Articles Posted in Conspiracy

The Racketeer Influenced and Corrupt Organizations Act (commonly known as “RICO“) became effective on October 15, 1970. It was originally intended primarily to assist in the prosecution of mafia leaders, as it permitted them to be tried for crimes they ordered others to do rather than committed themselves. Congress never intended to limit RICO to organized crime, however. G. Robert Blakey, the primary author of the statute, once told Time Magazine, “We don’t want one set of rules for people whose collars are blue or whose names end in vowels, and another set for those whose collars are white and have Ivy League diplomas.” The statute includes a civil provision, found at 18 USC § 1964(c), that has proven particularly popular in business litigation as it allows for the recovery of treble damages and attorneys fees.

RICO makes it unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt. (See 18 USC § 1962(c)). Key concepts in civil RICO cases typically include whether a true “enterprise” exists, whether the defendant has engaged in “racketeering activity,” and, if so, whether such activity constitutes a “pattern.”
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Virginia’s business conspiracy statute provides for civil liability and treble damages where “[a]ny 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….” See Va. Code § 18.2-499, 500. The cause of action is popular among plaintiffs’ lawyers not only because of the triple-damages provision but also because a successful plaintiff can recover attorneys’ fees. To state a valid claim for statutory business conspiracy, a plaintiff must allege three key elements: that the defendants (1) engaged in concerted action, (2) with legal malice, (3) that resulted in damages. “Concerted action” refers to the requirement that the defendants combined together to effect a preconceived plan and unity of design and purpose. “Legal malice” (not to be confused with actual malice, common-law malice, or New York Times malice) requires a showing that the defendant acted “intentionally, purposefully, and without lawful justification.” The legal-malice standard allows a plaintiff to recover even if the defendant’s primary and overriding purpose in forming the conspiracy was to benefit himself rather than injure the plaintiff’s reputation, trade, or business, provided that causing such injury is at least one of the purposes of forming the conspiracy.

Late last week, Judge Moon of the Western District of Virginia allowed such a claim to go forward against Sandy Spring Bank. The plaintiff, Christopher Jaggars, was in the business of purchasing residential real estate for the purpose of renting the property to tenants and holding it as an investment so that he could later sell the property at an appreciated value. According to the allegations of his amended complaint, he was targeted as a potential victim of the DpFunder Program scheme by a company called Global Direct Sales. The scheme allegedly involved a fairly complicated money-laundering arrangement pursuant to which a small group of individuals and mortgage companies arranged to loan the plaintiff money for real estate investment, mislead the settlement agent into transferring a portion of the loan proceeds to another company, which transferred them to Global Direct, which conspired with Sandy Spring Bank to open a new account in Mr. Jaggars’ name (without his knowledge or consent) to receive the funds, all in violation of the Patriot Act. Then, the allegations continue, Global Direct issued a fraudulent Form 1099, falsely showing that it had paid $43,500 in sales commissions to Mr. Jaggars, presumably to allow Global Direct to conceal the loan proceeds and to shift tax liability from Global Direct to Mr. Jaggars.
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Last September, I noted the case of Dunlap v. Cottman Transmissions Systems, LLC, in which the Fourth Circuit certified two questions to the Virginia Supreme Court seeking clarification with respect to Virginia’s business conspiracy statute and the applicable statute of limitations for tortious interference claims. The Virginia Supreme Court has now answered those questions, holding that causes of action for tortious interference with contract and tortious interference business expectancy qualify as the requisite “unlawful act” to proceed on a business conspiracy claim under Va. Code §§ 18.2-499 and -500 because both claims are predicated on an independent common law duty arising outside of contract. The court also held that claims for tortious interference are governed by § 8.01-243(B)’s five-year statute of limitations because such claims involve injury to property rights.

James Dunlap sued Cottman Transmission Systems, LLC, and Todd Leff for tortious interference with contract, tortious interference with business expectancy, and business conspiracy in violation of Virginia Code § 18.2-499 and § 18.2-500. The claims arose from Dunlap’s franchise agreements with AAMCO Transmissions, Inc. When a new owner of AAMCO (who already owned a controlling interest in Cottman) sought to convert Cottman Franchises into AAMCO franchises, Dunlap’s franchises were closed, and Dunlap claimed that the closings were due to a conspiracy between Cottman and others.
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To recover for statutory business conspiracy in Virginia, a plaintiff must show (1) concerted action between two or more people; (2) legal malice towards plaintiff’s business; and (3) resulting damage to the plaintiff’s business. Where the defendants have a principal/agent or employer/employee relationship, and the agent is acting within the scope of his or her duties, the first element is not met because the parties are not separate entities, and a single entity is not legally capable of conspiring with itself. Applying these principles, the United States District Court for the Eastern District of Virginia granted the defendants’ motion for summary judgment in Rogers v. Deane.

Prior to their separation and divorce, Edwina and Edward Rogers employed Jon Deane, a certified public accountant, for tax and accounting services. After the Rogers divorced, Mrs. Rogers sued Mr. Deane for statutory business conspiracy and other claims, contending that Mr. Deane diverted hundreds of thousands of dollars in credits and tax deductions into Mr. Roger’s tax return, that he diverted tax liability into her tax returns, and that he intentionally damaged her reputation and business.

Mrs. Rogers, faced with a motion for summary judgment, argued that her husband and Mr. Deane should be treated as two separate entities capable of forming a conspiracy because (1) there was no agency relationship, and (2) even if there was, the defendants’ actions fell outside the scope of the agency. The court disagreed.

Sometimes a court must decide a matter that turns on the law of another jurisdiction. If the other jurisdiction’s law is unclear, the deciding court can make a formal request to its sister court asking that court to clarify an issue. The Fourth Circuit recently invoked this procedure and certified two questions to the Virginia Supreme Court: one involving application of Virginia’s business conspiracy statute and another regarding the statute of limitations applicable to tortious interference claims.

James Dunlap operated two AAMCO Transmission franchises for over thirty years. When an asset-management company that owned a large share of AAMCO competitor Cottman Transmission Systems purchased AAMCO, Dunlap found his franchises on the chopping block as part of a plan to eliminate overlap among the businesses by converting Cottman franchises to AAMCOs and closing some franchises. Dunlap claimed that AAMCO attempted to terminate his franchises for minor violations as a pretext to force him out of business. Dunlap settled his dispute with AAMCO and was allowed to continue operations. Dunlap then brought an action against Cottman and new AAMCO principal Todd Leff alleging a conspiracy to force him out of business. The complaint, filed in Chesapeake Circuit Court and later removed to federal court, raised claims for violation of Virginia’s business conspiracy statute, tortious interference with contract, and tortious interference with business expectancy.

At one time, established case law indicated that conspiring to procure a breach of contract was actionable under Virginia’s business conspiracy statute. However, the Virginia Supreme Court shifted away from that approach in Station #2 v. Lynch, 280 Va. 166 (2010) where it held that an independent duty arising outside the contract is required to establish a conspiracy claim. question.jpgRelying on Station #2, the district court dismissed Dunlap’s conspiracy claim because he did not allege a valid “unlawful act” as a predicate for the conspiracy. Rather, all of the allegedly breached duties and damages involved arose out of contractual obligations.

AWP, Inc. is engaged in the business of traffic control solutions for road construction sites and emergency situations. AWP alleges that Shawn Watkins, a former employee, began his own traffic control business, Traffic Control Solutions, LLC (TCS) while still working at AWP, and that he misappropriated information he obtained from his position at AWP such as the identity, needs and issues of customers, pricing, and protocols and methodologies for traffic control. AWP deems this information protected trade secrets. Watkins also allegedly solicited four AWP employees to join him at TCS. AWP prepared to sue Watkins but settled prior to litigation, with Watkins agreeing to cease TCS operations, never work with an AWP competitor, and turn over all AWP property. Watkins also signed an affidavit stating that he was instrumental in creating TCS and had access to AWP’s trade secrets which he used without permission to underbid AWP on jobs and misappropriate AWP customers.

Instead, AWP sued its competitor Commonwealth Excavating, Inc. and its president, Ira Biggs. AWP claimed that Watkins approached Biggs and offered to sell AWP’s trade secrets and equipment for $45,000. Commonwealth allegedly offered to hire the four AWP employees who left for TCS, and it offered Watkins an $85,000 salary which Watkins refused for fear of violating his non-compete agreement. AWP believes that Watkins and Biggs plotted to have Commonwealth take over at least four of AWP’s customers, but the complaint does not state whether any of the customers accepted the offer. The complaint contains counts for common law conspiracy, statutory business conspiracy, misappropriation of trade secrets under the Virginia Uniform Trade Secrets Act (VUTSA), tortious interference with contract or business relationships and unjust enrichment. The defendants moved to dismiss.

Under Federal Rule of Civil Procedure 12(b)(6), a plaintiff must show more than a mere possibility that a defendant has acted unlawfully. Rather, a plaintiff must demonstrate enough factual matter which, if accepted as true, states a plausible claim for relief. In ruling on a 12(b)(6) motion, a court will accept factual allegations as true and construe them in the light most favorable to the plaintiff, but threadbare recitations of the elements of a cause of action are not sufficient and must be supported by sufficient facts.

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.

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 Reject.jpgthe 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.

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.jpgwind 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.

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 AngryFace.jpgconspiracy 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.

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