On Appeal From the United States District Court For the District of New Jersey
Before: BECKER, MANSMANN, Circuit Judges, and SCHWARZER, *fn* District Judge.
This is an appeal from an order of the district court in a diversity case granting summary judgment for the defendants on plaintiff's state law claims of breach of contract and tortious interference with a prospective economic relationship. We affirm with respect to the tortious interference claim, but reverse with respect to the contract claims, and remand for further proceedings.
Defendant The Mortgage Corner ("TMC") runs a multilender mortgage loan network. Lenders on TMC's network regularly fax their current mortgage rates, terms, and conditions to TMC financial service representatives ("FSRs") stationed in various local real estate offices. *fn1 The FSRs then present these rates and terms to potential homebuyers. In this manner, lenders compete for business, and consumers have a choice of mortgage rates and terms. For its part, TMC receives a percentage of each loan that closes as a result of its referral.
On July 23, 1992, Sterling National Mortgage Company ("Sterling") entered into an agreement with TMC pursuant to which it became a lender on the TMC network. Under this agreement, TMC "may submit completed Mortgage Loan Applications to [Sterling] from time to time." (J.A. at 18.) Sterling, in turn, had a duty to "process, accept, issue mortgage loan commitments for, fund and close, in a timely manner," the applications submitted by TMC. (J.A. at 18.) For each completed loan, Sterling would pay TMC .625 basis points. (Pl.'s Br. at 7.) The agreement was to last one year but could "be terminated without cause by either party upon thirty (30) days written notice to the other." (J.A. at 20.) Sterling geared up for the network competition. It hired two people to service both the TMC system and a similar network. By February 1993, Sterling was performing well and had received 109 mortgage applications.
All was not, however, copacetic. Centerbank Mortgage Company ("CMC") owned TMC. CMC was also a lender on the network, and it was TMC's hope that CMC would secure a significant number of loan referrals from the FSRs. (Dep. of Former TMC President, Walter Vail at J.A. 108.) To this end, TMC management stressed its goal to the FSRs. (See Dep. of TMC Regional Manager, Nicholas Meras at J.A. 104.) *fn2 FSRs were also paid higher commissions for CMC referrals. Eventually, according to Sterling, FSRs were specifically discouraged from referring loans to Sterling, (J.A. 45-46), *fn3 and ultimately, on April 27, 1993, TMC's Regional Manager Nicholas Meras issued a memorandum instructing the FSRs to stop accepting Sterling applications, (J.A. 42). It was not until May 14, 1993, (two and one half weeks after this effective termination) that TMC sent Sterling the thirty day notice of termination required under the agreement. That notice, which was properly executed, became effective June 14, 1993.
On July 26, 1993, Sterling filed a three count complaint against TMC and CMC (referred to collectively as "defendants") in the district court. The defendants filed an Answer and Counterclaim alleging that Sterling had failed to pay all of TMC's fees. Following discovery, Sterling and the defendants filed cross motions for summary judgment on Sterling's affirmative claims. *fn4 In Count I of its complaint, Sterling alleged that TMC had breached the network contract by (1) encouraging its employees to dissuade customers from choosing Sterling's loan products, and (2) by terminating the contract before providing thirty days notice. (Dist. Ct. Op. at J.A. 174.) In its summary judgment motion, TMC contended that, since the contract provision at issue simply provided that TMC "may" submit loans to Sterling, TMC was under no obligation to refer any loans to Sterling, and therefore could not be held in breach of the agreement. The district court agreed, and granted TMC's motion for summary judgment on Count I. It reasoned that, because TMC's referral of loans to Sterling was completely discretionary, Sterling was unable, as a matter of law, to establish that the agreement was breached. (Dist. Ct. Op. at J.A. 175.)
In Count III, Sterling charged that TMC's behavior breached the implied covenant of good faith and fair dealing under Connecticut law. *fn5 The court concluded that, while every contract carries this implied covenant "which requires that neither party do anything that will injure the right of the other party to receive the benefits of the agreement," such principle "cannot be applied to achieve a result contrary to the clearly expressed terms of the contract." (Dist. Ct. Op. at J.A. 176.) According to the court, "under the clearly expressed terms of the agreement . . . The Mortgage Corner had total discretion as to whether to refer loan applications to Sterling." (Dist. Ct. Op. at J.A. 176.) The court granted TMC's motion for summary judgment on Count III as well.
Sterling's Count II alleged that the defendants' steering of consumers to CMC tortiously interfered with Sterling's prospective economic relationship with both TMC and potential customers. The district court noted that the defendants had directed loan applications to CMC and had paid higher commissions on loans placed there. (Dist. Ct. Op. at J.A. 177 (citation omitted).) However, such conduct, the court reasoned, could not form the basis of a tortious interference claim in this case. Because TMC had no obligation to originate any loans with Sterling, neither defendant by its actions could have "lured away" any of Sterling's customers. Therefore, no genuine issue of material fact existed as to the "gravamen of a tortious interference claim is 'the luring away, by devious, improper and unrighteous means, of the customer of another' . . . ." (Dist. Ct. Op. at J.A. 177-78 (citation ...