Applied Equipment Corp. v. Litton Saudi Arabia Ltd.
869 P.2d 454 | California Supreme Court | 1994
What This Case Means for Subcontractors
Applied Equipment supplied parts to Litton under a subcontract with a 26% markup. After approving a large tube purchase, Litton secretly negotiated directly with the supplier to bypass Applied and avoid paying the markup. Applied sued for conspiracy to interfere with the contract. California's Supreme Court ruled that a party cannot be sued for conspiracy to interfere with its own contract because conspiracy requires an underlying tort duty—and a contracting party has no duty not to modify or end its own agreements.
Key Takeaways
- •You cannot sue your contractor for conspiracy to interfere with your subcontract. The contractor can renegotiate with suppliers or change contract terms without exposing itself to conspiracy liability.
- •Conspiracy is not a standalone tort. It only applies when there's an underlying wrongful act. Simply working around a subcontractor's markup is not conspiracy.
- •Protect yourself by including flow-down clauses that require the prime contractor to pass through supplier agreements unchanged, or by securing direct supplier relationships and pricing locks in writing.
Conspiracy is not an independent tort; it cannot create a duty or abrogate an immunity.
Frequently Asked Question
Can I sue my contractor for conspiracy if they secretly renegotiate with my suppliers to cut me out?
No. California courts have ruled that conspiracy is not an independent tort and cannot create duties where none exist. A contractor can renegotiate its own supplier agreements without facing conspiracy liability. Your protection is a strong subcontract with flow-down clauses that lock in supplier terms and pricing.
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