On May 21, 2009, the Williams Mullen Unfair Business Practices Team conducted its first webinar in its four-part Summer series. The webinar was entitled The Employee Paradox: The Best Employees Can Cause the Greatest Damage to Your Company.
The webinar addressed the fiduciary obligations of corporate officers, directors and employees, restrictive covenants such as noncompetition and non-soliciation clauses in employment contracts, and protecting against corporate raiding. The webinar also supplied a checklist for hiring new employees.
To hear the webinar: click here. To download the powerpoint presentation: click here. The webinar speakers were three members of Williams Mullen's Unfair Business Practices Team: David Burton, Sean Gibbons and Mike Lord.
The Team's next webiner is entitled "Beware the Government Contract: How to Protect Your Company's Assets from the Government and Other Contractors." To register for this June 17 webinar, click here.
Thursday, May 28, 2009
Thursday, May 21, 2009
Starwood Hotels & Resorts Worldwide, Inc. Sues Hilton Hotels Corporation
For an excellent example of the high-stakes nature of unfair business practices cases, Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") sued Hilton Hotels Corporation ("Hilton") and several former Starwood employees on April 16, 2009. The allegations, if proven, are remarkable.
Starwood claims that Hilton recruited the President and Senior Vice President of Starwood's Luxury Brands Group to join Hilton. The executives were allegedly involved in developing Starwood's luxury hotel brands: the St. Regis, W Hotels and The Luxury Collection. The allegations are a worst-case-scenario for a company because the executives were alleged to have both misused Starwood's confidential information and recruited a group of senior-level Starwood employees to work for Hilton.
Specifically, Starwood alleges that its former executive requested "large volumes of confidential information from Starwood employees, which he took home, had loaded on a personal laptop computer and/or forwarded to a personal e-mail account, and which he then took to and used at and for Hilton." The Complaint outlines specific Starwood files that were taken to Hilton, including: Starwood's Forward-Looking Strategic Development Plans, Starwood's Property Improvement Plan, and confidential computer files containing the names and addresses of Luxury Brands Group owners, developers and designers compiled by Starwood. In total, Starwood alleges that its former executives took over 100,000 of its files to Hilton.
The complaint also alleges that after Starwood asked Hilton to preserve information relating to one of the employees who switched companies Hilton delivered to Starwood 'eight large boxes of computer hard drives, zip drives, thumb drives and paper records containing massive quantities of highly confidential and proprietary Starwood files . . . , including over 100,000 files downloaded from Starwood’s computers systems and files.
To read the entire complaint (without exhibits), click here.
Hilton’s response to the Complaint is also remarkable because Hilton takes corrective action almost immediately. A week after Starwood filed the case, Hilton agreed to a "Preliminary Injunction and Order Entered on Consent of All Defendants." The Order recites Hilton’s steps to attempt to cure any damages suffered by Hilton. First, on April 21, "Hilton placed [the executives] and their entire luxury and lifestyle team . . . on paid administrative leave of absence, and suspended all further development of the [competing] brand." Second, Hilton agreed to be enjoined from "knowingly using directly or indirectly in any way the Starwood Information, including without information contained therein or derived therefrom." Third, "all other persons who are in active concert or participation with them who receive actual notice of this order by personal service or otherwise, are hereby preliminary enjoined and shall cease all further development of the [competing] brand . . . ." The Order contains additional agreed upon actions, and it can be found by clicking here.
In addition, the parties agreed to stay the litigation pending further order of the court. It is a good bet that Starwood and Hilton are working to settle this dispute.
Starwood claims that Hilton recruited the President and Senior Vice President of Starwood's Luxury Brands Group to join Hilton. The executives were allegedly involved in developing Starwood's luxury hotel brands: the St. Regis, W Hotels and The Luxury Collection. The allegations are a worst-case-scenario for a company because the executives were alleged to have both misused Starwood's confidential information and recruited a group of senior-level Starwood employees to work for Hilton.
Specifically, Starwood alleges that its former executive requested "large volumes of confidential information from Starwood employees, which he took home, had loaded on a personal laptop computer and/or forwarded to a personal e-mail account, and which he then took to and used at and for Hilton." The Complaint outlines specific Starwood files that were taken to Hilton, including: Starwood's Forward-Looking Strategic Development Plans, Starwood's Property Improvement Plan, and confidential computer files containing the names and addresses of Luxury Brands Group owners, developers and designers compiled by Starwood. In total, Starwood alleges that its former executives took over 100,000 of its files to Hilton.
The complaint also alleges that after Starwood asked Hilton to preserve information relating to one of the employees who switched companies Hilton delivered to Starwood 'eight large boxes of computer hard drives, zip drives, thumb drives and paper records containing massive quantities of highly confidential and proprietary Starwood files . . . , including over 100,000 files downloaded from Starwood’s computers systems and files.
To read the entire complaint (without exhibits), click here.
Hilton’s response to the Complaint is also remarkable because Hilton takes corrective action almost immediately. A week after Starwood filed the case, Hilton agreed to a "Preliminary Injunction and Order Entered on Consent of All Defendants." The Order recites Hilton’s steps to attempt to cure any damages suffered by Hilton. First, on April 21, "Hilton placed [the executives] and their entire luxury and lifestyle team . . . on paid administrative leave of absence, and suspended all further development of the [competing] brand." Second, Hilton agreed to be enjoined from "knowingly using directly or indirectly in any way the Starwood Information, including without information contained therein or derived therefrom." Third, "all other persons who are in active concert or participation with them who receive actual notice of this order by personal service or otherwise, are hereby preliminary enjoined and shall cease all further development of the [competing] brand . . . ." The Order contains additional agreed upon actions, and it can be found by clicking here.
In addition, the parties agreed to stay the litigation pending further order of the court. It is a good bet that Starwood and Hilton are working to settle this dispute.
Wednesday, April 29, 2009
Summer Webinar Series: Protecting Corporate Assets from Unfair Business Practices
Williams Mullen is hosting a four-part webinar series entitled: Protecting Corporate Assets from Unfair Business Practices.
Here is a listing of the programs for each month. Click on the title for more information and to register for the individual events.
The first webinar is scheduled for May 21, 2009 from 12:00 to 1:15 p.m. (U.S.A. Eastern Daylight Time). There is no fee for participating in the webinars.
For a complete listing and registration information, click here.
Here is a listing of the programs for each month. Click on the title for more information and to register for the individual events.
May
The Employee Paradox
Your Best Employees Can Cause the Greatest Damage to Your Company
June
Beware the Government Contract
How to Protect Your Company's Assets from the Government and other Contractors
July
Intellectual Property: Building Your Castle Moat
How to Protect Your Company's Knowledge
August
Defending Your Castle
Litigating Disputes to Protect Your Company's Assets
The first webinar is scheduled for May 21, 2009 from 12:00 to 1:15 p.m. (U.S.A. Eastern Daylight Time). There is no fee for participating in the webinars.
For a complete listing and registration information, click here.
Friday, March 27, 2009
Employees Who Take Proprietary Data May Violate the Federal Computer Fraud and Abuse Act
We recently published an article discussing the federal Computer Fraud and Abuse Act in the Potomac Techwire. It focused on the developing law surrounding whether a departing employee who takes proprietary electronic data has violated the Act by accessing his employer's computer to remove the data once he has begun plans to resign and join another company. There is a split among courts regarding whether that employee was "authorized" to access the computer or "exceeded his authorized access" when he did so. For those courts which have found that the access was unlawful, this Act becomes a big stick because it creates federal jurisdiction in cases that, most often, may only be brought in state courts. To review the entire article, see the link: http://www.williamsmullen.com/employees-who-take-proprietary-data-may-violate-the-federal-computer-fraud-and-abuse-act-03-11-2009/
Tuesday, March 10, 2009
LLC Members Do Not Owe Fiduciary Duties to Each Other, Virginia Supreme Court Rules
Last Spring, we profiled two Circuit Court decisions in Virginia that addressed whether members of Virginia Limited Liability Companies owed fiduciary duties to each other. See March 30, 2008 post, click here. The cases had held that: (1) members and managers of LLCs did not owe fiduciary duties to members, but only to the entity itself; and (2) a member could not sue a manager directly for breach of fiduciary duty, but could only maintain the suit in a derivative capacity. The cases were significant because the Virginia Supreme Court had not addressed the issues.
This week the Supreme Court issued an opinion in one of those cases, Remora Investments, LLC v. Orr. Click here. The opinion affirmed the decision of the Fairfax Circuit Court sustaining the defendant’s demurrer and dismissing the case.
The Supreme Court initially focused on the statutory basis for duties owed by members of an LLC. It noted that neither the Limited Liability Company Act nor the Virginia Stock Corporation Act imposed fiduciary duties “between members of an LLC, between members and managers of an LLC, between stockholders of a corporation, or between individual shareholders and officers and directors.” General partnership law in Virginia, on the other hand, specifically provides that partners owe the duties of loyalty and care both to the partnership and to other partners. Moreover, the court reaffirmed that, in the corporate context, the fiduciary duty owed by officers and directors is owed to shareholders as a class and not individually.
The court also examined the Operating Agreement for the LLC and found that it did not establish any fiduciary duties between the members or between the members and a manager. It specifically held, however, that such duties may be included in Operating Agreements if the members so desire and, thus, arise by contract.
For these reasons the court concluded that as a member of the LLC, Orr lacked standing to pursue a direct claim against the LLC’s manager.
Now that the Supreme Court has spoken on the issue, those forming LLCs would be wise to discuss whether such duties between the members or the members and manager of the LLC should be addressed in the Operating Agreement.
This week the Supreme Court issued an opinion in one of those cases, Remora Investments, LLC v. Orr. Click here. The opinion affirmed the decision of the Fairfax Circuit Court sustaining the defendant’s demurrer and dismissing the case.
The Supreme Court initially focused on the statutory basis for duties owed by members of an LLC. It noted that neither the Limited Liability Company Act nor the Virginia Stock Corporation Act imposed fiduciary duties “between members of an LLC, between members and managers of an LLC, between stockholders of a corporation, or between individual shareholders and officers and directors.” General partnership law in Virginia, on the other hand, specifically provides that partners owe the duties of loyalty and care both to the partnership and to other partners. Moreover, the court reaffirmed that, in the corporate context, the fiduciary duty owed by officers and directors is owed to shareholders as a class and not individually.
The court also examined the Operating Agreement for the LLC and found that it did not establish any fiduciary duties between the members or between the members and a manager. It specifically held, however, that such duties may be included in Operating Agreements if the members so desire and, thus, arise by contract.
For these reasons the court concluded that as a member of the LLC, Orr lacked standing to pursue a direct claim against the LLC’s manager.
Now that the Supreme Court has spoken on the issue, those forming LLCs would be wise to discuss whether such duties between the members or the members and manager of the LLC should be addressed in the Operating Agreement.
Monday, March 2, 2009
Overreaching by Partners During Partnership Dissolution Can Be Costly
Sometimes cases serve as cautionary tales of how NOT to do business. A partnership divorce out of Fairfax County, Greenfeld v. Stitely,et al., 2007 Va. Cir. LEXIS 7 (January 5, 2007) is just such a case. It involved three partners in an accounting firm, Stitely, Karstetter & Greenfeld, LLP (“SK&G”) formed in 2002.
In 2003, the partners purchased two condominium units including the one from which the firm operated. Each of the three partners guaranteed the mortgages. Before agreeing to the purchase, Greenfeld sought and received assurances from his partners that they were satisfied with the operation of their accounting partnership.
Several months later, however, on April 18, 2004, Stitley and Karstetter informed Greenfeld that they were withdrawing from the partnership and intended to dissolve it. They presented Greenfeld with a one-sided separation agreement that offered no payment for Greenfeld’s one-third interest in the partnership, refused to refund his capital contribution and allowed Stitley and Karstetter to continue servicing all of the firm’s clients. Greenfeld rejected their proposal. The following day they formed Stitley and Karstetter, PLLC (“S&K”).
Things went downhill from there. Even though Stitley and Karstetter had signed a notice withdrawing from the partnership, they never relinquished control over SK&G’s assets or employees. In addition, they: (1) terminated Greenfeld’s access to the firm’s computer network; (2) issued an eviction notice to Greenfeld; (3) locked him out of his office and refused to release to him any personal property from his office; (4) notified a software manufacturer, for whom Greenfeld had been an authorized reseller, that S&K would be taking over the account; (5) announced that S&K would be hiring all of SK&G’s employees: (6) appropriated SK&G’s computer software; (7) began using all of SK&G’s physical assets and property to benefit S&K, without compensation; (8) collected SK&G’s receivables and deposited the proceeds into S&K’s account; and (9) rebilled SK&G clients for SK&G work as S&K and then deposited those receipts into S&K accounts.
With respect to the condominiums, Stitley and Karstetter: (1) entered into a lease with S&K for the condominiums, without notice or consultation with Greenfeld, for about 56% of the rent that SK&G had been paying for the same space; (2) paid rent and condo fees, in advance, out of SK&G’s account after S&K had taken over the office space; and (3) then issued a capital call to SK&G partners seeking $1000 each per month to make up the shortfall caused by the reduction in rent paid by S&K for the condominium space.
Finally, Stitley and Karstetter notified Greenfeld that partners would receive no more distributions from SK&G, but thereafter paid themselves $45,000 and also paid SK&G employees months after they had become employed by S&K.
Not surprisingly, Greenfeld sued his former partners and S&K. His complaint alleged: statutory business conspiracy, common law conspiracy, breach of the partnership agreement, breach of fiduciary duty, intentional interference with contractual relations, tortious interference with prospective economic advantage, fraud, violation of the Uniform Trade Secrets Act, conversion, and violation of the Virginia Computer Crimes Act. In addition, he asked the court to compel his former partners to purchase his partnership interest.
The trial took three days, after which, Judge Jane Roush issued a written opinion in Greenfeld’s favor. In particular, she found that the actions set out above satisfied the elements of conversion, breach of the partnership agreement and breach of their fiduciary duties owed to Greenfeld under the Uniform Partnership Act. These then supported her finding that the defendants were guilty of common law conspiracy and that they conspired to injure Greenfeld in his business, thus violating Sections 18.2-499 and 500 of the Virginia Code. While the judge found evidence of interference with contract and prospective economic advantage as well as misappropriation of trade secrets which she used to support the conspiracy finding, she did not hold that the evidence was sufficient for Greenfeld to recover on those theories.
In calculating damages, the court found that the value of the accounting partnership (SK&G) as of the date that the defendants took control of the assets was $1,017,000. Therefore, Greenfeld’s one-third interest was worth $339,000. The court reduced this amount by the amount of Greenfeld’s unpaid loan to SK&G, leaving a net balance of $233,066. Next the judge valued the condominiums as of the date of trial at $1,365,000, which, when reduced by the value of the unpaid mortgage, resulted in a net value of $691,089. Greenfeld’s share was worth $230,363. For purposes of the statutory conspiracy, common law conspiracy, and breach of fiduciary duty counts the court added these sums together. That total, $463,429, was then trebled under Sections 18.2-499 and 500, and that amount, $1,390,287, was enhanced by prejudgment interest from the date the defendants seized control of the assets of SK&G. Finally, the judge awarded attorneys fees and costs. All totaled, the damages awarded exceeded $1,600,000, a significant penalty for such overreaching behavior.
In 2003, the partners purchased two condominium units including the one from which the firm operated. Each of the three partners guaranteed the mortgages. Before agreeing to the purchase, Greenfeld sought and received assurances from his partners that they were satisfied with the operation of their accounting partnership.
Several months later, however, on April 18, 2004, Stitley and Karstetter informed Greenfeld that they were withdrawing from the partnership and intended to dissolve it. They presented Greenfeld with a one-sided separation agreement that offered no payment for Greenfeld’s one-third interest in the partnership, refused to refund his capital contribution and allowed Stitley and Karstetter to continue servicing all of the firm’s clients. Greenfeld rejected their proposal. The following day they formed Stitley and Karstetter, PLLC (“S&K”).
Things went downhill from there. Even though Stitley and Karstetter had signed a notice withdrawing from the partnership, they never relinquished control over SK&G’s assets or employees. In addition, they: (1) terminated Greenfeld’s access to the firm’s computer network; (2) issued an eviction notice to Greenfeld; (3) locked him out of his office and refused to release to him any personal property from his office; (4) notified a software manufacturer, for whom Greenfeld had been an authorized reseller, that S&K would be taking over the account; (5) announced that S&K would be hiring all of SK&G’s employees: (6) appropriated SK&G’s computer software; (7) began using all of SK&G’s physical assets and property to benefit S&K, without compensation; (8) collected SK&G’s receivables and deposited the proceeds into S&K’s account; and (9) rebilled SK&G clients for SK&G work as S&K and then deposited those receipts into S&K accounts.
With respect to the condominiums, Stitley and Karstetter: (1) entered into a lease with S&K for the condominiums, without notice or consultation with Greenfeld, for about 56% of the rent that SK&G had been paying for the same space; (2) paid rent and condo fees, in advance, out of SK&G’s account after S&K had taken over the office space; and (3) then issued a capital call to SK&G partners seeking $1000 each per month to make up the shortfall caused by the reduction in rent paid by S&K for the condominium space.
Finally, Stitley and Karstetter notified Greenfeld that partners would receive no more distributions from SK&G, but thereafter paid themselves $45,000 and also paid SK&G employees months after they had become employed by S&K.
Not surprisingly, Greenfeld sued his former partners and S&K. His complaint alleged: statutory business conspiracy, common law conspiracy, breach of the partnership agreement, breach of fiduciary duty, intentional interference with contractual relations, tortious interference with prospective economic advantage, fraud, violation of the Uniform Trade Secrets Act, conversion, and violation of the Virginia Computer Crimes Act. In addition, he asked the court to compel his former partners to purchase his partnership interest.
The trial took three days, after which, Judge Jane Roush issued a written opinion in Greenfeld’s favor. In particular, she found that the actions set out above satisfied the elements of conversion, breach of the partnership agreement and breach of their fiduciary duties owed to Greenfeld under the Uniform Partnership Act. These then supported her finding that the defendants were guilty of common law conspiracy and that they conspired to injure Greenfeld in his business, thus violating Sections 18.2-499 and 500 of the Virginia Code. While the judge found evidence of interference with contract and prospective economic advantage as well as misappropriation of trade secrets which she used to support the conspiracy finding, she did not hold that the evidence was sufficient for Greenfeld to recover on those theories.
In calculating damages, the court found that the value of the accounting partnership (SK&G) as of the date that the defendants took control of the assets was $1,017,000. Therefore, Greenfeld’s one-third interest was worth $339,000. The court reduced this amount by the amount of Greenfeld’s unpaid loan to SK&G, leaving a net balance of $233,066. Next the judge valued the condominiums as of the date of trial at $1,365,000, which, when reduced by the value of the unpaid mortgage, resulted in a net value of $691,089. Greenfeld’s share was worth $230,363. For purposes of the statutory conspiracy, common law conspiracy, and breach of fiduciary duty counts the court added these sums together. That total, $463,429, was then trebled under Sections 18.2-499 and 500, and that amount, $1,390,287, was enhanced by prejudgment interest from the date the defendants seized control of the assets of SK&G. Finally, the judge awarded attorneys fees and costs. All totaled, the damages awarded exceeded $1,600,000, a significant penalty for such overreaching behavior.
Friday, February 13, 2009
Court Sanctions Defendant Corporation for Issuing a Misleading Press Release
In litigating corporate crisis cases, a public relations strategy is often as an essential component as the litigation itself. That is because the company's reputation may be so adversely affected during the litigation that the survival of the company or its products is at-risk, regardless of the litigation outcome. In these moments of crisis, a company often wants to present its story to the public to preserve confidence in the company.
But what limits, if any, restrict a company's public relations strategy? And, who enforces those limits? In American Science and Engineering, Inc. v. Autoclear, LLC, (E.D. Va. Dec. 16, 2008), the court found that it had the inherent power to sanction a company for its public statements in a press release. The opinion was written by U.S. District Court Judge Raymond A. Jackson and can be found here.
In Autoclear, the defendants issued a November 16, 2008 press release stating that "a Federal District Court has rejected American Science and Engineering, Inc.'s motions for summary relief in their action with Control Screening, LLC, and AutoClear, LLC, its affiliate. Opinion at 9. The District Court also denied AS&E's motion for injunctive and other relief. . . . [T]he Federal Court did not sustain AS&E's objections to proceeding to full fact finding and a jury trial." Id. Further, "'the U.S. Patent and Trademark Office (USPTO) has formally rejected all claims of AS&E's core . . . patent' and those patent claims are now invalid." Id.
The court found that the press release "improperly suggests that the Court has denied Plaintiff's motion for summary judgment or otherwise ruled on the merits of the case. Op. at 10. Plaintiff has not even filed a motion for summary judgment, and the Court has not yet ruled on the merits of the case . . . ." Id. "The Court also finds that that the statements regarding the USPTO's actions are false." Id.
"Accordingly, the Court finds that Defendants' press release contains false, misleading, and damaging statements, and that Defendants have acted improperly." Id.
Plaintiff alleged that "as a publicly traded company, it was damaged by misleading information available on popular financial internet publications, and that some of their investors did read the press release and called the company with concerns. Furthermore, Plaintiff argued that such nationally available information has the potential to influence any potential jury pool in this case." Id.
In response, the defendants "explained that the press release was meant to convey that the Court vacated the entry of default, and that any misleading statements were unintentional and the result of Defendants' oversight." Op. at 11. Defendants' attorney admitted to editing an earlier version of the press release. Id. The court deemed the attorneys "capable of understanding the difference between default judgment and summary judgment . . . ," and found it "difficult to believe that the issuance of this press release was accidental." Id. at 12.
The court rooted its ability to sanction the defendant in the defendant's right to an impartial jury.
The court's sanctions included:
The court's sanctions should give every litigant pause before publishing any announcement about a pending litigation matter to ensure that it is entirely accurate. And, it is difficult to predict the reach of this opinion. For example, are all public statements by a litigant or its attorney potentially sanctionable? Does the answer depend on how many people did or can see or hear the statement? Or, does it depend on the type of media format in which the statement was published? What would happen if a private statement becomes publicized on the internet?
We are probably safe in predicting that future courts will examine these issues now that Autoclear has provided them with a roadmap on how to deal with misleading press releases. We can also expect that the defendants in Autoclear will appeal the sanctions award to the 4th Circuit Court of Appeals.
But what limits, if any, restrict a company's public relations strategy? And, who enforces those limits? In American Science and Engineering, Inc. v. Autoclear, LLC, (E.D. Va. Dec. 16, 2008), the court found that it had the inherent power to sanction a company for its public statements in a press release. The opinion was written by U.S. District Court Judge Raymond A. Jackson and can be found here.
In Autoclear, the defendants issued a November 16, 2008 press release stating that "a Federal District Court has rejected American Science and Engineering, Inc.'s motions for summary relief in their action with Control Screening, LLC, and AutoClear, LLC, its affiliate. Opinion at 9. The District Court also denied AS&E's motion for injunctive and other relief. . . . [T]he Federal Court did not sustain AS&E's objections to proceeding to full fact finding and a jury trial." Id. Further, "'the U.S. Patent and Trademark Office (USPTO) has formally rejected all claims of AS&E's core . . . patent' and those patent claims are now invalid." Id.
The court found that the press release "improperly suggests that the Court has denied Plaintiff's motion for summary judgment or otherwise ruled on the merits of the case. Op. at 10. Plaintiff has not even filed a motion for summary judgment, and the Court has not yet ruled on the merits of the case . . . ." Id. "The Court also finds that that the statements regarding the USPTO's actions are false." Id.
"Accordingly, the Court finds that Defendants' press release contains false, misleading, and damaging statements, and that Defendants have acted improperly." Id.
Plaintiff alleged that "as a publicly traded company, it was damaged by misleading information available on popular financial internet publications, and that some of their investors did read the press release and called the company with concerns. Furthermore, Plaintiff argued that such nationally available information has the potential to influence any potential jury pool in this case." Id.
In response, the defendants "explained that the press release was meant to convey that the Court vacated the entry of default, and that any misleading statements were unintentional and the result of Defendants' oversight." Op. at 11. Defendants' attorney admitted to editing an earlier version of the press release. Id. The court deemed the attorneys "capable of understanding the difference between default judgment and summary judgment . . . ," and found it "difficult to believe that the issuance of this press release was accidental." Id. at 12.
The court rooted its ability to sanction the defendant in the defendant's right to an impartial jury.
The Supreme Court has held that civil litigants have a constitutional right to an impartial jury. Courts may disallow prejudicial extrajudicial statements by litigants that risk tainting or biasing the jury pool. Additionally, false and misleading statements are not protected by the First Amendment. Accordingly, the Court has authority to enjoin false statements, particularly those that could potentially taint the impartiality of a jury. Additionally, the Court has inherent authority to impose sanctions,including attorneys' fees, under its inherent authority.Op. at 12 (internal citations and quotations omitted).
The court's sanctions included:
Op. at 13-14.(1) Within 24 hours of this Order, Defendants shall cause the removal of the November 16th press release from Business Wire and any other website which Defendants know are displaying the November 16th press release;
(2) Defendants shall issue a corrected press release, in the form of Plaintiff's Exhibit D to its Memorandum in Support of its Motion for Sanctions, and shall disseminate it in the same manner that the November 16th press release was disseminated;
(3) To the extent that Defendants are or become aware of instances of dissemination by any third party of the November 16th press release or any article or publication based on the press release, Defendants will take the necessary steps to provide the corrected release to the publisher within 24 hours of notice;
(4) Within 5 days of this Order, Defendants shall file a statement with the Court stating what steps it has taken to comply with this Order; and
(5) Within 14 days of this Order, Defendants shall pay to AS&E the sum of $10,000 as partial reimbursement for the attorneys' fees incurred by AS&E as a result of the issuance of the November 16th press release.
Finally, the Court orders Defendants to reimburse Plaintiff for all attorneys' fees and costs associated with bringing the second Motion for Sanctions, including any such fees and costs not covered by the $10,000 requested by Plaintiff.
The court's sanctions should give every litigant pause before publishing any announcement about a pending litigation matter to ensure that it is entirely accurate. And, it is difficult to predict the reach of this opinion. For example, are all public statements by a litigant or its attorney potentially sanctionable? Does the answer depend on how many people did or can see or hear the statement? Or, does it depend on the type of media format in which the statement was published? What would happen if a private statement becomes publicized on the internet?
We are probably safe in predicting that future courts will examine these issues now that Autoclear has provided them with a roadmap on how to deal with misleading press releases. We can also expect that the defendants in Autoclear will appeal the sanctions award to the 4th Circuit Court of Appeals.
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