Virginia Business Litigation Lawyer Blog

The discovery process, the primary fact-finding tool available to litigants, has always been contentious. Parties are loathe to hand over potentially embarrassing or incriminating documents, and the costs involved can be staggering. The information age has only served to make things more complicated. As the Northern District of Illinois observed in the 2002 case of Byers v. Illinois State Police, "[m]any informal messages that were previously relayed by telephone or at the water cooler are now sent via e-mail." Now that so many casual conversations are documented in e-mail and are, therefore, potentially subject to discovery, the discovery costs in the typical case have skyrocketed . Two recent United States District Court Cases, one out of Minnesota, Kay Beer Distributing, Inc. v. Energy Brands, Inc., and the other out of Florida, Kilpatrick v. Breg, Inc., provide a window into just how daunting electronic discovery can be, how judges are adapting traditional discovery rules to deal with these new problems, and how parties can do their part to avoid potential problems.

Information is generally discoverable if it is non-privileged and either directly relevant to a party's claim or reasonably calculated to lead to the discovery of evidence that is directly relevant. In the Kay Beer case, Kay alleged that an oral contract gave it the exclusive right of distribution for Energy Brands' products. Energy Brands claimed that by its understanding of the agreement, Kay's distribution rights were limited. This was essentially a run-of-the-mill contract dispute. What made the case unique, however, was the plaintiff's demand that the defendant hand over five DVDs containing nearly 13 gigabytes (between 650,000 and 975,000 pages) of e-mails and other documents. Each of the documents had been identified as referencing "Kay Beer", "Kay Distributing", or simply "Kay" by a keyword search of Energy Brands' archives. Kay Beer argued that the documents might contain discoverable evidence showing that Energy Brands originally shared Kay's understanding of their agreement.

The court's approach to the discovery contest was to weigh Kay Beer's interest in obtaining the documents against the burden Energy Brands would experience in turning them over. The court found that just because a document references a party does not support the conclusion that it contains relevant evidence. It further reasoned that in contract litigation, the only relevant statements are those made between the representatives of the companies involved; statements made by lower-level employees not empowered to speak for the company are not relevant to the official understanding of the contract. The court concluded that Kay Beer's interest in the documents was relatively minor.

Turning to an examination of Energy Brands' burden, the court noted that before the documents could be produced, Energy Brands would have to review each one for privilege and relevancy. The company estimated that the time involved in examining 650,000 to 975,000 would cost $120,000. The court found the cost unduly burdensome, and after weighing this burden against the slim possibility that relevant evidence might be discovered, held that Kay was not entitled to the requested discovery.

Kilpatrick differed slightly in fact but was consistent in outcome. Kilpatrick, the plaintiff, claimed that the pain pump manufactured by the defendant, Breg, and used in his October, 2004 shoulder surgery gave him a condition called chondrolysis. Kilpatrick's suit alleged that Breg knew of the risk of chondrolysis but marketed the product regardless of the dangers and without warning. Just weeks before trial, Kilpatrick demanded the production of nearly 6 years' worth of Breg's archived, intra-office e-mails. In depositions, several Breg employees testified inaccurately that they learned of the risk of chondrolysis in March of 2006, when documents obtained by Kilpatrick indicated clearly that the risk was known as early as December of 2005. Kilpatrick theorized the misstatements were part of a cover-up and sought extensive discovery to substantiate the theory.

Performing a balancing test similar to that in Kay Beer, the court first looked to the likelihood that relevant evidence would be discovered in the requested e-mails. The court acknowledged that the inaccurate testimony did raise some suspicions, but noted there was no evidence in the record indicated Breg knew of the chondrolysis risk prior to December 2005. The court found the misstatements were likely honest mistakes, reasoning that the depositions occurred nearly three years after the events in question and that the deponents were only off by about three months in their statements.

The court then took into account the significant burden such extensive, last-minute discovery would place on Breg. It denied the requested discovery in light of this burden, but granted Kilpatrick a limited right to further explore the Breg employees' misstatements by allowing discovery into a sampling of the archived e-mails, at Kilpatrick's expense.

This balanced approach to electronic discovery shows that seemingly antiquated discovery rules are still applicable in this new age. While some flexibility is required, a little common sense can make a complicated scenario a little more manageable. That being understood, a party, when making discovery requests, would be wise to be mindful of the opposing party's position and attempt to curb any burden the request might impose. Such a measured approach can help tip the balancing test in your favor.

To file a lawsuit in Virginia's state or federal courts against a non-resident of Virginia or an out-of-state corporation, it is necessary to establish "personal jurisdiction" over the defendant. A court has no power over parties to a lawsuit absent such jurisdiction. Personal jurisdiction will exist only if (1) Virginia's "long-arm" statute authorizes it; and (2) the defendant has certain "minimum contacts" with Virginia "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice," which is required by constitutional due process. In a recent case from the Eastern District of Virginia, Judge Trenga held that a passive website not purposefully targeted at Virginians was not sufficient to create a basis for personal jurisdiction and he dismissed the case.

The case, which contains counts for actual fraud, constructive fraud, negligence, and breach of fiduciary duty, was filed by Dr. Olimpia Rosario, a Virginia psychiatrist, against professional psychic Jeffrey Wands, who operates Psychic Eye Media in New York. Dr. Rosario became impressed with Mr. Wands several years ago when he correctly predicted that she would obtain a residency in a New York-based hospital. Ever since, Dr. Rosario has sought counseling and guidance from Mr. Wands on a wide range of issues, including spiritual issues and substance abuse problems, despite the fact he held no degree or license to practice any type of healing art, medicine, counseling, or social work in either Virginia or New York.

Eventually, Mr. Wands became concerned about certain of Dr. Rosario's behavior and reported it to both the New York Police Department and the Virginia Board of Medicine. Dr. Rosario sued, claiming Mr. Wands caused her condition to worsen and denying abuse of prescription drugs. Mr. Wands, a resident of New York, moved to dismiss the case for lack of personal jurisdiction.

Dr. Rosario's main argument in support of jurisdiction was that Mr. Wands maintained a website accessible to residents of Virginia (as well as everyone else in the world having an Internet connection) and touting a national following. The court disagreed that such a website was sufficient to establish a "presence" in Virginia sufficient to form a basis for personal jurisdiction. Citing a Fourth Circuit case, the court noted that "a person who simply places information on the Internet does not subject himself to jurisdiction in each State into which the electronic signal is transmitted." There were no allegations that Mr. Wands' website was interactive or that users could conduct transactions through the website. The court also noted the absence of any facts demonstrating that Mr. Wands was intentionally targeting citizens of Virginia. For these reasons, the court found general jurisdiction lacking.

Specific jurisdiction was also found to be absent. This more limited type of jurisdiction, the court noted, exists when a defendant "purposefully directed his activities at the residents of the forum" and the plaintiff's causes of action "arise out of those activities" (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 4721985)). In Virginia, courts must consider the following in determining whether specific jurisdiction should be asserted: "(1) the extent to which the defendant purposefully availed itself of the privilege of conducting activities in the State; (2) whether the plaintiffs' claims arise out of those activities directed at the State; and (3) whether the exercise of personal jurisdiction would be constitutionally reasonable" (citing Consulting Eng'rs Corp. v. Geometric, Ltd., 561 F.3d 273, 278 (4th Cir. 2009)). Dr. Rosario argued that Mr. Wands purposefully directed his activities at Virginia when, for seven years, he and Dr. Rosario participated in quarterly telephone discussions. The court found such minimal contact insufficient, especially since Mr. Wands never physically came to Virginia for any of those discussions.

Worried about liability for statements made by others in an online forum hosted by your website? Provided you don't take an active role in editing the content posted by others, you shouldn't have to worry about defamation liability. The Communications Decency Act ("CDA"), found at 47 U.S.C. § 230, provides that "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." It further provides that "No cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section."

In the still-pending case of Cornelius v. DeLuca, filed in the Eastern District of Missouri, the plaintiffs, sellers of a dietary supplement called "Syntrax," sued various competitors for libel and tortious interference with business expectancies, and also sued the owners of bodybuilding.com--a website containing a forum for Internet discussion by the public--for supposedly assisting the other defendants post false and defamatory statements to the forum. In essence, the plaintiffs tried to get around the CDA by claiming the host of the forum wasn't a mere "provider" but an active participant in a conspiracy to post libelous, defamatory statements concerning the plaintiff's product. The court rejected the argument and dismissed the conspiracy count.

Under the CDA, while content providers cannot be held liable for the statements of others, they can be held liable for their own statements (which is why providers need to be careful not to edit others' statements, thereby arguably adopting the statement as their own). It is undoubtedly for this reason that the plaintiffs, realizing full well that the owners of bodybuilding.com did not make the statements at issue themselves, alleged that the owners conspired with the actual authors to allow the statements to be posted.

What the plaintiffs failed to do is present actual facts demonstrating the existence of a conspiracy. (To survive a motion to dismiss, a plaintiff must allege more than a mere formulaic recitation of the elements of a cause of action; he must allege facts that, if proven, would support the existence of the claimed cause of action.) The complaint at issue alleged no facts regarding the website owners' conduct other than the fact that they operated the message board, thereby "allowing" the allegedly defamatory statements to be published. No details were alleged concerning the details of the supposed conspiracy. The court held that, in light of the CDA, this was not enough.

Apparently there are still some people who think they are being clever by registering domain names confusingly similar to trademarks or domains used by existing companies, hoping to capitalize on the confusion.  And what better target than Citibank, a giant company with an easily misspelled name!  Judge Hilton of the Eastern District of Virginia, who is well versed in intellectual property issues, decided to teach a lesson to such a schemer in the case of Citigroup, Inc. v. Shui, Civil Action No. 08-0727, on February 24, 2009.

The Defendant, Chen Bao Shui, thought it would be a good idea to register CITYBANK.ORG and use it to market financial services.  When visitors would go to his site, they would see links to, among other things, "Citibank Student" and "Citibank Visa."  Clicking on such an option would not take the visitor to Citigroup, of course, but to another citybank.org page or to a third-party vendor who would pay the Defendant for each click-through.  In other words, the Defendant's plan was to earn money by confusing customers into believing they were dealing with Citigroup when they were dealing with an unrelated, unaffiliated entity.

This is exactly the sort of activity prohibited by the Anticybersquatting Consumer Protection Act, found at 15 U.S.C. 1125(d) (the "ACPA").  A violation of the ACPA exists where (1) a defendant has a "bad-faith intent" to profit from using the domain name; and (2) the domain name at issue is identical or confusingly similar to the plaintiff's distinctive or famous trademark.

Judge Hilton had no trouble finding that Mr. Shui (or is it Mr. Chen?) violated the ACPA.  Granting summary judgment for Citigroup, he found that there was no genuine dispute as to any material fact and that Citigroup was entitled to judgment as a matter of law (i.e., without having to conduct a trial).  Because it was such a clear case, the court awarded $100,000 in statutory damages, plus reimbursement of attorneys' fees.

Trademark owners take note: whether or not you participate in Google's Adwords program to advertise your business, your competitors may be using your trademark as a keyword in promoting their competing business.  Google not only allows this potentially infringing practice, it encourages it!  The company actively and openly sells competitors' trademarks to advertisers seeking to divert potential customers to the advertisers' websites.

It remains to be seen, however, how long the courts will permit this practice to continue.  On April 3, 2009, a federal appeals court sitting in New York decided to allow a case to go forward in which a computer-repair company called Rescuecom sued Google for trademark infringement.  The case is Rescuecom Corp. v. Google, Inc., Case No. 06-4881 (2d Cir.).

The complaint involves two of Google's programs used in Internet advertising: AdWords and Keyword Suggestion Tool.  With AdWords, advertisers purchase keywords relevant to their business.  When a purchased keyword is used in a Google search, the advertiser's ad and link appear on the search results page, either in the right margin or in a horizontal band immediately above the relevance-based (i.e., non-sponsored) search results.  The Keyword Suggestion Tool recommends keywords to advertisers.  Among its recommendations might be the trademark owned by the advertiser's competitor.

According to Rescuecom, certain of its competitors took the advice of Google's Keyword Suggestion Tool and purchased the Rescuecom trademark as a keyword for use in the AdWords program.  The result, it claims, is that a Google search for "Rescuecom" would result in its competitors' advertisements appearing on the results page in a manner that might cause the searcher to mistakenly believe the competitor's product or service was sponsored by, endorsed by, or otherwise affiliated with Rescuecom.

The trial court had thrown out the case, accepting Google's argument that inclusion of a trademark in an internal computer directory did not constitute a "use in commerce" within the meaning of Section 45 of the Lanham Act.  The Court of Appeals for the Second Circuit, however, vacated the trial court's ruling and ordered that the case be permitted to proceed, finding that the practice of displaying, offering for sale, and selling Rescuecom's trademark to its competitors qualifies as a "use in commerce" within the meaning of the trademark statute.

The Court was careful to point out, however, that it had "no idea" whether Google violated the Lanham Act.  (As I often advise my clients, proving trademark infringement requires more than merely use of another's trademark in commerce; the Act requires unauthorized use in a manner "likely to cause confusion...as to the origin, sponsorship, or approval" of goods or services. See 15 U.S.C. 1125(a)).  What the court did hold is that Rescuecom should be permitted an opportunity to prove its allegations in court.