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Court: Trader Joe's Can't Interfere with Middleman's Contract

(Hey, there's an open secret about Trader Joe's products: they aren't all Trader Joe's.)

It started to come out in a book several years ago, courtesy of a former company insider and marketing executive. Mark Gardiner spells out how "one of America's most secretive companies built the strongest brand in its category."

Now another Trader Joe's secret is out. In Redfearn v. Trader Joe's Company, a California appeals court said the company may be liable for interfering with a food broker's contract to go directly to suppliers.

Broker Fees

According to the Second District Court of Appeal, the plaintiff alleged that Trader Joe's pressured two suppliers to stop using the broker. Trader Joe's allegedly then purchased food products directly from the suppliers to get around the broker's fees.

A trial court threw out the plaintiff's case, sustaining a demurrer without leave to amend, saying Trader Joe's could not be liable for interfering with its own broker and suppliers. But the appeals court disagreed.

"A nonparty to a contract that contemplates the nonparty's performance, by that fact alone, is not immune from liability for contract interference," the panel said.

Citing Applied Equipment Corp. v. Litton Saudi Arabia Ltd., the Second District said liability for intentional interference with a contract applies only to an "outsider" or "a stranger to a contract." That case defined an outsider, or stranger, as one with "no legitimate social or economic interest in the contractual relationship."

"A Stranger"

But, the appeals court said, Allied did not suggest a contractor could directly interfere with a purchase order between its subcontractor and a third party supplier.

"[W]e conclude that one, like Trader Joe's here, who is not a party to the contract or an agent of a party to the contract is a "stranger" for purpose of the tort of intentional interference with contract," the judges said.

The appellate panel reversed, remanded with instructions to vacate the trial court's ruling, and ordered that the plaintiff recover its costs on appeal.

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