. John/Litty 840,650 Difference on two contracts $119,025 Less unsold land 100,000 Net Loss $ 19,025 *does not include mortgage interest expense and real estate taxes since 4/1/82 which are responsibility of St. John/Litty under the terms of their contract.” ¹⁷⁷ Those damages, however, were never introduced into evidence.

Prior to trial Rite Aid sought summary judgment on the ground that it had a valid lease with LSI. The latter filed a cross-motion for similar relief. Rite Aid has appealed the denial of its motion. The Issues I. Are damages in an unlawful interference with contract cases measured by tort or contract precepts?

II

Did the appellant waive its appeal in failing to submit evidence under the trial judge’s "benefit of bargain” damage theory?

III

Did the trial court err in denying Rite Aid’s motion for summary judgment and in granting LSI’s similar motion. I. Interference with Contractual Relationship The tort of interference with contractual relations was first recognized in this State in Knickerbocker Ice Co. v. Gardiner Dairy Co., supra. The Court of Appeals said, at 569: "In a suit between the parties to a contract the general rule is that whether it be an action ex contractu, or an action of tort, founded on the breach of contract, the measure of damages is the same and under the control of the Court.” Rite Aid reads Knickerbocker to hold that in cases of interference with the contractual rights of another that the damages are to be measured in the same manner as a breach of contract. That, however, is not what Knickerbocker says.

The key words of the above quotation from Knickerbocker are: "In a suit between the parties to a contract. . . .” Patently, Rite Aid was not a party to the contract in the instant case and the general rule laid down by Knickerbocker in the quoted passage is simply not applicable. ¹⁷⁸ Knickerbocker involved a suit by Gardiner Dairy Company against Knickerbocker. Gardiner alleged that it was engaged in the dairy business and was required to buy large quantities of ice during the summer months. It contracted with Sumwalt Ice and Coal Company whereby Sumwalt would deliver 20 tons of ice each day to Gardiner at a cost of $5 per ton. At that time Sumwalt was purchasing ice from Knickerbocker which was engaged in the business of manufacturing ice.

Knickerbocker advised Sumwalt that unless it stopped delivering ice to Gardiner, Knickerbocker would cease selling ice to Sumwalt. Because Sumwalt’s ice business depended upon supplies from Knickerbocker, it was compelled to break its contract with Gardiner. The Court, speaking through Chief Judge Boyd, said: "It may be safely said that if wrongful or unlawful means are employed to induce a breach of contract, and injury ensues, the party so causing the breach is liable in an action in tort.” 107 Md. at 566 . Writing on the subject of interference with contractual relationship, Professor William L. Prosser, in Handbook of the Law of Torts (4th ed. 1971), § 129 states that the tort stems from "very ancient times.” It was incorporated into Roman law and by the Thirteenth Century "had been taken over by the common law.” The tort first appears, Prosser says, "in definite form in 1853” in a case entitled, Lumley v. Gye, 2 El. & Bl. 216, 118 Eng.

Rep. 749. The facts of that case were that Miss Wagner, an opera singer of some renown, was under a contract to sing for the plaintiff. The defendant, fully aware of the contract and "maliciously intending to injure the plaintiff,” lured Miss Wagner into refusing to abide by her agreement with the plaintiff. A divided court allowed damages to the plaintiff.

American courts, according to Prosser, were reluctant to follow the English precedents. Eventually, the American courts recognized the tort of interference with a contract. Now, however, the cause of