The Virginia Supreme Court in Banks v. Mario Industries of Virginia, Inc., 650 S.E.2d 687 (2007), http://www.courts.state.va.us/opinions/opnscvwp/1061348.pdf, threw a bone to companies which have lost employees to newly formed competitors by weakening the quantum of proof necessary to demonstrate "actual malice" that would support an award of punitive damages in such situations.
Mario Industries manufactures and sells lighting products in part to hotels, nursing homes and governmental entities. Troy Cook managed its contract sales division from 1995 to 2003. Bette Banks was Mario’s sales rep in Virginia, Maryland and DC and the Darnell Group was a sales organization that acted as Mario's sales rep in Illinois and Michigan during the time in question.
According to the opinion, Cook and another individual who had previously been employed by another Mario company formed Renaissance Contract Lighting and Furnishings, Inc. in March 2003. The business plan prepared for Renaissance contained Mario's confidential information regarding growth rates, sales totals, past projects, target price points for customers, profit margins, vendor lists, key accounts and suppliers, marketing plans and strategies, production costs, commissions, trade secrets and intellectual property. This information enabled Renaissance to become highly competitive with Mario.
The evidence also indicated that Cook spoke to at least three Mario employees while still employed by Mario about Renaissance. And, Cook used his computer at Mario to draft documents relating to the formation of Renaissance. From March, 2003 until he resigned in November 2003, Cook was employed both by Renaissance and Mario. During this time and after he resigned, Cook encouraged other Mario employees to send opportunities to Renaissance. Among those who did so were Banks and Darnell.
Mario brought several lawsuits against all of the above, which were consolidated for trial, under theories of tortious interference with business relations, common law and statutory conspiracy, breach of fiduciary duty, misappropriation of trade secrets and conversion. Mario prevailed at trial on all counts except business conspiracy. In addition to compensatory damages, the jury awarded $56,700 in punitive damages.
One of the most interesting and far reaching aspects of the opinion relates to the quantum of proof necessary to establish actual malice that would support an award of punitive damages. The jury was instructed that "actual malice" is "a sinister or corrupt motive such as hatred, personal spite, ill will, or a desire to injure the plaintiff." The Court held evidence that Cook had formed Renaissance while he was employed at Mario with the intention that it would compete with Mario was sufficient for the jury to conclude that Cook had the requisite malice to injure Mario. Thus, the award of punitive damages was allowed to stand.
This holding is significant because it blurs the line between "actual malice" necessary for the recovery of punitive damages and "legal malice" which is the standard required to prevail under the Virginia business conspiracy statute. As the Supreme Court noted in Advanced Marine Enterprises, Inc. v. PRC, Inc., 501 S.E.2d 148 (Va. 1998), http://www.courts.state.va.us/opinions/opnscvwp/1971950.doc, to prevail under the conspiracy statute, it is not necessary "to prove that a conspirator's primary and overriding purpose is to injure another in his trade or business. (citations omitted) Rather,... these statutes merely require proof of legal malice, that is proof that the defendant acted intentionally, purposefully and without lawful justification." "Without lawful justification" can include breach of fiduciary duty or assisting someone to do so. See Feddeman & Co. v. Langan Associates, 530 S.E.2d 668 (Va. 2000), http://www.courts.state.va.us/opinions/opnscvwp/1991996.doc .
On its face, it would seem that the evidence the Court found persuasive in Banks was more akin to that necessary to establish "legal malice". In many cases, an employee, in an effort to minimize risk, will form a competing company while still employed by the original employer. It now appears, however, that, if that new company is designed to compete with the former employer, such facts are sufficient to allow a jury to find "actual malice" that will support an award of punitive damages. In the context of a statutory business conspiracy suit, this provides a plaintiff with an extra arsenal. Given that punitive damages are available in such a case if there is a separate claim that will support such an award, and are not preempted by the trebling of damages provided in the statute, in the routine case punitive damages may now be a realistic threat.
Thursday, January 31, 2008
Thursday, January 17, 2008
Where is the Proof?
Yes, it is exciting to build a case using electronic documents, such as user-files (e.g. word processing programs) and electronically transmitted communications (e.g. e-mails). Few, if any, discovery issues in the last decade has spawned more opinions, articles and committee work than electronic discovery. The websites for The Sedona Conference and the Federal Judicial Center offer excellent starting points for the electronic discovery expert and novice alike. http://www.sedonaconference.com/; http://www.fjc.gov/public/home.nsf/autoframe?openform&url_l=/public/home.nsf/inavgeneral?openpage&url_r=/public/home.nsf/pages/196
But, somewhat surprisingly, there are far fewer cases and secondary sources discussing the standards for admitting electronic documents into evidence. The Court in Lorraine v. Markel American Ins. Co., 241 F.R.D. 534 (D.Md. 2007), recognized both the relative scarcity of court opinions addressing admissibility standards and the different approaches taken by those courts. See http://www.lexisnexis.com/applieddiscovery/lawlibrary/LorraineVMarkel_ESI_Opinion.pdf.
Lorraine drives home the point that parties cannot assume that a jury or trial judge will ever see the proverbial smoking gun e-mail or other electronic document. In state courts, in particular, litigants may not be able to cite any jurisdictional rules or cases that provide the judge with an admissibility test. In business conspiracy and other unfair business practices cases, this uncertainty can be particularly challenging. This is because e-mails and user-files oftentimes store the majority of a company’s communications and knowledge. Thus, litigants who are unprepared to meet the most exacting admissibility standards may find themselves unable to counter their opponent's evidence. This creates a powerful incentive for opposing parties to stipulate to a protocol governing the admissibility of electronic evidence to remove the uncertainty.
Counsel is well advised to focus on admissibility issues early in discovery. By doing so, counsel can establish the foundational requirements needed to authenticate electronic documents and overcome any hearsay objections. It also stimulates dialogue between counsel regarding whether counsel can stipulate early-on to certain evidentiary issues.
But, somewhat surprisingly, there are far fewer cases and secondary sources discussing the standards for admitting electronic documents into evidence. The Court in Lorraine v. Markel American Ins. Co., 241 F.R.D. 534 (D.Md. 2007), recognized both the relative scarcity of court opinions addressing admissibility standards and the different approaches taken by those courts. See http://www.lexisnexis.com/applieddiscovery/lawlibrary/LorraineVMarkel_ESI_Opinion.pdf.
Lorraine drives home the point that parties cannot assume that a jury or trial judge will ever see the proverbial smoking gun e-mail or other electronic document. In state courts, in particular, litigants may not be able to cite any jurisdictional rules or cases that provide the judge with an admissibility test. In business conspiracy and other unfair business practices cases, this uncertainty can be particularly challenging. This is because e-mails and user-files oftentimes store the majority of a company’s communications and knowledge. Thus, litigants who are unprepared to meet the most exacting admissibility standards may find themselves unable to counter their opponent's evidence. This creates a powerful incentive for opposing parties to stipulate to a protocol governing the admissibility of electronic evidence to remove the uncertainty.
Counsel is well advised to focus on admissibility issues early in discovery. By doing so, counsel can establish the foundational requirements needed to authenticate electronic documents and overcome any hearsay objections. It also stimulates dialogue between counsel regarding whether counsel can stipulate early-on to certain evidentiary issues.
Monday, January 7, 2008
Don't Forget About Damages
The Virginia Business Conspiracy Statute, § 18.2-500, provides that the damages recoverable may include the business' lost profits. As the plaintiff in Saks Fifth Avenue, Inc. v. James, Ltd., 272 Va. 177, 630 S.E.2d 304 (2006) http://www.courts.state.va.us/opinions/opnscvwp/1051613.pdf learned the hard way, however, such a recovery is not simple.
James, Ltd., is a high-end retailer of men's clothing that operated a store at Tysons Corner, Virginia. Douglas Thompson had been the highest grossing salesman at that store. After 17 years, Thompson, an at-will employee, resigned and became employed by Saks Fifth Avenue also located at Tysons Corner. James sued, alleging that Thompson had taken his list of customers from James and used that information in a way that breached his fiduciary duty and interfered with James' relationships with those clients. James also alleged that Thompson and Saks had engaged in a conspiracy to injure James’ business.
After a bench trial, the court entered judgment against Saks and Thompson and awarded James $1,645,833 in damages, plus attorneys' fees and expenses.
On appeal to the Virginia Supreme Court, the defendants challenged the trial court’s award of damages arguing that James had failed to prove both causation and the amount of damages with reasonable certainty. The appellate court did not address the reasonable certainty issue because it reversed the judgment on the basis of lack of proof of causation.
The Supreme Court noted the long standing requirement in Virginia that a plaintiff prove two elements of a damages claim. First, there must be proof of a causal connection between the damages sought and the wrongful conduct. Second, the plaintiff must prove the amount of damages using both a factual foundation and accepted method for calculating damages.
As to the first element, proximate causation is required. The Court accepted the trial court’s findings that James had demonstrated that Thompson violated his fiduciary duty to James by taking and using confidential information to benefit Saks and that Saks was liable for essentially aiding and abetting Thompson’s conduct. The Court found, however, that James failed to connect its damages to that specific conduct. In particular, James’ expert witness failed to consider whether any of Thompson's clients actually shopped at Saks after Thompson became employed there, whether Thompson’s customers were regulars or "walk-in" types and any historic attrition levels. Instead, James’ expert merely assumed that all of Thompson’s customers would have remained loyal to James had Thompson not resigned. His calculation of lost profits was thus based on an assumption of what James' profits would have been had Thompson remained employed there. Under his analysis, James' damages would have been the same had Thompson merely retired.
Having found that James failed to demonstrate any causal connection between the defendants' conduct and its damages, the Supreme Court reversed and entered final judgment for the defendants. The case is significant as a reminder to litigants that proof of lost profits damages requires a factual basis that links the wrongful conduct at issue to the quantum of damages sought in the litigation.
James, Ltd., is a high-end retailer of men's clothing that operated a store at Tysons Corner, Virginia. Douglas Thompson had been the highest grossing salesman at that store. After 17 years, Thompson, an at-will employee, resigned and became employed by Saks Fifth Avenue also located at Tysons Corner. James sued, alleging that Thompson had taken his list of customers from James and used that information in a way that breached his fiduciary duty and interfered with James' relationships with those clients. James also alleged that Thompson and Saks had engaged in a conspiracy to injure James’ business.
After a bench trial, the court entered judgment against Saks and Thompson and awarded James $1,645,833 in damages, plus attorneys' fees and expenses.
On appeal to the Virginia Supreme Court, the defendants challenged the trial court’s award of damages arguing that James had failed to prove both causation and the amount of damages with reasonable certainty. The appellate court did not address the reasonable certainty issue because it reversed the judgment on the basis of lack of proof of causation.
The Supreme Court noted the long standing requirement in Virginia that a plaintiff prove two elements of a damages claim. First, there must be proof of a causal connection between the damages sought and the wrongful conduct. Second, the plaintiff must prove the amount of damages using both a factual foundation and accepted method for calculating damages.
As to the first element, proximate causation is required. The Court accepted the trial court’s findings that James had demonstrated that Thompson violated his fiduciary duty to James by taking and using confidential information to benefit Saks and that Saks was liable for essentially aiding and abetting Thompson’s conduct. The Court found, however, that James failed to connect its damages to that specific conduct. In particular, James’ expert witness failed to consider whether any of Thompson's clients actually shopped at Saks after Thompson became employed there, whether Thompson’s customers were regulars or "walk-in" types and any historic attrition levels. Instead, James’ expert merely assumed that all of Thompson’s customers would have remained loyal to James had Thompson not resigned. His calculation of lost profits was thus based on an assumption of what James' profits would have been had Thompson remained employed there. Under his analysis, James' damages would have been the same had Thompson merely retired.
Having found that James failed to demonstrate any causal connection between the defendants' conduct and its damages, the Supreme Court reversed and entered final judgment for the defendants. The case is significant as a reminder to litigants that proof of lost profits damages requires a factual basis that links the wrongful conduct at issue to the quantum of damages sought in the litigation.
Friday, January 4, 2008
The Rough-and-Tumble Business World
Laws are designed to control, but not displace, the competitive marketplace. Correspondingly, most loss economic opportunities do not provide the losing party with a legal remedy. Take, for example, the Virginia Supreme Court’s ruling in Williams v. Dominion Technology Partners, L.L.C. http://www.courts.state.va.us/opinions/opnscvtx/1020392.txt. Williams involved a three-tiered employee placement arrangement whereby Donald Williams was placed at Stihl, Inc. by his employer, Dominion Technology Partners, L.L.C., which paid Williams $80/hour and billed his services at $115/hour to a third company, ACSYS Information Technology, Inc. ACSYS, in turn, contracted directly with Stihl for Williams' services at a rate of $165/hour. While performing the contract, Williams discovered that his employer, Dominion, was making a profit of $35 per hour from his services. He then approached ACSYS about leaving Dominion and working directly for them on the Stihl contract for a pay raise, thereby eliminating Dominion's middle-man role. After Williams gave Dominion a 30-day notice, ACSYS hired him as its employee and kept him on the Stihl contract for a $35/hour raise.
Dominion sued Williams alleging a breach of fiduciary duty, interference with business relationships, and statutory business conspiracy. Interestingly, Dominion did not name ACSYS as defendant even though it alleged ACSYS was Williams co-conspirator. The case went to trial, and the jury returned a verdict against Williams on all three counts. The judge trebled the damages and awarded attorneys' fees under the Virginia business conspiracy statute, Virginia Code § 18.2-500 http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+18.2-500.
The Virginia Supreme Court reversed on all three counts. The court stated that the "dispositive question to be resolved on all three counts of liability is whether [Williams'] conduct . . . was sufficient to constitute a breach of Williams' fiduciary duty of loyalty to [his employer]." The court found that "Williams had the right to make the necessary arrangements to resign from his employment . . . in such a way as to take advantage of a higher level of compensation . . . so long as these arrangements were not disloyal or unfair to [his employer]."
Williams was not disloyal to his employer, according to the court, because he resigned in a manner to permit his employer to comply with its contractual obligations. In addition, the court stressed that Dominion, as the employer, could have readily protected itself if it had required Williams to sign a noncompete agreement preventing him from remaining at Stihl through another employer. As the court put it: "courts must be mindful that the fact that particular conduct of an employee caused harm to his employer does not establish that the conduct breached any duty to the employer. This is so because the law will not provide relief to every 'disgruntled employer in the rough-and-tumble world comprising the competitive marketplace,' especially where, through more prudent business practices, the harm complained of could easily have been avoided."
As in Peace v. Conway, 246 Va. 278, 435 S.E.2d 133 (1993) (unavailable via internet), discussed in our first blog entry, courts do not want to become backseat business managers and provide protections that could—and should—have been secured by the complaining party by contract before it sustained a loss. In areas where subcontracting is integral to the business landscape, such as the Washington D.C. metropolitan region, companies need to be especially vigilant to contractually protect their business opportunities.
Dominion sued Williams alleging a breach of fiduciary duty, interference with business relationships, and statutory business conspiracy. Interestingly, Dominion did not name ACSYS as defendant even though it alleged ACSYS was Williams co-conspirator. The case went to trial, and the jury returned a verdict against Williams on all three counts. The judge trebled the damages and awarded attorneys' fees under the Virginia business conspiracy statute, Virginia Code § 18.2-500 http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+18.2-500.
The Virginia Supreme Court reversed on all three counts. The court stated that the "dispositive question to be resolved on all three counts of liability is whether [Williams'] conduct . . . was sufficient to constitute a breach of Williams' fiduciary duty of loyalty to [his employer]." The court found that "Williams had the right to make the necessary arrangements to resign from his employment . . . in such a way as to take advantage of a higher level of compensation . . . so long as these arrangements were not disloyal or unfair to [his employer]."
Williams was not disloyal to his employer, according to the court, because he resigned in a manner to permit his employer to comply with its contractual obligations. In addition, the court stressed that Dominion, as the employer, could have readily protected itself if it had required Williams to sign a noncompete agreement preventing him from remaining at Stihl through another employer. As the court put it: "courts must be mindful that the fact that particular conduct of an employee caused harm to his employer does not establish that the conduct breached any duty to the employer. This is so because the law will not provide relief to every 'disgruntled employer in the rough-and-tumble world comprising the competitive marketplace,' especially where, through more prudent business practices, the harm complained of could easily have been avoided."
As in Peace v. Conway, 246 Va. 278, 435 S.E.2d 133 (1993) (unavailable via internet), discussed in our first blog entry, courts do not want to become backseat business managers and provide protections that could—and should—have been secured by the complaining party by contract before it sustained a loss. In areas where subcontracting is integral to the business landscape, such as the Washington D.C. metropolitan region, companies need to be especially vigilant to contractually protect their business opportunities.
Elements of a Business Conspiracy
In order to understand the breadth of the business conspiracy statute, it is helpful to focus on its elements. First, it requires a combination of parties who agree to act in concert. Second, there must be some unlawful act in furtherance of the conspiracy which may be satisfied by proof of either breach of fiduciary duty, interference with contract or business expectancy, conversion, some other business related tort, or other unlawful conduct.
In addition, there must be evidence that the conspirators’ purpose was to willfully and maliciously injure the plaintiff’s business interests. While this seems to require proof of actual malice, that is that the conspirators were motivated by personal spite or ill will, as is necessary to support a claim for punitive damages, such proof is not required. Instead, it only requires proof that the defendants acted intentionally, purposefully and without lawful justification, a concept known as legal malice. In other words it is not necessary to show that the conspirators’ primary and overriding purpose was to injure the plaintiff, but only that it be an anticipated outcome. Accordingly, proof of motive is not that significant a hurdle for a plaintiff. See Commercial Business Systems, Inc. v. BellSouth Services, Inc., 249 Va. 39, 453 S.E.2d 261 (1995) (unavailable via internet); Advanced Marine Enterprises, Inc. v. PRC, Inc. , 256 Va. 106, 501 S.E.2d 148 (1998) http://www.courts.state.va.us/opinions/opnscvwp/1971950.doc; Feddeman and Co. v. Langan Associates, 260 Va. 35, 530 S.E.2d 668 (2000) http://www.courts.state.va.us/opinions/opnscvtx/1991996.txt.
The business conspiracy statute does not apply to injury to one’s personal or employment interests, only business interests. Once injury has been shown, the statute allows a successful plaintiff to recover treble damages as well as costs and reasonable attorneys fees. It does not preclude the additional recovery of punitive damages if such damages are recoverable under other claims asserted in the case. See Advanced Marine.
In addition, there must be evidence that the conspirators’ purpose was to willfully and maliciously injure the plaintiff’s business interests. While this seems to require proof of actual malice, that is that the conspirators were motivated by personal spite or ill will, as is necessary to support a claim for punitive damages, such proof is not required. Instead, it only requires proof that the defendants acted intentionally, purposefully and without lawful justification, a concept known as legal malice. In other words it is not necessary to show that the conspirators’ primary and overriding purpose was to injure the plaintiff, but only that it be an anticipated outcome. Accordingly, proof of motive is not that significant a hurdle for a plaintiff. See Commercial Business Systems, Inc. v. BellSouth Services, Inc., 249 Va. 39, 453 S.E.2d 261 (1995) (unavailable via internet); Advanced Marine Enterprises, Inc. v. PRC, Inc. , 256 Va. 106, 501 S.E.2d 148 (1998) http://www.courts.state.va.us/opinions/opnscvwp/1971950.doc; Feddeman and Co. v. Langan Associates, 260 Va. 35, 530 S.E.2d 668 (2000) http://www.courts.state.va.us/opinions/opnscvtx/1991996.txt.
The business conspiracy statute does not apply to injury to one’s personal or employment interests, only business interests. Once injury has been shown, the statute allows a successful plaintiff to recover treble damages as well as costs and reasonable attorneys fees. It does not preclude the additional recovery of punitive damages if such damages are recoverable under other claims asserted in the case. See Advanced Marine.
Tuesday, January 1, 2008
What is an Unfair Business Practice?
There are no set guidelines explaining everything that could constitute an unfair business practice. Certainly, people agree that some actions, such as fraud, qualify. But, agreeing that an abstract term like "fraud" is wrong is markedly different than agreeing that a set of actions or words equal fraud. Peoples' opinions are often shaped by "whose ox is being gored." Thus, what to some may be considered a corporate raid, others may call a strategic acquisition (particularly, the acquirer). Even wikipedia offers only a brief description of unfair business practices. http://en.wikipedia.org/wiki/Unfair_business_practices.
Courts and legislators have tried to define the boundaries where healthy competition crosses the line to become unfair. One of the more powerful weapons against unfair practices are business conspiracy statutes. For instance, Virginia’s law, § 18.2-499 (http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+18.2-499), makes it illegal for two or more persons to "combine, associate, agree, mutually undertake or concert together for the purpose of . . . willfully and maliciously injuring another in his reputation, trade, business or profession by any means whatever . . . ." An party injured by such conduct can file a civil action and may "recover three-fold the damages by him sustained, and the costs of suit, including a reasonable fee to plaintiff's counsel . . . ." Virginia Code § 18.2-500 (http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+18.2-500).
But, quoting the above language hardly tells the reader what is meant by it. What if two people agree to advertise a new widget business with the expressed purpose of taking customers away from the one local widget maker? Does the answer change if the new company hired 20% of the existing company’s specially trained employees? Or, 50%? What if those hired employees brought with them some widget designs used by the existing company? Or, what if those borrowed designs were discussed but rejected by the existing company? And, does the answer change depending on whether the employees had noncompete or other contractual limitations. It is these questions and the many gray lines presented in them that cause courts to struggle to define a business conspiracy and other unfair business practices. To define the contours of unfair competition, Maryland courts have virtually reached back to the Golden Rule, stating "The legal principles which are controlling here are simply the principles of old-fashioned honesty. One man may not reap where another has sown, nor gather where another has strewn." http://www.courts.state.md.us/opinions/cosa/1999/1576s98.pdf.
Compare two Virginia Supreme Court cases Feddeman and Co. v. Langan Associates (http://www.courts.state.va.us/opinions/opnscvtx/1991996.txt) and Peace v. Conway, 246 Va. 278, 435 S.E.2d 133 (1993) (unavailable via internet). In Conway, two employees simultaneous left their employer to establish a competing business. After leaving, they contacted over a hundred of their former employer's customers. They identified those customers solely from their memories. Neither of them had signed a noncompete or nonsolicit agreement with their former employer. The court found that the former employees did not employ improper methods in obtaining their former employer’s customers.
In Feddeman, the plaintiff accounting firm sued its former directors and employees, and a competitor. The court found that the defendants were liable under Virginia’s conspiracy statute for coordinating a mass resignation of the plaintiff’s employees (25 out of 31) and the solicitation of all its customers, 50% of whom transferred their business to the competitor defendant. While the court agreed that employees have a right to make plans to compete with their employer, that right is not absolute. The court focused on the employee and director defendants’ formulation of plan to resign en masse if the plaintiff firm did not accept their buy-out proposal, their statements to other employees informing them of the resignation plan and offering them the option to work for the competitor.
Ironically, the Virginia Supreme Court reversed the trial judge in both cases: ruling in Feddeman that the trial court improperly set aside the jury verdict awarding the plaintiff damages; and ruling in Peace that the trial court’s erred in awarding damages to the plaintiff because there was no legal wrongdoing. Thus, even judges disagree as what constitutes an unlawful business practice. This makes it especially difficult for companies looking to aggressively expand to find a safe harbor.
Courts and legislators have tried to define the boundaries where healthy competition crosses the line to become unfair. One of the more powerful weapons against unfair practices are business conspiracy statutes. For instance, Virginia’s law, § 18.2-499 (http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+18.2-499), makes it illegal for two or more persons to "combine, associate, agree, mutually undertake or concert together for the purpose of . . . willfully and maliciously injuring another in his reputation, trade, business or profession by any means whatever . . . ." An party injured by such conduct can file a civil action and may "recover three-fold the damages by him sustained, and the costs of suit, including a reasonable fee to plaintiff's counsel . . . ." Virginia Code § 18.2-500 (http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+18.2-500).
But, quoting the above language hardly tells the reader what is meant by it. What if two people agree to advertise a new widget business with the expressed purpose of taking customers away from the one local widget maker? Does the answer change if the new company hired 20% of the existing company’s specially trained employees? Or, 50%? What if those hired employees brought with them some widget designs used by the existing company? Or, what if those borrowed designs were discussed but rejected by the existing company? And, does the answer change depending on whether the employees had noncompete or other contractual limitations. It is these questions and the many gray lines presented in them that cause courts to struggle to define a business conspiracy and other unfair business practices. To define the contours of unfair competition, Maryland courts have virtually reached back to the Golden Rule, stating "The legal principles which are controlling here are simply the principles of old-fashioned honesty. One man may not reap where another has sown, nor gather where another has strewn." http://www.courts.state.md.us/opinions/cosa/1999/1576s98.pdf.
Compare two Virginia Supreme Court cases Feddeman and Co. v. Langan Associates (http://www.courts.state.va.us/opinions/opnscvtx/1991996.txt) and Peace v. Conway, 246 Va. 278, 435 S.E.2d 133 (1993) (unavailable via internet). In Conway, two employees simultaneous left their employer to establish a competing business. After leaving, they contacted over a hundred of their former employer's customers. They identified those customers solely from their memories. Neither of them had signed a noncompete or nonsolicit agreement with their former employer. The court found that the former employees did not employ improper methods in obtaining their former employer’s customers.
In Feddeman, the plaintiff accounting firm sued its former directors and employees, and a competitor. The court found that the defendants were liable under Virginia’s conspiracy statute for coordinating a mass resignation of the plaintiff’s employees (25 out of 31) and the solicitation of all its customers, 50% of whom transferred their business to the competitor defendant. While the court agreed that employees have a right to make plans to compete with their employer, that right is not absolute. The court focused on the employee and director defendants’ formulation of plan to resign en masse if the plaintiff firm did not accept their buy-out proposal, their statements to other employees informing them of the resignation plan and offering them the option to work for the competitor.
Ironically, the Virginia Supreme Court reversed the trial judge in both cases: ruling in Feddeman that the trial court improperly set aside the jury verdict awarding the plaintiff damages; and ruling in Peace that the trial court’s erred in awarding damages to the plaintiff because there was no legal wrongdoing. Thus, even judges disagree as what constitutes an unlawful business practice. This makes it especially difficult for companies looking to aggressively expand to find a safe harbor.
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