Virginia Business Litigation Lawyer Blog

If you're going to sue a bunch of former employees for various business torts, you need to be clear in your allegations as to who did what. It's all too easy to lump all the defendants together when describing the wrongful conduct in the complaint, especially when there are numerous defendants. Increasingly, however, Virginia courts are dismissing defendants from cases in which their specific involvement cannot be ascertained from the face of the complaint.

Recently in a Virginia federal court, Alliance Technology Group, LLC (Alliance), an IT services provider, sued a cadre of its employees and Achieve 1, LLC (Achieve), a competing company, for conspiracy, fraud, misappropriation of trade secrets, and other claims. One defendant, William Ralston, moved to dismiss due to the fact that many of the allegations of the complaint lumped all the defendants together, accusing all the defendants of committing tortious conduct collectively.

The rules are pretty lenient on what a complaint must contain to survive a motion to dismiss. A complaint must include a short and plain statement of the claim showing that the pleader is entitled to relief, and enough factual information to give the defendant fair notice of the nature of the claim. It must allege enough facts--not conclusions--to make the asserted right to relief plausible on its face rather than merely speculative or conceivable.

According to the complaint, Michael Thomas joined Alliance intending to steal trade secrets and proprietary information for Achieve, a company he'd formed earlier. Thomas directed eight employees while at Alliance, all subject to confidentiality agreements with Alliance. But he and the other employees began competing against Alliance while they were still working there, using Achieve to do it. Eventually, they all joined Achieve where, Alliance alleges, they used proprietary information to appropriate its clients and business.

The complaint ties each defendant, except Ralston, to at least one specific transaction and specific date for joining Achieve. Ralston was lumped into the allegations against "the Defendants" except for allegations that he joined Alliance mere weeks before Thomas resigned and he now works for Achieve.

The court dismissed the common law and statutory conspiracy claims against Ralston. Common law conspiracy in Virginia requires (1) two or more persons, (2) acting in concert, (3) "to accomplish some criminal or unlawful purpose, or to accomplish some purpose, not in itself criminal or unlawful, by criminal or unlawful means." To satisfy the unlawful act requirement, at least one of the alleged co-conspirators had to have committed an underlying tort like the alleged inducement to breach a contract.

The complaint alleged the conspiracy had been going on since at least November 2011, but Ralston didn't join Alliance until March 2012 and no allegations claimed he'd joined in an ongoing conspiracy. It may have been conceivable that he was part of it before he joined the company, but that was pure speculation, which wasn't sufficient.

Statutory business conspiracy arises when two or more persons "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 whatsoever." The complaint didn't allege that Ralston joined the conspiracy before hiring on with Alliance or that he joined the others in malice or with knowledge of others' malice. So the court could not reasonably infer that he joined Alliance with a present intent to accomplish an unlawful purpose.

The fraud claim also failed for insufficient pleading. In Virginia, one who alleges fraud must allege: (1) a false representation, (2) of a material fact, (3) that was made intentionally and knowingly, (4) with the intent to mislead, (5) reasonable reliance by the party misled, and (6) resulting damage to the party misled. Because the allegations lumped Ralston in with the others on this count, the complaint lacked the necessary specific time, place and contents of false representations attributable to Ralston. The Court accordingly dismissed the fraud claim as well. Several claims remain, however, including breach of fiduciary duty, misappropriation of trade secrets, and tortious interference with existing contract, contract expectancy, prospective business relationship and economic advantage.

In a dispute between two Virginia lawyers, a U.S. District Judge has rejected attorney Cynthia Smith's claim that another attorney, Timothy Purnell, interfered with her contract with a client and caused her to suffer nearly $4 million in financial losses.

Smith had been representing a Northern Virginia family, the Wieses, in a dispute with their neighbors. Eventually, the Wieses became dissatisfied with her representation and hired Purnell in her place. Smith sought her full $30,000 fee from the Wieses but ended up settling the fee dispute with them for $5,000. She and the Wieses signed a settlement agreement in 2009 that provided for a full release of all claims. Two years later, Smith sued Purnell over his role in representing the Wiese family, alleging that Purnell tortiously interfered with her right to receive the full payment from the client. She said that Purnell at one point promised her that he would ensure that she would be "paid in full" by the Wieses and that he reneged on this promise. She also claimed that she signed the settlement agreement under duress in that her "decision to trust God" led to a series of financial losses.

U.S. District Judge James Cacheris, in a December 9, 2011, ruling, rejected all of Smith's claims and dismissed the complaint. He turned down her motion for leave to amend her complaint, finding that any amendment would be futile because the facts before him did not state a cause of action. Judge Cacheris wrote that Smith's claims were barred by the release language in the settlement agreement that she signed in 2009 with the Wieses. In his ruling, the judge pointed out that the agreement extinguishes all claims that Smith might have not only with the Wieses but also with their attorneys. Judge Cacheris ruled further that Smith's financial distress at the time did not amount to legal "duress" that permitted her to avoid the provisions of the settlement agreement.

"There are no facts alleging that Defendant or the Wiese family exerted force, intimidation, or threats related to the offer to settle, and, in fact, there is evidence that they also offered to bring the dispute to mediation," the judge wrote. "That Plaintiff informed Defendant of her difficult financial position does not convert the offers to mediate and settle into coercion."

Judge Cacheris also ruled that even if it were not for the settlement agreement, Smith could have no claim against Purnell for interfering with her agreement with the Wieses. Purnell was their attorney and thus their agent, he pointed out - and Virginia law does not allow a claim for tortious interference by an agent with his principal's contract, since for this purpose the agent and the principal are one and the same entity. One cannot tortiously interfere with one's own contract. "Despite being an attorney, Plaintiff has remarkably missed the fact that the attorney-client relationship is one of agency," the judge wrote.

Business litigation often involves allegations that a competitor engaged in unfair competition or business tactics designed to injure the plaintiff's business. Such cases will only be successful, however, if the defendant business has crossed the line between legitimate competitive activity and tortious conduct. In a new Fourth Circuit opinion written by Judge Mark S. Davis of the Eastern District of Virginia, the court affirmed summary judgment in favor of BMW, explaining that not all aggressive competition will be deemed unfair or unlawful; a competitor pursuing its legitimate business interests will often be permitted to do so without incurring liability.

BCD, LLC v. BMW Mfg. Co. involved a dispute over a project to build a new school of engineering on the Clemson University campus. The plaintiff, Rosen (and the companies controlled by him) and BMW were each involved in different aspects of the construction project. Rosen had entered into a tentative agreement with Clemson in 2002, which outlined the responsibilities each would each have in the construction of a wind tunnel. The agreement was not binding, however, because there remained certain unresolved details, and the written agreement specifically allowed either party to withdraw from the project if they could not agree as to those unresolved details. The agreement was thus in the nature of an "agreement to agree" rather than a final, binding contract.

Clemson and BMW, on the other hand, had entered into a final agreement to which each party was bound, and BMW had received a $25 million grant from the state for the project. As preparation for the construction of the school was getting underway, Rosen declared that he wanted the new school to be built on land he owned, but BMW objected because it wanted to keep the state-funded school separate from the privately-funded wind tunnel. As time wore on, little to no progress was made on the construction of the wind tunnel, and Clemson and Rosen were still unable to come to an agreement on the unresolved details from the 2002 agreement. Finally, Rosen and Clemson signed a new agreement in 2003 that negated the 2002 agreement, resolved all of the details, and included a sale of Rosen's land to Clemson so the school could be built on land that was now publicly-owned. Rosen did not want to cede control over the property, and felt that BMW coerced Clemson into stalling on the wind tunnel project so BMW could exert control over Rosen's property. He thus sued BMW for tortious interference with a contract, intentional interference with prospective contractual relations, and civil conspiracy.

The court affirmed summary judgment for BMW on all counts. In doing so, the court explained the legal elements of each of Rosen's tort claims and explained clearly why the conduct complained of did not satisfy these requirements. (The case was decided under South Carolina law, which is substantially similar to Virginia law in this area).

Dealing first with the tortious interference allegation, the court laid out the elements as: "(1) the existence of the contract; (2) the other party's knowledge of the contract; (3) the other party's intentional procurement of a breach of the contract; (4) the absence of justification; and (5) resulting damage." The court rejected Rosen's claim because no enforceable contract existed between Rosen and Clemson at the time of the alleged interference. The court noted that because either party could opt out of the 2002 agreement, it was not a binding contract, and without a binding contract, there can be no tortious interference.

The court next tackled the claim of interference with prospective contractual relations. The elements for this tort are: "(1) intentionally interfer[ing] with the plaintiff's potential contractual relations; (2) for an improper purpose or by improper methods; (3) causing injury to the plaintiff." The court easily affirmed summary judgment on this count because Rosen had offered no evidence that BMW had utilized improper methods or had taken any action for an improper purpose. The court observed that BMW was merely attempting to further its own business interests by seeking understandably to exercise control over a project in which it was intimately involved. There was no evidence, for example, that BMW had used "violence, threats, bribery, fraud, misrepresentation, deceit, or duress" in the course of affecting Rosen's relationship with Clemson.

Regarding the conspiracy claim, the court set forth the elements as "(1) a combination of two or more persons, (2) for the purpose of injuring the plaintiff, (3) which causes the plaintiff special damage." The court found that Rosen had failed to meet his burden to produce evidence that BMW's actions were taken for the purpose of causing injury to Rosen. Rather, it appeared from the evidence that BMW was merely acting to protect the interests all competitors in a capitalistic economy share: to succeed in business, which often comes at the cost of the competitor.

The court affirmed judgment in BMW's favor, finding insufficient evidence to hold BMW liable on any of Rosen's business-tort theories. The court reasoned that to punish BMW for pursuing its legitimate business interests would be to indict our entire economic system.

Conducting business in Virginia can be a cutthroat affair. Our capitalist system demands that firms compete with each other in price, quality, and technology, and the most innovative company will often win the largest number of lucrative government contracts. Unfortunately, some contractors utilize unfair, unethical, or illegal methods in the name of competition. Virginia is one of several states that have enacted "business conspiracy" statutes designed to discourage and punish some of these practices. The statute is very popular with Virginia lawyers, due in no small part to its provisions allowing recovery of both treble damages and attorneys fees.

In Turbomin AB v. Base-X, Inc., a case pending in the federal court sitting in Lynchburg, the plaintiff (Turbomin) had a contract to perform services for Base-X, a government contractor located near Lexington. In winning this contract, Turbomin beat out another defendant in the case, Lindstrand Technologies Ltd. Eventually, however, Base-X terminated its contract with Turbomin and refused to pay the balance allegedly owed to Turbomin. Turbomin's officers suspected that disgruntled Lindstrand employees convinced Base-X employees to breach the contract. Invoking Virginia's business conspiracy statute, Turbomin alleges that Base-X and Lindstrand "conspired to interfere with a business reputation".

Judge Norman Moon, in granting the plaintiff's motion to add a business conspiracy count to its complaint, clarified the requirements of this Virginia law. In order to win this type of conspiracy claim, a plaintiff must prove three things: that the defendants (1) engaged in a concerted action, (2) with legal malice, (3) resulting in damages. Judge Moon explained that a "concerted action" is any association or agreement among the defendants to engage in the conduct that caused the plaintiff injury. Legal malice, the court held, requires showing "that the defendant acted intentionally, purposefully, and without lawful justification" to injure the plaintiff. Judge Moon also observed that while a plaintiff need not prove that the defendant's "primary and overriding purpose" in forming the conspiracy was to injure the plaintiff's reputation, trade, or business, such must be at least one of the purposes of the conspiracy.

The action that the defendants agree to do must be unlawful in and of itself for an actionable conspiracy to arise. In other words, just because two businesses agree to take a course of action that ultimately does not work out well for another party, does not necessarily mean they engaged in a conspiracy to interfere with the injured party's business reputation. In the Turbomin case, the unlawful act that the plaintiff accused the defendants of conspiring to commit was to breach the contract with Turbomin. Breach of contract is an unlawful purpose that may form the basis of a conspiracy claim, the court confirmed.

Finally, due to the defendants' conspiracy to commit an unlawful act, the plaintiff must suffer a measurable, economic loss. Simply put, the plaintiff must be able to quantify its damages in a dollar amount.

For businesses harmed by the anti-competitive acts of an unscrupulous tortfeasor, Virginia's business conspiracy statute provides a powerful tool that can be used to both recover damages and deter future competitors from engaging in such conduct. For more information about protecting your business from wrongdoers, consult an attorney.

Faced with an issue that has not yet been decided by the Virginia Supreme Court, a federal court sitting in Roanoke, Virginia, ruled that contracting parties may not agree in advance to exempt each other from liability resulting from future intentional misconduct. To the extent parties include in their contract a disclaimer purporting to limit liability and legal theories to exclude causes of action targeted at intentional or reckless misconduct, Virginia courts should strike them down as violative of public policy, the court held.

The case was filed in January by All Business Solutions, Inc., against NationsLine, Inc. Both companies provide telecommunications services. The parties entered into a contract providing that NationsLine would manufacture certain telecommunications products and that ABS would market and sell them for a commission. According to ABS, when one of its customers for direct inbound dialing numbers ("DIDs") realized that ABS was also conducting business with one of its competitors, it resolved to "injure or destroy" ABS and caused NationsLine to abruptly terminate the contract.

One legal theory pursued by ABS was that of statutory business conspiracy under the Virginia Business Conspiracy Act, Va. Code § 18.2-499, -500. The business conspiracy statute is popular among plaintiffs' attorneys due primarily to its triple-damages provision and allowance for recovery of attorneys' fees. NationsLine moved to dismiss the claim, arguing (among other things) that the claim was barred by the limitation of liability provision in the parties' contract.

The clause at issue disclaimed liability as follows: "In no event shall NationsLine be liable for special, indirect, incidental, punitive or [consequential] damages, including loss of profits, arising through the relationship or the conduct of business contemplated herein." According to the disclaimer, ABS's sole remedy was for commissions earned.

The court, after observing that the Virginia Supreme Court has apparently not yet determined the effect of such contractual language, held that while parties to a business contract may generally limit their risk of loss through contract, it would be against Virginia public policy to exempt a party from liability for intentional, conspiratorial misconduct. The motion to dismiss was denied.