Does the Virginia Trade Secrets Act preempt all related business tort claims? Not necessarily, according to a recent unfair business practices case from the Eastern District of Virginia. In E.I. DuPont de Nemours and Co.v. Kolon Industries, Inc., 2009 U.S. Dist. LEXIS 76795, 2009-2 Trade Cas. (CCH) P76,728 (E.D. Va. August 27, 2009), click here, DuPont alleged that the defendant, Kolon, had hired one of its former employees, Michael Mitchell, and enticed him to reveal DuPont’s trade secrets not only relating to the development of KEVLAR aramid fiber, but also as to DuPont’s pricing and rebate practices. In addition, it alleged that Kolon had recruited other DuPont employees who possessed knowledge regarding the aramid fiber manufacturing process. And Kolon allegedly had solicited DuPont’s long-standing customers by using confidential pricing and rebate information and informing the customers that Kolon had hired former DuPont employees who had assisted Kolon in making significant improvements to its product.
DuPont included six counts in its complaint: (1) violation of the Virginia Trade Secrets Act, Va. Code §59.1-341; (2) statutory business conspiracy, Va. Code §18.2-499 et seq.; (3) tortious interference with contract; (4) tortious interference with business expectancy; (5) conversion; and (6) civil conspiracy. Kolon moved to dismiss the complaint in its entirety.
First, Kolon argued that the preemption provision of the Trade Secrets Act required dismissal of all counts in the complaint other than the one alleging a violation of the Act itself because all of the counts were based entirely upon a misappropriation of trade secrets theory. The court rejected this argument pointing out that Kolon disputed that the information at issue was a trade secret. As the court noted: “unless it can be clearly discerned that the information in question constitutes a trade secret, the Court cannot dismiss alternative theories of relief as preempted by the VUTSA,” quoting Stone Castle Fin., Inc. v. Friedman, Billings, Ramsey & Co., 191 F. Supp.2d 652, 659 (E.D. Va. 2002). Thus, as long as Kolon contended that the information at issue was not a trade secret the court could not consider the preemptive effect of the Trade Secrets Act based upon the pleadings alone.
Next, Kolon argued that, under the statute, all claims arising from the same nucleus of facts as the misappropriation of trade secrets claim were preempted by the Trade Secrets Act. The court rejected this argument also, holding that, under the prevailing interpretation in the Eastern District of Virginia, the preemption provision does not bar all claims that could arise out of factual circumstances that may involve a trade secret. Instead, preemption would apply only to claims that were predicated “entirely” upon the misappropriation of trade secrets.
Applying these principles to the separate counts for tortious interference with contract and business expectancy the court found that DuPont had pled facts separate from the trade secrets allegations in support of those counts. Notably DuPont alleged that Kolon had “used DuPont’s confidential information and trade secrets.” Because the allegations were phrased in the conjunctive and were not predicated solely upon the misappropriation of trade secrets, the court refused to dismiss those counts. Likewise, it denied the motion to dismiss the conspiracy counts on the basis that the concerted action included allegations separate from misappropriation of trade secrets.
Finally, Kolon argued, unsuccessfully, that the conversion count was subject to dismissal because conversion could not apply to the taking of electronic copies of a document, only to the original. The court, again, sided with DuPont, finding that even though Virginia courts have not addressed whether the possession of “copies” of documents can constitute conversion, the courts have “demonstrated a distinct willingness to expand the scope of the doctrine of conversion in light of advancing technology.” Thus, it held that “the purloining of copies of documents would constitute conversion because such action is an act of ‘dominion’ inconsistent with the true owner’s property rights.”
Friday, October 23, 2009
Thursday, October 22, 2009
Private Regulation of Business Competition Through State Statutes and Common Law Theories
The news lately is peppered by the federal governments' (lack of?) regulation of businesses, but how do state statutes and the common law regulate businesses? That is the question addressed in the article The Use of State Statutes and Common Law Tort Theories to Regulate Business Conduct which can be found here.
The article "examine[s] how differences in state law can shape and influence what constitutes the appropriate bounds of business competition in a particular state." It focuses on the common law claims of intentional interference with contract or business expectancy and certain state statutory private rights of actions, such as the Massachusetts' Unfair and Deceptive Trade Practices Statute, North Carolina's unfair methods of competition statute or "little FTC act", and Virginia's statutory business conspiracy statute.
The article "examine[s] how differences in state law can shape and influence what constitutes the appropriate bounds of business competition in a particular state." It focuses on the common law claims of intentional interference with contract or business expectancy and certain state statutory private rights of actions, such as the Massachusetts' Unfair and Deceptive Trade Practices Statute, North Carolina's unfair methods of competition statute or "little FTC act", and Virginia's statutory business conspiracy statute.
Friday, October 9, 2009
Court Permits An Opposing Party's Lawyers to Interview a Company's Current Employees Outside the Presence of the Company's Lawyers
When an unfair business practices case arises, like in other types of cases, a company wants to know as much as possible about the adverse company's prior internal discussions and processes that resulted in the unfair business practice. But lawyers have been sensitive to the line between properly investigating a case and improper discussions with the adverse company's employees and agents.
A recent court opinion, however, allows one party's lawyers to interview the current employees of an adverse party provided that those employees are not senior enough or otherwise in a position to bind the corporation with their statements. The lawyers are even permitted to call the employees at their workplace during working hours.
This opinion is important because companies involved in a dispute may want to consider whether they should alert their employees to the potential for litigation and inform them that the opposing attorneys may call them. Companies should also consult with their attorneys about what they should say to their employees about the possibility of being contacted by the opposing party's attorney.
The case is Smith v. United Salt Corp., 2009 U.S. Dist. Lexis 82685 (W.D.Va. 2009), and can be found here. In that case, the plaintiffs brought a sexual harassment claim against their employer. Their lawyers sought to interview the employer's current employees outside the presence of the employer's lawyers. The plaintiffs argued that "it is important to speak with these employees because during the workday and while present on United Salt's premises, other employees may have learned of information relevant to the plaintiffs' allegations that defendant Foster sexually harassed them at work and that United Salt is liable for the sexual harassment."
"However, the plaintiffs contend that their intent in seeking ex parte communications with current employees of United Salt is not to obtain admissions imputable to the corporation. Instead, they state that they are merely attempting to gather information relevant to the incidents of sexual harassment that occurred on the premises of United Salt."
The court first considered Rule 4.2 of the Virginia Rules of Professional Conduct, which provides:
"In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized by law to do so."
Citing Rules of Supreme Court of Virginia Pt. 6, § II, Rule 4.2 (2000).
The court then looked to the opinion in Lewis v. CSX Transp., Inc., 202 F.R.D. 464 (W.D. Va. 2001), which recognized that "'[t]he general prohibition against an attorney having ex parte contact with a represented party is based on several rationales[,]' including 'preventing an attorney from circumventing opposing counsel to obtain unwise statements from an adverse party.'" "The court in Lewis found that, given this rationale, a represented corporate party retains an interest in 'preventing an opposing attorney from eliciting un-counseled statements from its employees, since such statements could affect the corporation's potential liability.'
"This court in Lewis held that when one of the parties is a corporation, as is the case here, Rule 4.2 prohibits ex parte communication with:
'(1) persons having managerial responsibility for the corporate party; (2) any other person whose act or omission in connection with that matter may be imputed to the corporate party for purposes of civil or criminal liability; or (3) any other person whose statement may constitute an admission on the part of the corporate party.'"
The court in United Salt then stated that "[i]t is important to note that, in Lewis, the employees with whom the plaintiff's counsel had ex parte contact were the very employees who used and maintained the piece of equipment at issue. In such a case, an admission by any of these co-workers stating that he knew the equipment was defective and that he had taken no action to cure the defect or warn his co-workers would, in fact, be an admission of liability imputable to the employer."
"Such is not the case in this matter. In a Title VII sexual harassment case, the employer is subject to vicarious liability only for acts of supervisory employees." "That being the case, only an admission by a supervisory employee stating that he took a 'tangible employment action' against a plaintiff or that he created a hostile work environment due to her gender would impute liability on the employer. While statements from co-workers regarding the actions of supervisory personnel could be used as evidence to prove that sexual harassment had occurred, those statements, from nonsupervisory personnel, would not be an admission imposing liability on the employer. With this distinction in mind, it appears that the rationale for the Lewis decision — to prevent an attorney from circumventing opposing counsel to obtain statements from employees which could be used to impute liability on the employer — is not present in this case."
"For all of the above-stated reasons, the court finds that Rule 801(d)(2)(D) in conjunction with Rule 4.2 of the Virginia Rules of Professional Conduct do not prohibit ex parte contact by plaintiffs' counsel with plaintiffs' co-workers, whose statements could not be used to impute liability upon the employee. The same rules, however, do prohibit ex parte contact in this context with any supervisory or managerial employees."
Before contacting an adverse party's employee, however, a lawyer will have to carefully analyze whether that employee can bind the corporation. While opening the door for lawyers to conduct broader investigations in some instances, this opinion is not without its own set of potential pitfalls.
A recent court opinion, however, allows one party's lawyers to interview the current employees of an adverse party provided that those employees are not senior enough or otherwise in a position to bind the corporation with their statements. The lawyers are even permitted to call the employees at their workplace during working hours.
This opinion is important because companies involved in a dispute may want to consider whether they should alert their employees to the potential for litigation and inform them that the opposing attorneys may call them. Companies should also consult with their attorneys about what they should say to their employees about the possibility of being contacted by the opposing party's attorney.
The case is Smith v. United Salt Corp., 2009 U.S. Dist. Lexis 82685 (W.D.Va. 2009), and can be found here. In that case, the plaintiffs brought a sexual harassment claim against their employer. Their lawyers sought to interview the employer's current employees outside the presence of the employer's lawyers. The plaintiffs argued that "it is important to speak with these employees because during the workday and while present on United Salt's premises, other employees may have learned of information relevant to the plaintiffs' allegations that defendant Foster sexually harassed them at work and that United Salt is liable for the sexual harassment."
"However, the plaintiffs contend that their intent in seeking ex parte communications with current employees of United Salt is not to obtain admissions imputable to the corporation. Instead, they state that they are merely attempting to gather information relevant to the incidents of sexual harassment that occurred on the premises of United Salt."
The court first considered Rule 4.2 of the Virginia Rules of Professional Conduct, which provides:
"In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized by law to do so."
Citing Rules of Supreme Court of Virginia Pt. 6, § II, Rule 4.2 (2000).
The court then looked to the opinion in Lewis v. CSX Transp., Inc., 202 F.R.D. 464 (W.D. Va. 2001), which recognized that "'[t]he general prohibition against an attorney having ex parte contact with a represented party is based on several rationales[,]' including 'preventing an attorney from circumventing opposing counsel to obtain unwise statements from an adverse party.'" "The court in Lewis found that, given this rationale, a represented corporate party retains an interest in 'preventing an opposing attorney from eliciting un-counseled statements from its employees, since such statements could affect the corporation's potential liability.'
"This court in Lewis held that when one of the parties is a corporation, as is the case here, Rule 4.2 prohibits ex parte communication with:
'(1) persons having managerial responsibility for the corporate party; (2) any other person whose act or omission in connection with that matter may be imputed to the corporate party for purposes of civil or criminal liability; or (3) any other person whose statement may constitute an admission on the part of the corporate party.'"
The court in United Salt then stated that "[i]t is important to note that, in Lewis, the employees with whom the plaintiff's counsel had ex parte contact were the very employees who used and maintained the piece of equipment at issue. In such a case, an admission by any of these co-workers stating that he knew the equipment was defective and that he had taken no action to cure the defect or warn his co-workers would, in fact, be an admission of liability imputable to the employer."
"Such is not the case in this matter. In a Title VII sexual harassment case, the employer is subject to vicarious liability only for acts of supervisory employees." "That being the case, only an admission by a supervisory employee stating that he took a 'tangible employment action' against a plaintiff or that he created a hostile work environment due to her gender would impute liability on the employer. While statements from co-workers regarding the actions of supervisory personnel could be used as evidence to prove that sexual harassment had occurred, those statements, from nonsupervisory personnel, would not be an admission imposing liability on the employer. With this distinction in mind, it appears that the rationale for the Lewis decision — to prevent an attorney from circumventing opposing counsel to obtain statements from employees which could be used to impute liability on the employer — is not present in this case."
"For all of the above-stated reasons, the court finds that Rule 801(d)(2)(D) in conjunction with Rule 4.2 of the Virginia Rules of Professional Conduct do not prohibit ex parte contact by plaintiffs' counsel with plaintiffs' co-workers, whose statements could not be used to impute liability upon the employee. The same rules, however, do prohibit ex parte contact in this context with any supervisory or managerial employees."
Before contacting an adverse party's employee, however, a lawyer will have to carefully analyze whether that employee can bind the corporation. While opening the door for lawyers to conduct broader investigations in some instances, this opinion is not without its own set of potential pitfalls.
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