Virginia Business Litigation Lawyer Blog

Even in Virginia, which recently placed first in a ranking of the "Best States for Business" by Forbes.com, businesses often fail. Particularly in small companies, relationships among the owners sour and partnership disputes arise. Here in Fairfax County, where my practice is located, it is not uncommon for disgruntled partners to attempt to withdraw large sums from corporate bank accounts prior to dissolution or to attempt to block other owners' access to the company's accounts. Banks need to be careful not to get caught in the crossfire by inadvertently facilitating a wrongful cash grab by one of the business owners. Fortunately, as illustrated by a recent decision by Fairfax Judge Bellows, Virginia's adoption of the Uniform Commercial Code provides some valuable protection to banks.

Khan v. Alliance Bank (Fairfax Circuit Court, Dec. 22, 2009) involved a dispute between two owners of Advantage Title and Escrow, LLC, Khan and Kazmi. Both were authorized signatories on the company's account held with Alliance Bank. After the two had a falling out, Kazmi instructed the bank to remove Khan as a signatory. A few days later, Khan wrote a $35,000 check against Advantage Title's account in exchange for a cashier's check for that amount. Upon learning of the transaction, Kazmi sent an "Affidavit of Unauthorized Transaction" to Alliance Bank. This document alleged, under oath, that Khan obtained the cashier's check through fraud as Khan was (according to Kazmi) not authorized to withdraw funds from the company's account. In reliance on that affidavit, Alliance Bank canceled the cashier's check and credited $35,000 back to the Advantage account.

Normally, putting a stop-payment order on a check is not a big deal. But cashier's checks, which are governed by the UCC, are different. Unlike personal checks, cashier's checks carry a promise of the bank to the holder. For that reason Khan sued Alliance Bank, claiming that the promise was unconditional and that, by terminating payment, Alliance was liable to Khan for breach of contract and conversion.

The court disagreed and threw out the case. Under the applicable provisions of the UCC, a bank will only be liable for canceling a cashier's check if the bank acted "wrongfully." A bank is justified in refusing to honor a cashier's check if the bank "asserts a claim or defense of the bank that it has reasonable grounds to believe is available against the person entitled to enforce the instrument" or the bank "has a reasonable doubt whether the person demanding payment is the person entitled to enforce the instrument." See Va. Code § 8.3A-411(c).

In this case, Kazmi's affidavit gave Alliance Bank all the protection it needed. The affidavit (like all affidavits) was made under oath, and its allegations were reasonable on their face. Therefore, the court found, the sworn statement provided the bank with reasonable grounds to believe the check was procured by fraud, which is a defense to the negotiability of the check. Alliance Bank did not act "wrongfully" within the meaning of the UCC, so the court dismissed the case.

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.

Trial lawyers drafting lawsuits on behalf of their clients generally try to plead as many causes of action as possible. In particular, they often try to add "tort" claims to a case that is really just about a breach of contract. Virginia law generally does not permit recovery on tort claims when the duty that is breached is based on a contractual relationship. What's the difference? For one thing, when it comes to assessing damages, the law of contracts looks to those that were within the contemplation of the parties when framing their agreement. Contract remedies are designed to compensate parties for foreseeable losses suffered as a result of a breach of a duty created by the contract itself. Tort law provides remedies for losses resulting from a breach of duty arising independently of any contract.

A recent case decided by Judge Conrad of the Western District of Virginia illustrates the distinction. In Raleigh Radiology, Inc. v. Eggleston and Eggleston, P.C., Raleigh Radiology ("RRI"), the plaintiff, entered into a contract with Eggleston, a practice management services business, which authorized Eggleston to manage and collect reimbursements owed to RRI for radiological services and which gave Eggleston control over RRI's accounts in order to facilitate the process. In return for Eggleston's work, the contract specified that RRI was to pay Eggleston $5.40 for each reimbursement it secured. Eventually, however, RRI came to believe that Eggleston had overcharged for services performed and had been billing for nonexistent reimbursements.

RRI sued Eggleston for breach of contract, unjust enrichment (a theory of implied contract) and the tort of conversion. Eggleston responded with a motion to dismiss the conversion claim on the ground that the duty breached was purely a contractual one, which precluded the filing of a tort claim. The court disagreed.

Focusing on the origin of the duties Eggleston allegedly breached, the court held that plaintiffs could legitimately assert conversion claims in conjunction with breach of contract claims when the breached duty arises separately from those required by the contract. The court defined the tort of conversion as "any distinct act of dominion or control wrongfully exerted over the property of another, either inconsistent with, or in denial of, the owner's rights." RRI claimed that Eggleston used its control over RRI's accounts to transfer payment for the alleged overcharges and nonexistent reimbursements into Eggleston's account. While Eggleston's access to RRI's accounts was only made possible by the contract, the court did not dismiss the conversion count because it was not merely redundant of a breach of contract claim. The court observed that every person owes a duty not to improperly make use of another person's bank accounts and that this duty exists regardless of whether parties have entered into a contract. Because the breached duty existed outside of the contract, RRI was not limited to remedies specified in the parties' agreement.

In Virginia, an action for trespass is no longer the only remedy a landowner has against a trespasser. A Norfolk judge recently held that a landowner may sue for rent even in the absence of an express or implied lease agreement. A duty to pay rent can arise under the doctrine known as quantum meruit.

In the case of City of Norfolk v. Muladhara, LLC, Norfolk managed several lots of prime commercial real estate on which the city collected rents. The Defendant, Muladhara, began conducting business on one of the lots without ever receiving permission from Norfolk. Upon discovering the trespasser, Norfolk informed Muladhara that the city managed the land and collected rent for its use. This conversation prompted the Defendant to pay the back rent the city claimed was due. However, Muladhara continued to occupy the space without any further payment.

The court held that Norfolk may base its claim for recovery on two distinct theories. First, the court found that the conversation between the city and Muladhara that led to the payment of back rent could form the basis of an implied contract. Judge Hall clearly laid out the three elements of an implied contract: offer, acceptance, and a meeting of the minds. Simply put, the city offered to overlook the previous trespass if Muladhara paid back rent, and Muladhara accepted the offer. Even though this agreement only covered Muladhara's past occupation of the parcel, the Defendant's payment of back rent constituted a meeting of the minds as to the rental value of the land. Should Muladhara continue to occupy the land, the meeting of the minds forms the content of the implied contract. The city, therefore, is allowed to sue for payment of rent due, and the amount will be determined by looking to the parties' prior agreement.

Implied contract is a fairly common vehicle for the collection of rent when no formal agreement exists. The court, however, added a new tool to the landowner's toolbox: quantum meruit, or quasi-contract. This differs from an implied contract in that a meeting of the minds (the basic terms of the contract) is not necessary. All that is required is that the city reasonably expected to be compensated for the use of its land, and that the trespasser, aware of the city's reasonable expectation, still made use of the land. Historically, quantum meruit only applied to a plaintiff's services or materials consumed by the defendant, not to a defendant's use of real property. But, as Judge Hall pointed out, the Virginia Supreme Court has defined quantum meruit to apply whenever a defendant "acquires property of another," and real property need not be excluded from this definition. Consequently, no established precedent prevents a plaintiff from pursuing the reasonable rental value of the property even if no agreement was ever reached concerning the value of the property.

When entering into a contract with a party based in another state, Virginia businesses may wish to include in their agreements a clause specifying that any future disputes arising under the contract will be litigated in Virginia rather than the home state of the other party. For example, if you own and operate a Virginia business and you subcontract some IT consulting work out to a subcontractor headquartered in Idaho, you would probably want to make sure that if a dispute arises, the litigation will be brought here in Virginia rather than Idaho. It may also be important to you to have the dispute resolved in Virginia state court rather than in federal court, or vice versa. Can you select a litigation forum in advance by designating the appropriate forum in your contract? Yes, but the words you use are critical to how the courts will enforce the agreement.

Earlier today, in the course of granting a motion to dismiss I had filed on behalf of a client, Judge Payne of the Eastern District of Virginia issued a ruling demonstrating that judicial interpretation of so-called forum selection clauses can hinge on every word used in the agreement. The clause at issue stated that, in the event of a lawsuit, "the proper jurisdiction and venue of any such lawsuit shall be the courts of the Commonwealth of Virginia." The plaintiff sued my client in federal court in Richmond. In response to our motion to dismiss for improper venue, the plaintiff took the position that the clause was not mandatory but merely permissive; that it specified Virginia state court as one of several permissible venues, rather than the only place a party could sue. The court held the clause was mandatory and dismissed the action.

The court noted that merely specifying "Virginia" as a forum for disputes does not necessarily dispose of the matter. First, inquiry must be made into whether the forum-selection clause designates geography or implicates sovereignty. For example, if the clause had referred to the courts "in" Virginia rather than "of" Virginia, the clause could be interpreted to mean any court sitting within the geographic boundaries of the Commonwealth of Virginia, which would include both state and federal courts. By referring to the courts "of" Virginia, the court interpreted the phrase to implicate courts chartered by a specified sovereign: in other words, Virginia state courts.

The plaintiff tried to keep the case in federal court by pointing out the absence of mandatory language like "exclusive" or "only." The court responded by explaining that forum-selection clauses will be read in their entirety, and there is no "talismanic word" that will automatically render a clause permissive or mandatory.

When Judge Cacheris of the Alexandria Division was faced with having to interpret a forum selection clause a couple of weeks ago, he dealt with it in much the same way. In Nahigian v. Juno-Loudoun, LLC, a case arising out of the sudden departure of the Ritz-Carlton Hotel Company from the Creighton Farms neighborhood in Leesburg, the plaintiffs originally filed their case in Loudoun County Circuit Court but the defendants removed the case to federal court. The plaintiffs sought to remand the case back to state court, pointing to a forum-selection clause which provided: "In connection with any litigation between Buyer and Seller arising out of this Agreement. . . [t]he sole venue for any litigation shall be Loudoun County, Virginia."

Notice that unlike the clause in my case, the language does not refer to the courts "of" Loudoun County, Virginia. Rather, it refers to Loudoun County in the geographic sense. The federal court sitting in Alexandria has jurisdiction over matters arising in Loudoun County. "A forum-selection clause that imposes a geographic restriction still permits litigation in the federal or state courts within that geographic area," the court wrote. Thus, despite the fact that the contract referred specifically to Loudoun County, the court denied the motion to remand the case to the Loudoun Circuit Court.

What's a contracting party to do? If venue is important, be crystal clear in the language you use. Refer to the designated court system by name so that there can be no confusion about whether you were merely referring to a location in a geographic sense. Use mandatory language like "shall" and avoid permissive terms like "may." Leave no room for misinterpretation. If, for example, you want all disputes to be resolved in Fairfax County Circuit Court and nowhere else, say so. Do not merely provide in your agreement that "the parties consent to jurisdiction in Fairfax County." That's not even enough to guarantee the case will be brought in Virginia, as it does not rule out the possibility of a court having jurisdiction in another part of the country. Instead, say something like, "the sole and exclusive venue for any lawsuit arising out of or relating to this agreement shall be the Circuit Court of Fairfax County, Virginia." It's hard to read from that anything other than what you intended, and that's the way you want it.

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.

Back in March, in a breach-of-contract case between Engineering Systems Solutions (ESS) and All Technologies, Inc. (AllTech), a federal jury found that ESS was entitled to $325,000 plus 40% of AllTech's shares, and that AllTech was entitled to a personal judgment against the owner of ESS for $47,000. Earlier this month, Judge Liam O'Grady of the Eastern District of Virginia entered judgment in favor of ESS notwithstanding the verdict against its owner, setting aside that portion of the jury's findings.

The dispute arose from a fallout over a failed business venture. ESS is a computer systems integration and professional services firm. AllTech is a government contractor specializing in computer-related IT services. Based on AllTech's assurances that it could help ESS obtain "lucrative government contracts," ESS agreed to provide financial and management assistance to AllTech and the two companies entered into a series of contracts in 2004 and 2005. Under the terms of the contracts, ESS and its owner were to provide a $100,000 line of credit as well as management and accounting services. In exchange, they were to acquire a 40% ownership interest in AllTech.

In the ensuing dispute, ESS claimed they issued multiple lines of credit totaling $458,000 which had not been repaid, that AllTech never delivered the promised subcontractor opportunities, and that the stock was never assigned. AllTech counterclaimed on the basis that ESS wrongfully terminated the health insurance of AllTech employees, resulting in a lost government contract worth $47,000.

The court set aside the $47,000 award and entered judgment notwithstanding the verdict. The main reason was that the jury found the owner of ESS personally responsible, when there was no evidence that would support personal liability. The contracts did require the owner to provide general management functions, but such broad contractual language is insufficient to establish a personal obligation to guarantee health insurance, the court held. The court declined to set aside the jury's lost profits award to ESS, noting that plaintiffs are entitled to recover all non-speculative damages flowing from a breach of contract.

Courts have the authority to set aside jury verdicts and grant judgment "as a matter of law" in favor of a party under Rule 50 of the Federal Rules of Civil Procedure. Rule 50(a) permits judgment as a matter of law when a court finds that a reasonable jury would not have a legally sufficient evidentiary basis to support its finding.

Proving once again that no good deed goes unpunished, a former employee of BB&T Insurance Services to whom BB&T graciously paid 30 days of severance pay despite terminating his employment for cause--and apparently without requiring the employee to sign a release--sued the company for wrongful termination. On June 17, 2009, however, Judge Wilson of the Western District of Virginia in Harrisonburg had "no hesitancy" in tossing out the case on summary judgment.

The employee's job duties involved identifying, contacting, and providing services to existing and potential new insurance customers. To assist him in performing those duties, BB&T allowed him to use a company laptop with access to confidential files on the company's network. At the time of his termination, the employee had 8 years' worth of sensitive client information stored on his laptop.

While traveling, the employee left the laptop unattended overnight in his vehicle while it was parked in a hotel parking lot. It was stolen. When BB&T learned of the theft, it notified those of its clients affected by the data breach and offered them a credit-monitoring service. These programs cost the company over $24,000.

BB&T fired the employee for "cause," defined in the parties' employment agreement as "termination...for failure of Employee to adhere, after Employee has received written notice from [the Company] of such failure, and been given 30 days in which to cure such failure (if such failure can be cured), in any material respects to written policies, procedures, and the Code of Ethics established from time to time by [the Company]...." BB&T had distributed policies indicating in clear terms that all employees in possession of sensitive company information were obligated to protect the information, which duty included specifically a prohibition against leaving laptops unattended in vehicles.

The court threw out the employee's breach-of-contract case, rejecting his arguments that he was not bound by the parent company's policies, and that even if he were, he should have been given 30 days in which to "cure" the violation. The court found both arguments entirely lacking in merit, writing that no jury could reasonably agree with them.