It happens to every business eventually. A rogue employee defects to a competitor and immediately starts soliciting the former employer’s customers and clients, using the former employer’s trade secrets or other confidential commercial information against it. Although non-compete and non-solicitation agreements are generally disfavored in Virginia, most Virginia judges nevertheless recognize that employers have a legitimate business interest in protecting themselves from competition by former employees who possess sensitive information and will, in appropriate circumstances, compel former employees to honor their contractual commitments. This blog post provides a brief overview of the process involved in obtaining such relief from the legal system, divided into two basic steps.

Step One: Write an enforceable noncompete agreement.

The most common mistake employers make in their efforts to prevent unfair competition is to present their employees with overbroad, overreaching employment agreements. Many businesses, knowing that 99% of new employees will sign whatever piece of paper you put in front of them, cannot resist the temptation to draft their noncompete agreements in a way that is completely one-sided in favor of the employer. They might draft agreements that prohibit the employee from contacting any of its customers for 10 years after leaving the company, or that prohibit former employees from taking any kind of job within a 500-mile radius of the employer’s office. When an employer goes too far in its efforts to secure loyalty by forcing its employees to sign unreasonable contracts, those efforts can backfire by causing the contracts to become unenforceable as a matter of law.

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The statute of limitations for fraud cases in Virginia is two years from the time the cause of action accrues. See Va. Code § 8.01-243. This is not necessarily two years from the time the fraud was committed. Fraud cases are subject to a “discovery rule,” meaning that the cause of action will not accrue until the alleged misrepresentation is either discovered, or, by the exercise of due diligence, reasonably should have been discovered. See Va. Code § 8.01-249(1). The clock on the two-year period does not begin ticking until that moment in time. As you might expect, precisely when that moment occurs is often the subject of fierce disagreement.

To exercise due diligence, as contemplated by the statute, a plaintiff must use “such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent [person] under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case.” (See Schmidt v. Household Fin. Corp., II, 276 Va. 108, 118 (2008)). Who gets to decide whether a plaintiff exercised this level of prudence, activity, and assiduity? In most cases, it will be the jury. A motion to dismiss or plea in bar based on the statute of limitations normally will not be successful unless all the facts necessary for resolving the “due diligence” question appear on the face of the pleadings or are not in dispute. If there’s a factual dispute about whether due diligence was exercised, the case will normally need to go forward so that the jury can hear evidence on the matter.

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Zealous lawyers seeking to maximize their clients’ monetary recovery in court will often sue for as many different claims as their highly trained legal minds can conjure up. And they will usually try to come up with at least one viable tort claim (such as fraud or business conspiracy) to pursue in addition to any breach-of-contract claims, because tort claims often allow the recovery of punitive damages in addition to compensatory damages. But there are important differences between the law of contracts and the law of torts. The law of torts is designed to protect broad societal interests such as safety of persons and property. Contract law, on the other hand, is concerned with the protection of bargained-for expectations. Therefore, several rules have developed to prevent turning every breach-of-contract claim into a tort action.

The economic loss rule, for example, holds that where a contracting party’s loss is limited to disappointed economic expectations, his remedy is limited to one for breach of contract. A similar rule is known as the “source of duty” rule. It looks to the source of the duty alleged to have been violated. Before a court will allow a contracting party to recover on a tort theory, it must be satisfied that the duty tortiously or negligently breached is a common law duty, and not one existing solely by virtue of a contract between the parties. If the source of the duty allegedly violated is a contract, then the plaintiff should be limited to remedies available in breach-of-contract actions.

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Under the Computer Fraud and Abuse Act, “loss” and “damage” are not synonyms. The CFAA provides that “any person who suffers damage or loss” caused by a violation of its terms can sue for compensatory damages and or equitable relief. A natural assumption might be that the lawyers who drafted the statute didn’t intend “loss” to mean anything materially different than “damage” and that they just threw in an extra word or two for good measure as lawyers are wont to do. (Only a lawyer would write, “I hereby give, devise, and bequeath” instead of just “I give.”) In the case of the CFAA, however, “loss” and “damage” are not interchangeable; each has a distinct meaning. And suffering either one of them is sufficient to support a compensable claim. Let’s look at a recent real-world example.

Space Systems/Loral v. Orbital ATK was (and remains) a dispute in Virginia federal court between two companies specializing in the design and manufacturing of geostationary satellites, space systems, and robotics technology. In 2015, NASA solicited project proposals through an RFP entitled “Utilizing Public Private Partnerships to Advance Tipping Point Strategies.” NASA awarded Space Systems a contract for its “Dragonfly” project and Orbital a contract for its “CIRAS” project. NASA set up a server to facilitate the sharing of information with the various contractors, and gave both Space Systems and Orbital access to it. Some time later, NASA determined that one or more Orbital employees accessed at least four files on the shared server that contained Space Systems’ proprietary data.

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Nobody likes to get sued. It can be an expensive and soul-draining proposition, even if you win. Under the so-called “American Rule,” litigants are responsible for paying their own legal fees, regardless of which party wins the case. Obviously, this system engenders some abuse, as crafty, litigious plaintiffs can file frivolous lawsuits knowing that–at the very least–they will cause the defendant to incur large sums of attorneys’ fees. As a defendant in American litigation, a victory at trial merely means you don’t have to pay the plaintiff any money. But you do you have to pay your own attorneys for their time and effort. So even a “win” is often viewed as a net loss in financial terms. One common way to turn the tables on plaintiffs is to file a counterclaim. Assuming the counterclaim itself isn’t completely groundless, it can put the parties on equal footing: if both parties have claims against the other, then both parties have something to lose beyond mere legal fees. Now, even the plaintiff can be liable for a money judgment.

If you file a counterclaim, however, you better mean it. The court may not allow you to withdraw it later if you decide your claims should have been brought as a separate action in a different jurisdiction. If the case has progressed to the point where trial is imminent, you may be forced to litigate the claim or lose it forever.

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Fraud is a confusing and widely misunderstood tort. I wrote about the elements of fraud on this blog a few years ago, and last month I dug deeper into what it means to make a fraudulent misrepresentation. This month, I’m going to elaborate a bit more about the requirement that fraudulent misrepresentations be made with the intent to mislead someone before liability will arise. In other words, we’re talking about the expectation on the part of the speaker that the person hearing the statement (i.e., the person being defrauded) will take some action–or refrain from taking some action–as a direct result of hearing the statement. To win a case for actual fraud, you need to establish that the defendant not only misrepresented a fact, but did so intending to influence your behavior.

Who can sue? Generally speaking, anyone whose conduct the speaker intended to influence and who was, in fact, influenced as intended. Sometimes the defendant intends to defraud a single person. Sometimes the defendant seeks to influence an entire group of people. Even if a defendant did not specifically intend to defraud a particular plaintiff, if the defendant had reason to expect that the plaintiff would act or refrain from acting in reasonable reliance on his untrue statement, liability may attach. There may be a valid defense, however, if the defendant could not have anticipated that a particular plaintiff would hear the fraudulent statement and take action upon it. Let’s look at some examples.

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The Virginia Consumer Protection Act is a Virginia law designed to protect consumers against fraudulent and deceptive business practices. In situations where it applies, defrauded consumers won’t be limited to suing for fraud; they will be entitled to pursue the additional remedies allowed by the VCPA, such as reimbursement of legal fees and–if the deception was willful–triple damages. The statute’s application, however, is limited to “consumer transactions.” What are those? According to the official statutory definition, “consumer transaction” means:

  1. The advertisement, sale, lease, license or offering for sale, lease or license, of goods or services to be used primarily for personal, family or household purposes;
  2. Transactions involving the advertisement, offer or sale to an individual of a business opportunity that requires both his expenditure of money or property and his personal services on a continuing basis and in which he has not been previously engaged;
  3. Transactions involving the advertisement, offer or sale to an individual of goods or services relating to the individual’s finding or obtaining employment;
  4. A layaway agreement, whereby part or all of the price of goods is payable in one or more payments subsequent to the making of the layaway agreement and the supplier retains possession of the goods and bears the risk of their loss or damage until the goods are paid in full according to the layaway agreement; and
  5. Transactions involving the advertisement, sale, lease, or license, or the offering for sale, lease or license, of goods or services to a church or other religious body.

(See Va. Code § 59.1-198). The most common application of the VCPA is under the first part of the definition: “goods or services to be used primarily for personal, family or household purposes.” Does that mean that every contract to make or sell a personal or household item will be subject to the VCPA, regardless of the identity of the parties to the contract? The Virginia Supreme Court hasn’t yet spoken to this issue, but in a recent ruling out of Fairfax Circuit Court, the court said no.

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Restrictive covenants in employment agreements (e.g., noncompete and nonsolicitation clauses) are enforceable in Virginia if they are (1) narrowly drawn to protect the employer’s legitimate business interests, (2) not unduly burdensome on the employee’s ability to earn a living, and (3) are not against public policy. There was once a time when litigation brought to enforce noncompete and nonsolicitation agreements would be routinely dismissed at the outset of a case based on a finding that one of these elements was lacking. For example, a noncompete provision restricting a former employee from taking a similar job with a nearby competitor for five years might have been quickly dismissed based on the judge’s quick determination that five years is simply too long.

This changed with the 2013 Virginia Supreme Court decision in Assurance Data, Inc. v. Malyevac. There, the court pointed out that every case is different, and held that an employer seeking to enforce a restrictive covenant must be given the opportunity to present evidence demonstrating reasonableness. Since this decision, some judges–like Fairfax County Circuit Court Judge John M. Tran–have opined that in appropriate cases, courts can still dismiss noncompete cases without an evidentiary hearing, such as when an employer fails to even proffer a legitimate business interest. Others hold that Assurance Data forecloses facial attacks on restrictive covenants. This appears to be the more common interpretation of the case.

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In Virginia, a civil action for fraud requires more than just dishonest or unethical behavior on the part of the individual or business being sued. People lie all the time, and tort liability usually does not arise. The law of fraud is more concerned about pecuniary loss resulting from the intentional misrepresentation or nondisclosure of material facts. Several years ago, I posted a blog entry entitled “Fraud: What It Is, and What It Is Not.” There, I explained that a plaintiff bringing an action for fraud must allege and prove (1) a false representation, (2) of a present, material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reasonable reliance by the party misled, and (6) resulting damage. Today, I want to elaborate on the first of those elements: the requirement of a fraudulent misrepresentation.

First of all, when we talk of false or fraudulent misrepresentations, we’re not just dealing with the written word. Just as the hearsay rule can apply to nonverbal conduct intended as an assertion, the first element of fraud can apply to nonverbal conduct that amounts to an assertion of fact inconsistent with the truth. If a person acts in such a way as to suggest the existence of a fact, and that fact does not exist, a misrepresentation has occurred upon which a fraud action may potentially be based.

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Most laws were written before people started texting naked pictures of each other on their phones. No one had heard of so-called revenge porn until around 2010, when the controversial website “Is Anyone Up?” launched, allowing users to upload sexually explicit images of former romantic partners. That site ceased operation just two years after it started, but revenge porn is now more widespread than ever. So widespread, in fact, that several states (Virginia included) have decided that existing laws against copyright infringement, intentional infliction of emotional distress, and bullying were not offering victims sufficient protection. In Virginia, revenge porn is now a crime, as well as a civil cause of action for which legal remedies are available.

Under Virginia Code § 8.01-40.4, victims can sue for compensatory damages, punitive damages, and attorney’s fees. Injunctive relief may also be available. But what kind of financial recovery can vicitms expect to receive? How does one measure the emotional harm suffered as a result of sexual cyberbullying? If you bring a lawsuit and win, will the rewards outweigh the uncomforable and expensive process of open-to-the-public litigation? These are difficult questions to answer because–at least here in Virginia–few (if any) civil actions have been tried to verdict under the new revenge porn statute. But looking to some other jurisdictions may provide a clue as to what kinds of damage awards you might expect here in Virginia.

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