Protorae Law
Mike Holm | LeClairRyan | UBP Team

Unfair Business Practices



This blog focuses on unfair business and trade practices such as business conspiracy, breach of fiduciary duty, misappropriation of trade secrets and other proprietary information, fraud, tortious interference with contracts and other unfair business practices that are not neatly defined. Since we are located in Tysons Corner, Virginia, many of the cases discussed will come from Virginia, Maryland and the District of Columbia courts. We hope the reader finds this blog instructive.

Thursday, June 18, 2009

D.C. Court Dismisses Case Alleging Interference With Business Expectancy For Failure To Name Names

A recent decision from the United States District Court for the District of Columbia highlights the importance of pleading specific facts in support of unfair business practices claims to survive a Motion to Dismiss. In Command Consulting Group, LLC v. Neuraliq, Inc., 2009 U.S. Dist. Lexis 48082 (D.D.C. June 9, 2009), click here, the defendant counterclaimed for, among other things, interference with prospective business advantage and breach of fiduciary duty arising out of a government contracts consulting agreement.

Apparently, the plaintiff entered into a consulting agreement with the defendant pursuant to which he agreed to assist the defendant in developing business in the federal government defense community. When the plaintiff sued for unpaid fees, the defendant counterclaimed, alleging that the plaintiff used confidential information obtained from the defendant to interfere with the defendant's business. The plaintiff then moved to dismiss two of the claims.

The court first addressed the pleading requirements for the claim of interference with a prospective business advantage under D.C. law. That claim requires: "(1) the existence of a valid business relationship or expectancy, (2) knowledge of the relationship or expectancy on the part of the interferer, (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy, and (4) resultant damages. Valid business expectancies that are "commercially reasonable" include "lost future contracts and lost opportunities to obtain customers. In addition, the plaintiff must make a strong showing of intent to "disrupt a business relationship or expectancy to establish a claim for interference." Intent can be shown if the conduct is egregious, such as libel, slander, physical coercion and fraud.

Here, the court found that the allegations were both unspecific and conclusory, thus failing to meet the standard required to allow the claim to proceed. Perhaps most notable is the requirement under D.C. law that the claimant must plead the particulars of the valid business expectancy, including the names of the third parties with which the claimant had the relationship or expectancy. Simply alleging categories of relationships that may have been affected is inadequate.

The court found similar flaws in the allegations supporting the claim for breach of fiduciary duty. Preliminarily, the court noted that, even though the relationship between the consultant and his client arose out of a written contract, "where circumstances show that the parties extended their relationship beyond the limits of the contractual obligations to a relationship founded upon trust and confidence" a fiduciary duty may exist. Here, the client alleged that the duty arose because "in its capacity as a consultant to the defendant, the plaintiff was privy to sensitive, confidential and proprietary information, including financial information."

Despite alleging that the plaintiff used that information "as part of a scheme to disrupt the operation and ownership of [the defendant], with the objective ... [of placing] financial pressure on [the defendant] that would force [the defendant] to enter business deals favorable" to individuals aligned with the plaintiff "and/or [to] gain control of [the defendant] for the benefit of [the plaintiff] and its co-conspirators" the court found those allegations deficient. It noted the defendant had failed to allege: (1) specific information regarding the confidential information wrongfully used, (2) that the defendant entered into any specific deals as a result of the pressure exerted by the plaintiff, and (3) that the defendant suffered any injury as a result of that pressure. Additionally, the defendant failed to allege that the efforts of the plaintiff to gain control of the defendant resulted in any injury. Accordingly, the court granted the Motion to Dismiss.

This case points out the importance of carefully crafted, factual-laden pleadings. Two recent Supreme Court decisions, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009), significantly tightened the pleading requirements in civil cases. Under the new standards, federal complaints must allege sufficient facts, that when accepted as true for purposes of a motion to dismiss, "state a claim to relief that is plausible on its face." Id. at 1949. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. In short, mere recitals of the elements of a cause of action, accompanied by conclusory statements, fail the test.

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