Virginia's Attorney General is petitioning the U.S. Supreme Court to uphold the verdict against spammer, Jeremy Jaynes, and reverse the Virginia Supreme Court's decision rendering unconstitutional Virginia's anti-spam statute. Virginia's petition for a writ of certiorari to the U.S. Supreme Court, dated December 11, 2008, can be found here.
As we discussed in our prior posts, found here and here, Jaynes' was convicted of violating Virginia's anti-spam statute after sending millions of spam emails through AOL's computer servers. The Virginia Supreme Court declared the anti-spam statute unconstitutional after initially finding the statute constitutional. The statute was unconstitutional, the Court ultimately found, because it potentially chilled the right to anonymous speech.
It will interesting to see whether the U.S. Supreme Court hears this case since spamming is so prevalent. According to the petition, AOL servers received over one billion spam emails every day at the time of Jaynes' actions. But, Virginia is one of the few if any states that forbid any type of spam -- not just commercial spam. So if the U.S. Court reinstates the Virginia anti-spam law, other states may quickly broaden their anti-spam laws.
Monday, December 15, 2008
Friday, December 12, 2008
Breach of Fiduciary Duty -- Traps for the Unwary
Many unfair business practices cases, such as those involving conspiracies, arise out of claims that the defendants breached their fiduciary duties. So what does that mean? In Virginia, Maryland and the District of Columbia, officers, directors and employees (“Employee”) owe the company an undivided duty of loyalty. In other words, an Employee cannot allow his own self-interest to conflict with his duty to his employer. PM Services Co. v. Odoi Associates, Inc., 2006 U.S. Dist. LEXIS 655 (D.D.C. January 4, 2006); Adelman v. Conotti, 213 S.E.2d 774 (Va. 1975); Maryland Metals, Inc. v. Metzner, 382 A.2d 564 (Md. 1978). These duties are particularly significant in that they are based upon the common law and are applicable even in the absence of a written covenant not to compete.
Such claims often arise when an Employee makes plans to go to work for a competitor or form a competing company. They usually involve one of the following: (1) the departing Employee solicits other co-workers to join her at the new company; (2) the departing Employee solicits clients to follow her, thus guaranteeing immediate work and income; or (3) the Employee takes his employer’s confidential information without permission and uses it to benefit the new employer. Unless the Employee follows certain rules, such conduct may make him liable to the former employer for breach of the duty of loyalty or breach of fiduciary duty.
First, while an Employee may make plans to compete, he may not recruit his co-workers to join him while still employed if it leads to a mass resignation. Feddeman & Co. v. Langan Associates, 530 S.E.2d 668 (Va. 2000); Maryland Metals, supra; Riggs Investment Management Corp. v. Columbia Partners, LLC, 966 F. Supp. 1250 (D.D.C. 1997).
Second, the Employee may not solicit his employer’s customers to move their accounts to the new entity. Furash & Co. v. McClave, 130 F. Supp.2d 48 (D.D.C. 2001); PM Services, supra; Maryland Metals, supra; Feddeman, supra. Similarly, an individual, while still employed, may not divert to a competitor business opportunities presented to him if it is within the employer’s line of work, the employer can afford to take advantage of it and, after disclosure, the employer is interested in the opportunity. PM Services, supra.
Finally, the Employee may not use his employer’s confidential information to benefit the new employer or help it gain a competitive advantage. Furash & Co., supra; Riggs, supra; PM Services, supra; Maryland Metals, supra; Feddeman, supra. This preclusion continues after the Employee joins a new company. Bull v. Logetronics, Inc, 323 F. Supp. 115 (E.D.Va. 1971).
Of course, whether an Employee’s conduct rises to a level of breach of fiduciary duty is, in each case, very fact specific. These rules, however, seek to strike a balance between the need to protect vigorous competition and the strong policy that competition be conducted with honesty and fair dealing.
Such claims often arise when an Employee makes plans to go to work for a competitor or form a competing company. They usually involve one of the following: (1) the departing Employee solicits other co-workers to join her at the new company; (2) the departing Employee solicits clients to follow her, thus guaranteeing immediate work and income; or (3) the Employee takes his employer’s confidential information without permission and uses it to benefit the new employer. Unless the Employee follows certain rules, such conduct may make him liable to the former employer for breach of the duty of loyalty or breach of fiduciary duty.
First, while an Employee may make plans to compete, he may not recruit his co-workers to join him while still employed if it leads to a mass resignation. Feddeman & Co. v. Langan Associates, 530 S.E.2d 668 (Va. 2000); Maryland Metals, supra; Riggs Investment Management Corp. v. Columbia Partners, LLC, 966 F. Supp. 1250 (D.D.C. 1997).
Second, the Employee may not solicit his employer’s customers to move their accounts to the new entity. Furash & Co. v. McClave, 130 F. Supp.2d 48 (D.D.C. 2001); PM Services, supra; Maryland Metals, supra; Feddeman, supra. Similarly, an individual, while still employed, may not divert to a competitor business opportunities presented to him if it is within the employer’s line of work, the employer can afford to take advantage of it and, after disclosure, the employer is interested in the opportunity. PM Services, supra.
Finally, the Employee may not use his employer’s confidential information to benefit the new employer or help it gain a competitive advantage. Furash & Co., supra; Riggs, supra; PM Services, supra; Maryland Metals, supra; Feddeman, supra. This preclusion continues after the Employee joins a new company. Bull v. Logetronics, Inc, 323 F. Supp. 115 (E.D.Va. 1971).
Of course, whether an Employee’s conduct rises to a level of breach of fiduciary duty is, in each case, very fact specific. These rules, however, seek to strike a balance between the need to protect vigorous competition and the strong policy that competition be conducted with honesty and fair dealing.
Wednesday, November 19, 2008
Government Contractor Hit with $10 Million in Punitive Damages for Discriminatory Contract Termination
In a government contractor dispute between prime and subcontractor companies, a jury empanelled in the U.S. District Court for Eastern District of Virginia found that the prime contractor racially discriminated against the subcontractor, tortiously interfered with the subcontractor's employee contracts, breached the parties' contracts and breached the implied duty of good faith and fair dealing. The jury awarded over $5 million in compensatory damages and $10 million in punitive damages against the prime contractor.
The Court's September 22, 2008 opinion sets forth the evidence which the jury considered and ultimately believed in reaching the verdict. That evidence, the Court found, was sufficient to uphold the verdict. The opinion can be found here.
The plaintiffs were two related companies, World Wide Network Services, LLC and its subsidiary World Wide Network Services International (hereinafter "WWNS"). WWNS was certified as an "8(a)" small disadvantaged company. WWNS was awarded a subcontract with Defendant DynCorp International, LLC ("DynCorp") to assist DynCorp with its contracts with the U.S. Department of State in Iraq and Afghanistan.
According to the Court, "in the fall of 2005 the relationship between DynCorp and WWNS began to cool." Opinion at 7. "WWNS employees began to observe displays of racial animus towards WWNS in the form of derogatory comments . . . , as well as deliberate exclusion from planning meetings, failing to respond to e-mail requests for information and assistance . . . and failing to renew/provide WWNS employees with the proper security badges WWNS’s employees were required to have in order to perform their work and to access remote work sites. Additionally, DynCorp’s evaluations of WWNS's performance turned critical." Id.
In examining the discrimination claim filed pursuant to Section 1981, the Court maintained the burden-shifting analysis used in Title VII discrimination claims. It found that WWNS was required to show that it: "(1) is a member of a minority group; (2) was qualified to perform the obligations set forth in the subcontracts; (3) despite its qualifications and performance, it was terminated; and (4) after its termination, DynCorp retained another company from an unprotected class." Op. at 18. DynCorp would then have to "produce evidence that the plaintiff was rejected, or someone else was preferred, for a legitimate nondiscriminatory reason." Id. If those burdens were met, WWNS would have to show that DynCorp’s proffered reason was "mere pretext and that race based discrimination was the real reason" for DynCorp's actions. Id.
As to the tortuous interference with contract claim, the Court rejected DynCorp's argument that the jury's verdict was unsupported as a matter of law. DynCorp argued it did not tortiously interfere with WWNS's employment contracts because there was "no evidence that DynCorp intentionally induced any former WWNS employee to fail to provide 15 days notice of termination of their employment agreements with WWNS . . . ." Op. at 22-23. The Court found that the jury's finding was supported by the evidence of DynCorp's meeting with WWNS's employees to notify them that the subcontract "would be terminated August 11, 2006, and that as of July 26, 2006, all WWNS employees should report to DynCorp . . . ." Op. at 23. And, after receiving a letter from WWNS's counsel, DynCorp "convened another meeting . . . at which DynCorp recanted its statements . . . and notified WWNS personnel that they continued to be considered WWNS employees and would no longer work in support of the [subcontract] after August 11, 2006." "Thereafter, DynCorp began to make employment offers to select WWNS employees in Iraq in order to prevent a ‘disruption of service.'" Id.
The Court also found that there was enough evidence to support the punitive damages award and the finding that DynCorp acted with malice:
That conduct, the Court held, "demonstrates DynCorp"s intent to not only cease working with WWNS, but to destroy WWNS’s ability to continue to operate in Iraq and Afghanistan." Op. at 58.
The jury returned a verdict in favor of DynCorp for the following counts: tortious interference with prospective economic advantage, common law civil conspiracy, Virginia statutory conspiracy and a breach of contract counterclaim.
It is clear from the number of issues raised that the case was hotly contested. It is likely that the case will be appealed and the Fourth Circuit will revisit many of the District Court’s findings.
The Court's September 22, 2008 opinion sets forth the evidence which the jury considered and ultimately believed in reaching the verdict. That evidence, the Court found, was sufficient to uphold the verdict. The opinion can be found here.
The plaintiffs were two related companies, World Wide Network Services, LLC and its subsidiary World Wide Network Services International (hereinafter "WWNS"). WWNS was certified as an "8(a)" small disadvantaged company. WWNS was awarded a subcontract with Defendant DynCorp International, LLC ("DynCorp") to assist DynCorp with its contracts with the U.S. Department of State in Iraq and Afghanistan.
According to the Court, "in the fall of 2005 the relationship between DynCorp and WWNS began to cool." Opinion at 7. "WWNS employees began to observe displays of racial animus towards WWNS in the form of derogatory comments . . . , as well as deliberate exclusion from planning meetings, failing to respond to e-mail requests for information and assistance . . . and failing to renew/provide WWNS employees with the proper security badges WWNS’s employees were required to have in order to perform their work and to access remote work sites. Additionally, DynCorp’s evaluations of WWNS's performance turned critical." Id.
In examining the discrimination claim filed pursuant to Section 1981, the Court maintained the burden-shifting analysis used in Title VII discrimination claims. It found that WWNS was required to show that it: "(1) is a member of a minority group; (2) was qualified to perform the obligations set forth in the subcontracts; (3) despite its qualifications and performance, it was terminated; and (4) after its termination, DynCorp retained another company from an unprotected class." Op. at 18. DynCorp would then have to "produce evidence that the plaintiff was rejected, or someone else was preferred, for a legitimate nondiscriminatory reason." Id. If those burdens were met, WWNS would have to show that DynCorp’s proffered reason was "mere pretext and that race based discrimination was the real reason" for DynCorp's actions. Id.
As to the tortuous interference with contract claim, the Court rejected DynCorp's argument that the jury's verdict was unsupported as a matter of law. DynCorp argued it did not tortiously interfere with WWNS's employment contracts because there was "no evidence that DynCorp intentionally induced any former WWNS employee to fail to provide 15 days notice of termination of their employment agreements with WWNS . . . ." Op. at 22-23. The Court found that the jury's finding was supported by the evidence of DynCorp's meeting with WWNS's employees to notify them that the subcontract "would be terminated August 11, 2006, and that as of July 26, 2006, all WWNS employees should report to DynCorp . . . ." Op. at 23. And, after receiving a letter from WWNS's counsel, DynCorp "convened another meeting . . . at which DynCorp recanted its statements . . . and notified WWNS personnel that they continued to be considered WWNS employees and would no longer work in support of the [subcontract] after August 11, 2006." "Thereafter, DynCorp began to make employment offers to select WWNS employees in Iraq in order to prevent a ‘disruption of service.'" Id.
The Court also found that there was enough evidence to support the punitive damages award and the finding that DynCorp acted with malice:
"DynCorp’s malicious intent towards WWNS is illustrated in DynCorp's conduct during the time period leading up to and after it decided to terminate its relationship with WWNS. For example, WWNS introduced evidence at trial that [DynCorp] reached out to EDO Corporation [which was a competitor to WWNS] well before DynCorp notified WWNS of its decisions to terminate their contractual relationship. [DynCorp] hired EDO Corporation to evaluate WWNS's workmanship with the Codan Radios. [DynCorp] terminated EDO Corporation’s contract because assessments of the Codan Radio system had already been completed by another firm. However, [DynCorp] indicated in an e-mail to EDO Corporation that [it] would look for ways to work with EDO Corporation in the future. Less than one month later, and before notifying WWNS of the impending contract termination, Mr. Walsh contacted EDO Corporation and requested that the company begin planning to take over the Codan Radio network. Shortly thereafter, [DynCorp] and a representative from EDO Corporation met with [a] WWNS employee . . . . At the meeting [the WWNS employee] provided [DynCorp] and EDO Corporation with a list of WWNS employees he recommended DynCorp and EDO hire. [the WWNS employee] also provided resumes and confidential salary information to DynCorp via e-mail to DynCorp [a] employee . . . ." Op. at 57.
That conduct, the Court held, "demonstrates DynCorp"s intent to not only cease working with WWNS, but to destroy WWNS’s ability to continue to operate in Iraq and Afghanistan." Op. at 58.
The jury returned a verdict in favor of DynCorp for the following counts: tortious interference with prospective economic advantage, common law civil conspiracy, Virginia statutory conspiracy and a breach of contract counterclaim.
It is clear from the number of issues raised that the case was hotly contested. It is likely that the case will be appealed and the Fourth Circuit will revisit many of the District Court’s findings.
Wednesday, November 5, 2008
Virginia Court Limits Intra-corporate Immunity Doctrine As Defense to Conspiracy Claim
A recent decision of the United States District Court for the Eastern District of Virginia in an unfair business case sharply limited the use of the intra-corporate immunity doctrine as a defense to a conspiracy claim and refused to enforce contractual language limiting claims against officers and directors for breach of fiduciary duty. The case, The Flexible Benefits Council v. Feltman, et al., Civil Action No. 1:08-cv-371, pitted the FBC, a trade association, against Feltman, its former Executive Director, a new trade association Feltman established to directly compete with FBC, and the new trade association’s Pennsylvania-based attorney who was also its President and COO. The case involved claims for business conspiracy, breach of fiduciary duty, and interference with business, among others.
The plaintiff alleged that, while Executive Director, Feltman: (1) allowed FBC’s corporate charter in Washington, DC to lapse; (2) chartered the new trade association using the same name; (3) with the assistance of the new association’s attorney, Anthony Hawks, filed an application to register the mark “Employer’s Council on Flexible Compensation” (the FBC’s name prior to the lapse of its corporate charter) with the Patent and Trademark Office; (4) registered domain names using the acronym, “ecfc”; and (5) leased office space on the same street as plaintiff’s Washington offices with the same suite number. The FBC sued in Virginia, rather than in the District of Columbia.
The defendants sought to dismiss the case, challenging personal jurisdiction over Hawks, who was not licensed to practice law in Virginia, venue, and whether the Complaint stated a claim for relief. Several aspects of the opinion, denying the motion to dismiss, are significant to businesses and their owners, directors, officers and management. For full opinion, click here.
First, the defendants argued that the intra-corporate immunity doctrine barred the business conspiracy claim against them as they were all agents of the new trade association. Under that doctrine, because a corporation can only act through its agents, by law, it cannot conspire with those agents. This doctrine is frequently used by defendants as a bar to conspiracy claims.
In FBC, the court rejected that argument and noted that the intra-corporate immunity doctrine has a recognized exception: an employee or agent can conspire with the corporation where he or she has an “independent personal stake” in the outcome of the conspiracy. In FBC, the court found that both Feltman and Hawks were alleged to have had a personal stake in the success of the new co-defendant association, thereby satisfying the exception and allowing the case to proceed.
Second, the court rejected Feltman’s challenge to the breach of fiduciary duty claim. Feltman argued that he was exempt, under the terms of several Management Services Agreements by which he was retained by the FBC, from being sued for breach of fiduciary duty. The MSAs provided that “under no circumstances shall either party seek to hold liable the officers, directors, members, servants or agents of the other party in their personal and individual capacities on any claim or theory whatever arising under the performance, non-performance, breach, cancellation or termination of this agreement.” According to the court, however, such clauses are unenforceable “to the extent they [] limit a party’s liability for gross negligence, recklessness or intentional torts.” Moore v. Waller, 930 A.2d 176, 179 (D.C. 2006). In the FBC case, the allegations that Feltman had attempted to steal the FBC’s identity were intentional in nature, thus rendering those restrictive clauses inapplicable.
Finally, Hawks challenged whether the court had personal jurisdiction over him given that he had not physically been present in Virginia with relation to the alleged acts. Significantly, the court held that Hawks had “transacted business in Virginia” by virtue of his filing a trademark application with the Patent and Trademark Office located in Alexandria. It rejected the argument that such a filing was exempt from challenge because petitioning the federal government can not be used as a basis for personal jurisdiction. In doing so, the court found that the “government contacts” principle had been modified to allow jurisdiction over a non-resident defendant if there were sufficient allegations to make out a prima facie case that the agency proceedings had been used to perpetrate a fraud. Because it was alleged that Hawks had sworn under oath that no other firm had the right to use the trademark, even though he knew it had been used by FBC for over 20 years, the filing fell within the exception to the “government contacts” rule and was a sufficient basis for personal jurisdiction. The court also found that these acts satisfied the Constitution’s due process requirements.
This case is a cautionary tale, not only as to the reach of Virginia’s long arm statute, but as to the significant limits on the intra-corporate immunity doctrine and the enforceability of contractual clauses that are designed to limit claims for breach of fiduciary duty.
The plaintiff alleged that, while Executive Director, Feltman: (1) allowed FBC’s corporate charter in Washington, DC to lapse; (2) chartered the new trade association using the same name; (3) with the assistance of the new association’s attorney, Anthony Hawks, filed an application to register the mark “Employer’s Council on Flexible Compensation” (the FBC’s name prior to the lapse of its corporate charter) with the Patent and Trademark Office; (4) registered domain names using the acronym, “ecfc”; and (5) leased office space on the same street as plaintiff’s Washington offices with the same suite number. The FBC sued in Virginia, rather than in the District of Columbia.
The defendants sought to dismiss the case, challenging personal jurisdiction over Hawks, who was not licensed to practice law in Virginia, venue, and whether the Complaint stated a claim for relief. Several aspects of the opinion, denying the motion to dismiss, are significant to businesses and their owners, directors, officers and management. For full opinion, click here.
First, the defendants argued that the intra-corporate immunity doctrine barred the business conspiracy claim against them as they were all agents of the new trade association. Under that doctrine, because a corporation can only act through its agents, by law, it cannot conspire with those agents. This doctrine is frequently used by defendants as a bar to conspiracy claims.
In FBC, the court rejected that argument and noted that the intra-corporate immunity doctrine has a recognized exception: an employee or agent can conspire with the corporation where he or she has an “independent personal stake” in the outcome of the conspiracy. In FBC, the court found that both Feltman and Hawks were alleged to have had a personal stake in the success of the new co-defendant association, thereby satisfying the exception and allowing the case to proceed.
Second, the court rejected Feltman’s challenge to the breach of fiduciary duty claim. Feltman argued that he was exempt, under the terms of several Management Services Agreements by which he was retained by the FBC, from being sued for breach of fiduciary duty. The MSAs provided that “under no circumstances shall either party seek to hold liable the officers, directors, members, servants or agents of the other party in their personal and individual capacities on any claim or theory whatever arising under the performance, non-performance, breach, cancellation or termination of this agreement.” According to the court, however, such clauses are unenforceable “to the extent they [] limit a party’s liability for gross negligence, recklessness or intentional torts.” Moore v. Waller, 930 A.2d 176, 179 (D.C. 2006). In the FBC case, the allegations that Feltman had attempted to steal the FBC’s identity were intentional in nature, thus rendering those restrictive clauses inapplicable.
Finally, Hawks challenged whether the court had personal jurisdiction over him given that he had not physically been present in Virginia with relation to the alleged acts. Significantly, the court held that Hawks had “transacted business in Virginia” by virtue of his filing a trademark application with the Patent and Trademark Office located in Alexandria. It rejected the argument that such a filing was exempt from challenge because petitioning the federal government can not be used as a basis for personal jurisdiction. In doing so, the court found that the “government contacts” principle had been modified to allow jurisdiction over a non-resident defendant if there were sufficient allegations to make out a prima facie case that the agency proceedings had been used to perpetrate a fraud. Because it was alleged that Hawks had sworn under oath that no other firm had the right to use the trademark, even though he knew it had been used by FBC for over 20 years, the filing fell within the exception to the “government contacts” rule and was a sufficient basis for personal jurisdiction. The court also found that these acts satisfied the Constitution’s due process requirements.
This case is a cautionary tale, not only as to the reach of Virginia’s long arm statute, but as to the significant limits on the intra-corporate immunity doctrine and the enforceability of contractual clauses that are designed to limit claims for breach of fiduciary duty.
Thursday, October 30, 2008
Virginia Supreme Court Overturns Virginia's Anti-Spamming Law
In a rare move, the Supreme Court of Virginia withdrew its prior opinion in Jaynes v. Commonwealth, issued on February 29, 2008, and effectively reversed itself in a new opinion issued on September 12, 2008. The new opinion can be found at http://www.courts.state.va.us/opinions/opnscvwp/1062388.pdf. In its new opinion, the Court found that Virginia’s anti-spamming law, Virginia Code section 18.2-152.3:1, was unconstitutional.
The Court's original 4-3 majority opinion, discussed in our prior blog entry, affirmed the criminal conviction of Jeremy Jaynes, who sent over 50,000 unsolicited email to AOL subscribers. Jaynes was found guilty in a jury trial and sentenced to nine years of imprisonment for violating Virginia Code section 18.2-152.3:1. See our prior blog post: http://unfairbusinesspractices.blogspot.com/2008/03/spammer-to-slammer-unfair-business-of.html. The withdrawn opinion can be found at this link: here.
The Court issued its new opinion after granting a petition for rehearing pursuant to Rule 5:39 of the Rules of Supreme Court of Virginia. That Rule provides that: "No petition for rehearing shall be allowed unless one of the justices who decided the case adversely to the applicant is of opinion that there is good cause for such rehearing."
The Court's new opinion declared that section 18.2-152.3:1 was unconstitutionally overbroad because it violated the U.S. Constitution's First Amendment protections. Section 18.2-152.3:1 provides that "Any person who: 1. Uses a computer or computer network with the intent to falsify or forge electronic mail transmission information or other routing information in any manner in connection with the transmission of unsolicited bulk electronic mail through or into the computer network of an electronic mail service provider or its subscribers . . . is guilty . . . ."
The Court first explained the constitutional test: a successful First Amendment overbreath challenge "suffices to invalidate all enforcement of that law upon showing that the law punishes a substantial amount of protected free speech, judged in relation to the statute’s plainly legitimate sweep." Op. at 10 (internal quotes omitted).
The Court expressed its concern that the statute chilled the protected right of anonymous speech:
Id. at 22 (internal quotations omitted). The Court also found that the statute was not narrowly drawn to further a compelling state interest. Id. at 23.
The Justices seemed to suggest that the Virginia legislature could redraft the statute to avoid constitutional infirmity: Sec. 18.2-152.3:1 "is not limited to instances of commercial or fraudulent transmission of e-mail, nor is it restricted to transmission of illegal or otherwise unprotected speech such as pornography or defamation speech. Therefore, . . . 18.2-152.3:1 is not narrowly tailored to protect the compelling interests advanced by the Commonwealth." Id. at 24.
Further, the statute "would prohibit all bulk e-mail containing anonymous political, religious, or other expressive speech. For example, were the Federalist Papers just being published today via e-mail, that transmission by Publius would violate the statute." Id. at 26.
The Court's concern about suppressing free speech tracked those expressed by the dissenting Justices to the Court's original opinion. In her dissenting opinion, Justice Elizabeth Lacy wrote that the "current use of the Internet as the marketplace for expressing political ideas, views and positions emphasizes the need for insuring that use of this medium not be chilled by the threat of criminal prosecution. Those persons wishing to use this medium should have the same ability to express their views anonymously as did Thomas Paine during the founding of our country." Jaynes v. Commonwealth, 275 Va. 341, 367-68 (2008).
The new opinion also addressed the Commonwealth of Virginia's argument that 18.2-152.3:1 was in the "form of trespass and thus not entitled to First Amendment protection," noting that section "does not prohibit the unauthorized use of privately owned e-mail servers." Op. at 19. In this context, the Court drew a distinction between civil cases between private parties where "the courts have held that the unauthorized use of the Internet service providers' property constituted common law trespass and that a First Amendment claim could not be raised against the owner of private property." Id. at 20. Thus, this decision is not an open invitation to spammers or other types of businesses to engage in unfair business practices by wrongfully using another company's servers or other computer equipment.
The Court's original 4-3 majority opinion, discussed in our prior blog entry, affirmed the criminal conviction of Jeremy Jaynes, who sent over 50,000 unsolicited email to AOL subscribers. Jaynes was found guilty in a jury trial and sentenced to nine years of imprisonment for violating Virginia Code section 18.2-152.3:1. See our prior blog post: http://unfairbusinesspractices.blogspot.com/2008/03/spammer-to-slammer-unfair-business-of.html. The withdrawn opinion can be found at this link: here.
The Court issued its new opinion after granting a petition for rehearing pursuant to Rule 5:39 of the Rules of Supreme Court of Virginia. That Rule provides that: "No petition for rehearing shall be allowed unless one of the justices who decided the case adversely to the applicant is of opinion that there is good cause for such rehearing."
The Court's new opinion declared that section 18.2-152.3:1 was unconstitutionally overbroad because it violated the U.S. Constitution's First Amendment protections. Section 18.2-152.3:1 provides that "Any person who: 1. Uses a computer or computer network with the intent to falsify or forge electronic mail transmission information or other routing information in any manner in connection with the transmission of unsolicited bulk electronic mail through or into the computer network of an electronic mail service provider or its subscribers . . . is guilty . . . ."
The Court first explained the constitutional test: a successful First Amendment overbreath challenge "suffices to invalidate all enforcement of that law upon showing that the law punishes a substantial amount of protected free speech, judged in relation to the statute’s plainly legitimate sweep." Op. at 10 (internal quotes omitted).
The Court expressed its concern that the statute chilled the protected right of anonymous speech:
[B]ecause e-mail transmission protocol requires entry of an IP address and domain name for the sender, the only way such a speaker can publish an anonymous e-mail is to enter a false IP address or domain name. Therefore, . . . registered IP addresses and domain names discoverable through searchable data bases and registration documents necessarily result in a surrender of the speaker’s anonymity. The right to engage in anonymous speech, particularly anonymous political or religious speech, is an aspect of the freedom of speech protected by the First Amendment. By prohibiting false routing information in the dissemination of e-mails, Code [sec.] 18.2-152.3:1 infringes on that protected right.
Id. at 22 (internal quotations omitted). The Court also found that the statute was not narrowly drawn to further a compelling state interest. Id. at 23.
The Justices seemed to suggest that the Virginia legislature could redraft the statute to avoid constitutional infirmity: Sec. 18.2-152.3:1 "is not limited to instances of commercial or fraudulent transmission of e-mail, nor is it restricted to transmission of illegal or otherwise unprotected speech such as pornography or defamation speech. Therefore, . . . 18.2-152.3:1 is not narrowly tailored to protect the compelling interests advanced by the Commonwealth." Id. at 24.
Further, the statute "would prohibit all bulk e-mail containing anonymous political, religious, or other expressive speech. For example, were the Federalist Papers just being published today via e-mail, that transmission by Publius would violate the statute." Id. at 26.
The Court's concern about suppressing free speech tracked those expressed by the dissenting Justices to the Court's original opinion. In her dissenting opinion, Justice Elizabeth Lacy wrote that the "current use of the Internet as the marketplace for expressing political ideas, views and positions emphasizes the need for insuring that use of this medium not be chilled by the threat of criminal prosecution. Those persons wishing to use this medium should have the same ability to express their views anonymously as did Thomas Paine during the founding of our country." Jaynes v. Commonwealth, 275 Va. 341, 367-68 (2008).
The new opinion also addressed the Commonwealth of Virginia's argument that 18.2-152.3:1 was in the "form of trespass and thus not entitled to First Amendment protection," noting that section "does not prohibit the unauthorized use of privately owned e-mail servers." Op. at 19. In this context, the Court drew a distinction between civil cases between private parties where "the courts have held that the unauthorized use of the Internet service providers' property constituted common law trespass and that a First Amendment claim could not be raised against the owner of private property." Id. at 20. Thus, this decision is not an open invitation to spammers or other types of businesses to engage in unfair business practices by wrongfully using another company's servers or other computer equipment.
Monday, October 27, 2008
Same Blog but New Look
Mike Holm and I are pleased to join the law firm Williams Mullen. We have given the blog a new look to provide the reader with links to our new profiles and Williams Mullen's website resources. While the look is different, our focus on unfair business practices remains the same. Mike and I look forward to continuing this blog and we will add new content shortly. Thank you for your readership.
Sunday, June 1, 2008
Virginia Business Conspiracy Claim Dismissed Because Alleged Injury was to Individual’s Employment Interests and Not to Business Interests
The U.S. District Court for the Eastern District of Virginia dismissed a Virginia statutory business conspiracy claim, holding that the plaintiff's alleged harm of losing his job is a "personal right as opposed to a business interest." And, damages to a person's "employment relation" are not actionable under Virginia Code sections 18.2-499 and 500.
In Mansfield v. Anesthesia Associates, Ltd., 2008 WL 1924029 (E.D.Va. 2008), published on April 28, 2008, the Court addressed a business conspiracy claim filed by Patrick Mansfield, M.D, who was a Board Certified anesthesiologist and an employee and shareholder of Anesthesia Associates, Ltd. Mansfield worked for Anesthesia Associates in Inova Alexandria Hospital ("Inova Hospital"). See http://www.williamsmullen.com/files/upload/ubp_blog060308.pdf .
On June 17, 2005, Mansfield was informed that an Inova Hospital employee had accused Mansfield of sexually harassment. On July 5, Mansfield met with the Chairman of Anesthesia Associates who handed Mansfield a letter from Inova Hospital that "claimed that [Mansfield] had been accused of sexual harassment by an employee of Inova, the charges had been investigated, and Inova had concluded that Plaintiff posed a threat to the safety and security of Inova staff." On the basis of this allegation, Anesthesia Associates eventually terminated Mansfield.
Subsequently, Mansfield filed his lawsuit against Anesthesia Associates and Inova Hospital in Virginia state court. The defendants removed the case to federal court. Mansfield alleged that "Defendants did purposely and maliciously interfere with the Plaintiff's Contract of Employment with Anesthesia Associates, Ltd and that the Plaintiff's loss of contract was the anticipated outcome, if not the expressed purpose of removing him from both the defendant Association and Inova Alexandria Hospital."
In examining Mansfield business conspiracy claim, the Court first repeated the standards for recovery: section "18.2-499 makes it a Class 1 misdemeanor to conspire to 'willfully and maliciously injur[e] another in his reputation, trade, business or profession by any means whatever.' To recover in an action for conspiracy to harm a business, a plaintiff must prove: (1) a combination of two or more persons for the purpose of willfully and maliciously injuring the plaintiff in his business; and (2) resulting damage to the plaintiff.” Citations omitted.
The Court then analyzed whether the statutes could provide any relief to Mansfield:
The court rejected Mansfield argument that "his claim is not that he 'lost his job' but that 'he has lost the ability to pursue his profession,' and that injury to one's 'profession' is a recoverable injury under the statutes."
The Court also held that even if the statutes recognized the claimed injury, Mansfield conspiracy claim was deficient because his allegations were conclusory. Specifically, Mansfield failed to allege any agreement between Inova Hospital and Anesthesia Associates to injure him.
This case is a good illustration of the limits of the Virginia business conspiracy statutes because they are not designed to remedy every injury. Further, Courts are increasingly examining the factual allegations to ensure that an actual conspiracy has been plead.
In Mansfield v. Anesthesia Associates, Ltd., 2008 WL 1924029 (E.D.Va. 2008), published on April 28, 2008, the Court addressed a business conspiracy claim filed by Patrick Mansfield, M.D, who was a Board Certified anesthesiologist and an employee and shareholder of Anesthesia Associates, Ltd. Mansfield worked for Anesthesia Associates in Inova Alexandria Hospital ("Inova Hospital"). See http://www.williamsmullen.com/files/upload/ubp_blog060308.pdf .
On June 17, 2005, Mansfield was informed that an Inova Hospital employee had accused Mansfield of sexually harassment. On July 5, Mansfield met with the Chairman of Anesthesia Associates who handed Mansfield a letter from Inova Hospital that "claimed that [Mansfield] had been accused of sexual harassment by an employee of Inova, the charges had been investigated, and Inova had concluded that Plaintiff posed a threat to the safety and security of Inova staff." On the basis of this allegation, Anesthesia Associates eventually terminated Mansfield.
Subsequently, Mansfield filed his lawsuit against Anesthesia Associates and Inova Hospital in Virginia state court. The defendants removed the case to federal court. Mansfield alleged that "Defendants did purposely and maliciously interfere with the Plaintiff's Contract of Employment with Anesthesia Associates, Ltd and that the Plaintiff's loss of contract was the anticipated outcome, if not the expressed purpose of removing him from both the defendant Association and Inova Alexandria Hospital."
In examining Mansfield business conspiracy claim, the Court first repeated the standards for recovery: section "18.2-499 makes it a Class 1 misdemeanor to conspire to 'willfully and maliciously injur[e] another in his reputation, trade, business or profession by any means whatever.' To recover in an action for conspiracy to harm a business, a plaintiff must prove: (1) a combination of two or more persons for the purpose of willfully and maliciously injuring the plaintiff in his business; and (2) resulting damage to the plaintiff.” Citations omitted.
The Court then analyzed whether the statutes could provide any relief to Mansfield:
Federal courts in Virginia have consistently held that the statutes are designed to provide relief against 'conspiracies resulting in business-related damages' and that a cause of action exists 'only when malicious conduct is directed at one's business, not one's person.' Courts have characterized the 'employment relation' as 'a personal right as opposed to a business interest' and have consequently placed employment interests outside the reach of [sections 18.2-499 and -500]. Similarly, an individual's 'professional reputation and stock ownership in his own company' have been found to be employment interests that fall outside the scope of the statutes. [Citations omittted.]The court also noted that the "Supreme Court of Virginia has also reached the conclusion that 'personal reputation' and 'interest in employment' are excluded from the scope of the statutes' coverage." Andrews v. Ring, 585 S.E.2d 780, 784 (Va. 2003).
The court rejected Mansfield argument that "his claim is not that he 'lost his job' but that 'he has lost the ability to pursue his profession,' and that injury to one's 'profession' is a recoverable injury under the statutes."
The Court also held that even if the statutes recognized the claimed injury, Mansfield conspiracy claim was deficient because his allegations were conclusory. Specifically, Mansfield failed to allege any agreement between Inova Hospital and Anesthesia Associates to injure him.
This case is a good illustration of the limits of the Virginia business conspiracy statutes because they are not designed to remedy every injury. Further, Courts are increasingly examining the factual allegations to ensure that an actual conspiracy has been plead.
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