Legal Brief: Kalamata v. Biz2Credit and Itria Ventures
The typical merchant cash advance contract contains language that prohibits the merchant from stacking multiple merchant cash advances. Some cash advance companies, however, induce merchants to stack. This is where the legal concept of “tortious interference with contract” comes in. Tortious interference places legal liability on a person who wrongfully causes another person to breach an existing contract. In the merchant cash advance industry, these lawsuits usually involve disputes over whether a stacking cash advance company intentionally caused a merchant to stack additional cash advances, thereby breaching an existing contract. This is an evolving area of the law and what conduct constitutes tortious interference is a hot topic in the legal field.
Tortious interference is one of several claims that came up in Kalamata Capital’s recent lawsuit against Biz2Credit Inc. and Itria Ventures, LLC, and the court has already issued its first ruling on what conduct might constitute tortious interference with cash advance agreements.
Kalamata sued Biz2Credit and Itria for, among other things, stacking. One of Kalamata’s arguments was that Biz2Credit and Itria tortiously interfered with Kalamata’s contract. Biz2Credit and Itria filed a motion to dismiss. They argued that Kalamata failed to allege facts that would support a claim of tortious interference with contract. The court denied their motion because Kalamata alleged that 1) it had a business relationship with a merchant, 2) that Biz2Credit and Itria knew of that relationship and intentionally interfered with it, 3) that Biz2Credit and Itria acted solely out of malice, used improper means, illegal means, or means amounting to an independent tort, and 4) that the interference caused injury to Kalamata.
Kalamata alleged that, under its contract with Biz2Credit, Kalamata paid Biz2Credit commissions for referrals and for managing all of Kalamata’s accounts, including the referrals, on Biz2Credit’s online platform. Kalamata also alleged that the contract with Biz2Credit prohibited Biz2Credit from soliciting Kalamata’s merchants. The crux of the lawsuit is Kalamata’s claim that Biz2Credit secretly referred Kalamata’s merchants to Biz2Credit’s closely related company, Itria, and intentionally induced those merchants to stack additional cash advances in breach of the merchants’ contracts with Kalamata, despite an alleged agreement between Kalamata and Biz2Credit that prohibited Biz2Credit from doing so. Biz2Credit and Itria disputed Kalamata’s claims and argued that they were permitted to solicit any account that Biz2Credit referred to Kalamata or serviced for Kalamata.
Ultimately, the court found that if Biz2Credit was, solely for malicious purposes, sharing Kalamata’s confidential customer information with Itria, Kalamata’s competitor, and, if Itria and Biz2Credit were knowingly inducing Kalamata’s customers to breach their merchant agreements with Kalamata, then such conduct would rise to the level of tortious interference.
As this was a decision on a motion to dismiss, the motion focused on the legal sufficiency of Kalamata’s claims and did not address the merits of either party’s factual assertions.Last modified: October 24, 2018
Nicholas Giuliano and Christopher Murray are attorneys in Giuliano McDonnell & Perrone, LLP’s merchant cash advance litigation group. Nicholas can be reached by e-mail at firstname.lastname@example.org. Christopher can be reached by e-mail at email@example.com. They can both be reached by phone at Giuliano McDonnell & Perrone, LLP’s New York office at 646-328-0120.