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.
Friday, January 30, 2009
Subtle Pleading Difference Allows Claim for Intentional Interference with Business Expectancy to Go Forward
Judge James C. Cacheris' most recent opinion in Signature Flight Support Corporation v. Landown Aviation Limited Partnership, 2009 U.S. Dist. LEXIS 1938 (E.D. Va. Jan. 13, 2009), is a good illustration of how subtle shifts in the way a case is plead can be the difference in whether a company can recover in an unfair business practices case. And, it serves as a valuable primer for claims for intentional interference with a business expectancy. A copy of the opinion can be found here.
As we discussed in our prior post, found here, in an earlier opinion in Signature Flight, the court dismissed the plaintiff's tortious interference with contract claim because the plaintiff did not allege an "intentional interference of contract inducing or causing a breach or termination of the relationship or expectancy." Signature Flight, 2008 U.S. District Lexis 93715 at *6-7 (emphasis added).
The plaintiff then amended its complaint to add a claim for intentional interference with a business expectancy as opposed to interference with a contract. To assert a claim for an intentional interference with a business expectancy, a "plaintiff must allege: (1) the existence of a business relationship or expectancy, with a probability of future economic benefit to a plaintiff; (2) defendant's knowledge of the relationship or expectancy; (3) a reasonable certainty that absent defendant's intentional misconduct, plaintiff would have continued the relationship or realized the expectancy; and (4) damage to plaintiff." 2009 U.S. Dist. LEXIS 1938, *5. "In addition, when alleging a mere business expectancy, the plaintiff must show that the defendant's actions were improper." Id. (citations and internal quotations omitted).
The meaning of "improper" methods proves to be expansive and malleable in order to accommodate wide-ranging bad acts that are not easily defined or itemized. "Methods that have been recognized as 'improper' include (1) 'means that are illegal or independently tortious,' (2) 'violence, threats or intimidation, bribery, unfounded litigation, fraud, misrepresentation or deceit, defamation, duress, undue influence, misuse of inside or confidential information, or breach of a fiduciary relationship,' (3) means that 'violate an established standard of a trade or profession,' (4) '[s]harp dealing, overreaching, unfair competition,' or 'other competitive conduct below the behavior of fair men similarly situated.' Duggin v. Adams, 360 S.E.2d at 836-37 (internal quotations and citations omitted) (collecting cases)." Id. at *6.
The defendant tried to attack the claim in a number of ways. First, it argued that the plaintiff "only allege[d] a possibility that Plaintiff would realize its expectancy, not a probability." Id. at *9. The court rejected that argument because a "valid expectancy is still merely an expectancy. It need not be absolutely guaranteed." Id.
Next, the defendants argued that the "alleged actions do not qualify as improper because Plaintiff fails to allege every element of the separate torts of unfair competition or fraud." Id. at *11. The court found, however, that "a plaintiff need not allege a separate and complete tort to state a claim for tortious interference," citing the Restatement (Second) of Torts Sec. 767 cmt. c (1979) ("One may be subject to liability for intentional interference even when his fraudulent representation is not of such a character as to subject him to liability for other torts."). Id.
The court also found that the specific alleged improper conduct was sufficient to state a claim. The plaintiff alleged that the "Defendant made false, deceptive, and misleading statement to others with the intent to divert Plainitff's repeat business to itself." Id. at *12. "The Court finds that these types of statements constitute improper conduct because, as alleged, they fall under the rubric of 'misrepresentations or deceit,' 'sharp dealing, overreaching,' or 'other competitive conduct below the behavior of fair men similarly situated.'" Id. (citing Duggin, 360 S.E.2d at 836-37).
As we discussed in our prior post, found here, in an earlier opinion in Signature Flight, the court dismissed the plaintiff's tortious interference with contract claim because the plaintiff did not allege an "intentional interference of contract inducing or causing a breach or termination of the relationship or expectancy." Signature Flight, 2008 U.S. District Lexis 93715 at *6-7 (emphasis added).
The plaintiff then amended its complaint to add a claim for intentional interference with a business expectancy as opposed to interference with a contract. To assert a claim for an intentional interference with a business expectancy, a "plaintiff must allege: (1) the existence of a business relationship or expectancy, with a probability of future economic benefit to a plaintiff; (2) defendant's knowledge of the relationship or expectancy; (3) a reasonable certainty that absent defendant's intentional misconduct, plaintiff would have continued the relationship or realized the expectancy; and (4) damage to plaintiff." 2009 U.S. Dist. LEXIS 1938, *5. "In addition, when alleging a mere business expectancy, the plaintiff must show that the defendant's actions were improper." Id. (citations and internal quotations omitted).
The meaning of "improper" methods proves to be expansive and malleable in order to accommodate wide-ranging bad acts that are not easily defined or itemized. "Methods that have been recognized as 'improper' include (1) 'means that are illegal or independently tortious,' (2) 'violence, threats or intimidation, bribery, unfounded litigation, fraud, misrepresentation or deceit, defamation, duress, undue influence, misuse of inside or confidential information, or breach of a fiduciary relationship,' (3) means that 'violate an established standard of a trade or profession,' (4) '[s]harp dealing, overreaching, unfair competition,' or 'other competitive conduct below the behavior of fair men similarly situated.' Duggin v. Adams, 360 S.E.2d at 836-37 (internal quotations and citations omitted) (collecting cases)." Id. at *6.
The defendant tried to attack the claim in a number of ways. First, it argued that the plaintiff "only allege[d] a possibility that Plaintiff would realize its expectancy, not a probability." Id. at *9. The court rejected that argument because a "valid expectancy is still merely an expectancy. It need not be absolutely guaranteed." Id.
Next, the defendants argued that the "alleged actions do not qualify as improper because Plaintiff fails to allege every element of the separate torts of unfair competition or fraud." Id. at *11. The court found, however, that "a plaintiff need not allege a separate and complete tort to state a claim for tortious interference," citing the Restatement (Second) of Torts Sec. 767 cmt. c (1979) ("One may be subject to liability for intentional interference even when his fraudulent representation is not of such a character as to subject him to liability for other torts."). Id.
The court also found that the specific alleged improper conduct was sufficient to state a claim. The plaintiff alleged that the "Defendant made false, deceptive, and misleading statement to others with the intent to divert Plainitff's repeat business to itself." Id. at *12. "The Court finds that these types of statements constitute improper conduct because, as alleged, they fall under the rubric of 'misrepresentations or deceit,' 'sharp dealing, overreaching,' or 'other competitive conduct below the behavior of fair men similarly situated.'" Id. (citing Duggin, 360 S.E.2d at 836-37).
Tuesday, January 27, 2009
Williams Mullen Announces Creation of Unfair Business Practices Team
We are pleased to announce that Williams Mullen has created an Unfair Business Practices Team of seasoned litigators who understand bet-the-company litigation and have managed many cases like those that have been the subject of this Blog. Jim Kinsel and I are its Co-chairmen. The Team includes lawyers with significant experience in complex business litigation, intellectual property, employment, government and white-collar investigations and e-discovery.
The Unfair Business Practices Team members have a long history representing clients with cases involving business-to-business competition, misappropriation of proprietary information, corporate raiding, mass resignation of employees to start or join competing companies, business conspiracies, breach of fiduciary duties and corporate control issues. Our lawyers look for creative, outcome-driven strategies to manage a case as a crisis response. For more information about the Team and the types of Unfair Business Practices cases that we have handled, click here: http://www.williamsmullen.com/unfair-business/ .
The Unfair Business Practices Team members have a long history representing clients with cases involving business-to-business competition, misappropriation of proprietary information, corporate raiding, mass resignation of employees to start or join competing companies, business conspiracies, breach of fiduciary duties and corporate control issues. Our lawyers look for creative, outcome-driven strategies to manage a case as a crisis response. For more information about the Team and the types of Unfair Business Practices cases that we have handled, click here: http://www.williamsmullen.com/unfair-business/ .
Monday, January 26, 2009
Split of Opinion in Virginia Federal Courts Over Independent Personal Stake Exception to Intra-corporate Conspiracy Claims
A recent decision by Judge Mark S. Davis of the United States District Court for the Eastern District of Virginia has set up a clash between judges in that district over whether Virginia recognizes the “independent personal stake” exception to the intra-corporate immunity or intra-corporate conspiracy doctrine. It has long been understood in Virginia that because a corporation acts only through its agents, officers and employees, a conspiracy between a corporation and its agents, acting within the scope of their employment, is a legal impossibility. Griffin v. Electrolux Corp., 454 F. Supp. 29, 32 (E.D.Va. 1979). This principle, known as the intra-corporate immunity or intra-corporate conspiracy doctrine, has a recognized exception: if the agent, employee or officer has an “independent personal stake” in the conspiracy, then a conspiracy with the corporation may exist.
In December, Judge Davis in White v. Potocska, 2008 U.S. Dist. LEXIS 102204 (E.D.Va. December 3, 2008) refused to recognize the personal stake exception on the basis that the Supreme Court of Virginia had never recognized it. He drew support for his conclusion from two cases, Phoenix Renovation Corp. v. Rodriguez, 461 F. Supp.2d 411, 429 (E.D. Va. 2006) and Little Professor Book Co. v. Reston N. Point Village Ltd. Pshp., 41 Va. Cir. 73, 79 (Fairfax County 1996), an opinion by now federal district judge, Gerald Bruce Lee. Judge James C. Cacheris was the author of the Phoenix Renovation Corp. opinion. In 2007, however, Judge Cacheris reversed the view he expressed in Phoenix Renovation Corp. and recognized the “independent personal stake” exception in Buffalo Wings Factory, Inc. v. Mohd, 2007 U. S. Dist. LEXIS 91324 (E.D. Va. December 12, 2007). He reaffirmed that view in The Flexible Benefits Council v. Feltman, 2008 U.S. Dist. LEXIS 46626 (E.D.Va. June 16, 2008).
http://unfairbusinesspractices.blogspot.com/2008/11/virginia-court-limits-intra-corporate.html
Judge Davis did not mention either the Buffalo Wings Factory, Inc. or Feltman decisions in his opinion in White. Neither did he acknowledge the long line of Fourth Circuit cases that have recognized the personal stake exception, Greenville Publishing Co. v. Daily Reflector, 496 F.2d 391 (4th Cir. 1974); Buschi v.Kirven, 775 F.2d 1240 (4th Cir. 1985); Detrick v. Panaplina, 108 F.3d 529 (4th Cir. 1997); and American Chiropractic v. Trigon Healthcare, 367 F.3d 212 (4th Cir. 2004) or that a decision from the Western District of Virginia had followed the Fourth Circuit position on the issue. Selman v. American Sports Underwriters, Inc., 697 F. Supp. 225 (W.D. Va. 1988). All of those cases, with the exception of Greenville Publishing Co. originated in Virginia.
While there are several other Virginia Circuit Court opinions that have not recognized the “personal stake exception”, Softwise, Inc. v. Goodrich, 63 Va. Cir. 576 (Roanoke, January 28, 2004): Ashcon Int’l, Inc. v. Westmore Shopping Ctr. Assoc., 42 Va. Cir. 427 (Fairfax County, June 19, 1997) both recognize that the Virginia Supreme Court has been silent on the issue. And, in both cases, the courts found that, even had it been recognized, the plaintiffs had not alleged sufficient facts to implicate the exception.
It is unclear at this point how this divergence of views will be resolved in the federal courts, or whether the Virginia Supreme Court will ultimately address the issue. Meanwhile, the personal stake exception remains a very important doctrine in the unfair business practices arena. Where it is recognized, injured parties have a strong tool available to use in protecting their business interests by being able to pursue conspiracy claims.
In December, Judge Davis in White v. Potocska, 2008 U.S. Dist. LEXIS 102204 (E.D.Va. December 3, 2008) refused to recognize the personal stake exception on the basis that the Supreme Court of Virginia had never recognized it. He drew support for his conclusion from two cases, Phoenix Renovation Corp. v. Rodriguez, 461 F. Supp.2d 411, 429 (E.D. Va. 2006) and Little Professor Book Co. v. Reston N. Point Village Ltd. Pshp., 41 Va. Cir. 73, 79 (Fairfax County 1996), an opinion by now federal district judge, Gerald Bruce Lee. Judge James C. Cacheris was the author of the Phoenix Renovation Corp. opinion. In 2007, however, Judge Cacheris reversed the view he expressed in Phoenix Renovation Corp. and recognized the “independent personal stake” exception in Buffalo Wings Factory, Inc. v. Mohd, 2007 U. S. Dist. LEXIS 91324 (E.D. Va. December 12, 2007). He reaffirmed that view in The Flexible Benefits Council v. Feltman, 2008 U.S. Dist. LEXIS 46626 (E.D.Va. June 16, 2008).
http://unfairbusinesspractices.blogspot.com/2008/11/virginia-court-limits-intra-corporate.html
Judge Davis did not mention either the Buffalo Wings Factory, Inc. or Feltman decisions in his opinion in White. Neither did he acknowledge the long line of Fourth Circuit cases that have recognized the personal stake exception, Greenville Publishing Co. v. Daily Reflector, 496 F.2d 391 (4th Cir. 1974); Buschi v.Kirven, 775 F.2d 1240 (4th Cir. 1985); Detrick v. Panaplina, 108 F.3d 529 (4th Cir. 1997); and American Chiropractic v. Trigon Healthcare, 367 F.3d 212 (4th Cir. 2004) or that a decision from the Western District of Virginia had followed the Fourth Circuit position on the issue. Selman v. American Sports Underwriters, Inc., 697 F. Supp. 225 (W.D. Va. 1988). All of those cases, with the exception of Greenville Publishing Co. originated in Virginia.
While there are several other Virginia Circuit Court opinions that have not recognized the “personal stake exception”, Softwise, Inc. v. Goodrich, 63 Va. Cir. 576 (Roanoke, January 28, 2004): Ashcon Int’l, Inc. v. Westmore Shopping Ctr. Assoc., 42 Va. Cir. 427 (Fairfax County, June 19, 1997) both recognize that the Virginia Supreme Court has been silent on the issue. And, in both cases, the courts found that, even had it been recognized, the plaintiffs had not alleged sufficient facts to implicate the exception.
It is unclear at this point how this divergence of views will be resolved in the federal courts, or whether the Virginia Supreme Court will ultimately address the issue. Meanwhile, the personal stake exception remains a very important doctrine in the unfair business practices arena. Where it is recognized, injured parties have a strong tool available to use in protecting their business interests by being able to pursue conspiracy claims.
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