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.




  • James (Jim) B. Kinsel
    Jim Kinsel is a trial attorney who focuses on business litigation and unfair business practice claims, including business conspiracies, trade secret misappropriation, fiduciary duty breaches and other business torts.



  • W. Michael (Mike) Holm
    Mike Holm is a senior trial lawyer who has represented numerous business entities in bet-the-company and other unfair business practices cases.




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Sunday, December 18, 2011

Expedited Discovery requires “Unusual Circumstances”

A recent opinion out of the Eastern District of Virginia states that “unusual circumstances” must be shown to grant a party expedited discovery. And the court adopted two prongs of the prior test for granting a preliminary injunction to determine when sufficient unusual circumstances exist: a strong showing on the merits and a showing that irreparable harm is likely.
A software development company, ForceX, Inc., sued its former vice president for allegedly forming a competing company that violated a noncompete agreement. ForceX’s complaint alleged (1) beach of duty of loyalty and fiduciary duty, (2) breach of contract, (3) violation of the Virginia uniform trade secrets act, and (4) intentional interference with contract. ForceX filed a Motion for Expedited Discovery seeking discovery in the form of requests for production of documents and a deposition to determine the extent of competitive activities. Plaintiff argued for two standards of review: one for an expedited deposition and another for expedited document requests, but the court found that “all requests for expedited discovery should be governed by the same standard....”
“Courts have found that immediate discovery ‘should be granted when some unusual circumstances or conditions exist that would likely prejudice the party if he were required to wait the normal time.’” Opinion at 5-6, quoting Fimab-Finanziaria Maglificio Biellese Fratelli Fila, S.p.A. v. Helio Import/Export, Inc., 601 F. Supp. 1, 3 (S.D. Fla. 1983).
It is not clear when these “unusual circumstances” exist. The court looked to a history of cases for guidance. Before 2008, the first two prongs of the Blackwelder test for a preliminary injunction—(1) the likelihood of irreparable harm to the plaintiff if the preliminary injunction is denied and (2) the likelihood of harm to the defendant if the preliminary injunction is granted—were weighed against the third prong—the likelihood that the plaintiff will succeed on the merits—to determine whether “unusual circumstances” existed. Opinion at 6. This test was a sliding scale so that as the plaintiff’s showing of a likelihood of irreparable harm grew weaker, their showing of success on the merits would need to be stronger to gain a preliminary injunction.
But after the Supreme Court decision in Winter v. Natural Resources Defenses Council, Inc., 555 U.S. 7 (2008), the Fourth Circuit determined that the Blackwelder test was replaced with the Winter test but did not say which portions of the Winter test a court should use when deciding a motion for expedited discovery. As a result, courts have considered two different standards in evaluating expedited discovery motions: (1) a modified preliminary injunction factors test and (2) a reasonableness or good cause test. The court in this instance rejected the reasonableness test, saying it is most logical to treat the motion for expedited discovery under a standard similar to the preliminary injunction standard.
Finding no clear answer as to when “unusual circumstances” exist, the court in the instant case used a variation of Blackwelder and considered two elements that were emphasized by the Fourth Circuit and the Supreme Court: a strong showing of the merits and a showing that irreparable harm to plaintiff is “likely” and not simply “possible.”
The court ultimately found that the ForceX was not entitled for expedited discovery. Plaintiff did not show it was likely to suffer irreparable harm in the absence of the expedited discovery. Despite Plaintiff’s argument that expedited discovery was necessary to find out about defendants’ products and potential customers in order to prevent loss of customers and business before it occurred through improper means, the court held that a potential loss of customers causing a decrease in revenue is not an unusual type of harm.
In many business litigation cases, lost profits can be a critical component of damages. Damaged companies may also be required to take steps that would mitigate their damages. But it can be difficult to take mitigating steps before discovering information about which clients were impacted by the defendant’s tortious conduct. This factor, however, must be balanced to protect a potentially innocent company from being bombarded by litigation pressure. So plaintiff companies in fast action cases, such as those involving business conspiracies, tortious inference and trade secrets, must be prepared in some courts to explain why their particular case is unusual in needing expedited discovery.