Contracts Category Archives — Page 4 of 7 — The Virginia Business Litigation Blog Published by Virginia and Washington, D.C. Litigation & Appeals Attorney

August 15, 2013

Damages Must Be Proven With Reasonable Certainty

A plaintiff must prove his damages claim with reasonable certainty by providing sufficient facts and circumstances to allow the fact finder to make an intelligent and probable estimate of the damages sustained. In Crum v. Anonymizer, the Fairfax Circuit Court refused to modify a jury verdict awarding the plaintiff less than he contended he was owed when the court found he failed to present sufficient evidence of his damages.

In Crum, the jury found that Anonymizer, Inc. had breached its Sales Incentive Plan when it capped Daniel Crum’s total commissions and cut his commission percentage from 6% to 3%. The jury awarded Crum $139,458.17 in damages, but it determined that Crum had not proven his breach of contract claim with regard to post-termination commissions.

Crum made a Motion for Judgment Notwithstanding the Verdict, asserting that the Sales Incentive Plan contained the only conditions he had to satisfy to earn commissions and that no evidence had been presented that he had failed to satisfy those conditions. Crum contended that the only evidence shown was that Anonymizer stopped payments once it no longer employed Crum. Anonymizer produced evidence that corporate practice was to stop paying sales commissions after termination, but there was no evidence that continued employment was a condition of the Sales Incentive Plan. Accordingly, Crum argued that the jury had no basis to conclude that continued employment was a condition and should have awarded him damages on his post-termination claim.

July 22, 2013

When Negotiating Contract, Trying to Slip in Changes Undetected Can Lead to Fraudulent Inducement Claim

by Lee E. Berlik

One common problem when negotiating contracts is keeping track of all the revisions the other side makes without having to re-read the entire contract again and again. Microsoft Word’s “track changes” feature is helpful but can still lead to confusion when not used properly. Even when the other contracting party tells you that the only changes are to the language on a particular page, can you really trust that person? A recent opinion from the Western District of Virginia suggests that you can, to a certain extent, because if the other party tries to slip in a material change without alerting you to it, the other party may be liable for fraudulent inducement.

A party can be fraudulently induced to enter a contract when a false representation or omission of a material fact is made knowingly with the intent to mislead and the party signs the contract in reliance on the representation. Concealment of a material fact can constitute a false representation where evidence shows a knowing and deliberate decision not to disclose a material fact.

In Whalen v. Rutherford, Jacqueline Whalen and James Rutherford maintained a romantic and business relationship for over twenty years. In 1985, they formed W&R Partnership to manage a horse farm and breeding operation. According to the Partnership Agreement, Whalen was the managing partner and would receive a salary to be determined by both parties commensurate with her time and effort. Rutherford agreed to move in with Whalen and finance the construction of a new house on the property, so Whalen granted Rutherford a joint tenancy interest in the property.

July 15, 2013

Negligent Breach of Contract Is Not a Tort in Virginia

by Lee E. Berlik

Although parties can sometimes demonstrate both breach of contract and a tortious breach of duty, the duty in such cases must arise separate from the contractual duty, and negligent performance of a contract cannot form the basis for a tort claim. The United States District Court for the Western District of Virginia emphasized this point in American Legion John Radcliff Post 164 v. BB&T Corporation.

Debra Horn was president of the American Legion Ladies Auxiliary Unit 164. Her husband, Mack Horn, was a member of American Legion John Ratcliff Post 164. Over the course of a year, the Horns made several transactions, including writing checks, making expenditures and withdrawals and closing accounts that Post 164 did not authorize. Specifically, Post 164 had a Certificate of Deposit with BB&T Bank. Without the Post’s permission, BB&T allowed Mr. Horn to withdraw $15,447.15 from the CD and Mrs. Horn to withdraw $29,975 and to close the CD by withdrawing $49,975. BB&T processed a deposit of $49,975 to a checking account in Post 164’s name and a check in the amount of $35,000 from Post 164’s checking account into an account that the Horns controlled. The Horns used the funds for their own personal benefit.

Post 164 sued BB&T for breach of contract, negligence, and breach of fiduciary duties. The complaint also contained a claim entitled “Statutory Claim” and asked for punitive damages. BB&T argued that the action was essentially a breach of contract claim and asked that all the other claims be dismissed. BB&T also asked the court to strike Post 164’s claim for punitive damages.

April 15, 2013

An Unsigned Contract is No Party for Wiz Khalifa

by Lee E. Berlik

Musical artist Cameron Jibril Thomaz, better known as “Wiz Khalifa,” recently saw his breach of contract case against It’s My Party get dismissed. Mr. Thomaz had hired The Agency Group as his booking agent for a new tour which would have included a concert at The Patriot Center in Northern Virginia. The Agency Group asked It’s My Party Inc. (I.M.P.) to promote the concert, and it represented to I.M.P. that Mr. Thomaz would soon release a new album. The Agency Group emailed a contract to I.M.P. and asked I.M.P. to sign and return it to The Agency Group for approval and signature by Mr. Thomaz. The contract provided that it would not be binding unless signed by all parties. The contract was never signed.

Mr. Thomaz’ release of a new album was crucial to I.M.P.’s interest in promoting the concert because it did not believe he could attract a sufficient number of fans to warrant his appearance at the venue without the support of a new album. I.M.P. asserted that the parties tentatively agreed upon a date for the concert and the terms of I.M.P.’s promotion of the concert, but it denied having committed to promote the concert.

Mr. Thomaz argued that the parties entered into a contract for him to perform a live concert and that he relied on I.M.P.’s representations in turning down an opportunity to perform on the same date at a different venue using a different promoter. According to Mr. Thomaz, I.M.P. partially performed the contract by advertising, promoting and marketing the concert. He also contends that he partially performed the contract but that I.M.P. refused to pay him any money and canceled the concert after fans already had purchased tickets. I.M.P. asserted that it declined to execute the contract but agreed to reschedule the concert because Mr. Thomaz’s album release was delayed. The Agency Group and I.M.P. agreed to sell tickets to the concert before finalizing the agreement, but as I.M.P. had predicted, sales tanked in the absence of the album release. The parties were unable to come to mutually agreeable terms, and I.M.P. ultimately cancelled the concert and withdrew its offer to promote it. Mr. Thomaz sued I.M.P. for breach of contract and I.M.P. moved to dismiss the complaint.

February 1, 2013

Feeling the Effects of Out-of-State Conduct Won’t Guarantee Personal Jurisdiction Over Nonresident

by Lee E. Berlik

When analyzing personal jurisdiction, the Fourth Circuit (which includes both Virginia and South Carolina) had held that it is proper to consider the location where the effects of the alleged wrongdoing are felt. The so-called “effects test” is applied narrowly, however, and cannot be used to supplant the minimum contacts analysis required by the United States Constitution. The United States District Court for the District of South Carolina recently had occasion to apply the test in Power Beverages v. Side Pocket Foods.

Power Beverages, a South Carolina company, contracted with Side Pocket, an Oregon distillery, to manufacture and sell Ying Yang vodka and ship the product where directed. Power Beverages wired money to Side Pocket in Oregon to pay for materials, and Side Pocket delivered the vodka to a South Carolina licensed distributor.

A dispute arose between the founders of Power Beverages, and one of the founders demanded that Power Beverages cease operations. Side Pocket informed Power Beverages that the contract between them would terminate in thirty days, and it sent Power Beverages a final invoice which Power Beverages contested. Upon direction from one of the founders, Side Pocket released the remaining inventory to a distributor in California. Power Beverages then sued Side Pocket in South Carolina for breach of contract, fraud, conversion, unfair trade practices and conspiracy. Side Pocket argued that the South Carolina court lacked personal jurisdiction over it.

December 18, 2012

Leesburg Business Wins Summary Judgment After Defendant Fires Lawyers

by Lee E. Berlik

Earlier this year I noted the case of Precision Franchising, LLC v. Catalin Gatej, a breach of contract case filed by the Leesburg-based franchisor of the Precision Tune Auto Care system against a Massachusetts resident. The Eastern District of Virginia had denied the defendant’s motion to dismiss the case and had issued a detailed written opinion explaining the grounds therefor. What happened next? Mr. Gatej promptly fired his lawyers, then proceeded to ignore Precision’s discovery requests until several weeks after responses were due. The predictable result was another written opinion, this time granting summary judgment in favor of Precision Franchising.

Requests for admissions are deemed admitted if not timely answered. Gatej failed to respond timely to Precision’s requests for admissions, resulting in certain key facts being deemed established. Precision, relying on those admissions, moved for Judge Cacheris.jpg summary judgment. Late responses, however, are generally treated as motions to withdraw or amend the admissions, which courts can allow if allowing the late or amended responses would promote “the presentation of the merits of the action” and “would not prejudice the party that obtained the admission.” (See Federal Rule of Civil Procedure 36). Gatej filed late responses.

Judge Cacheris found that although allowing Gatej to amend his responses would certainly promote presentation on the merits, it would cause prejudice to Precision. Precision reasonably relied on the deemed admissions in preparing its motion. Allowing Gatej to amend his responses so late in the process would force Precision to expend more time and money to prove what the deemed admissions already conclusively established. Perhaps most importantly, Gatej filed his responses over two months beyond an extended deadline as part of a pattern of “general unresponsiveness and repeated delinquency.” The looming discovery deadline left no room for Precision to complete more discovery. And the Court had already warned Gatej that his repeated noncompliance could result in sanctions, including the entry of a default judgment. Though the result was perhaps harsh, Judge Cacheris concluded that litigants must be able to rely on the rules of procedure or there is no point to having them.

November 10, 2012

Expert Witness Excluded From Bernsen Case, Settlement Reached Days Later

by Lee E. Berlik

Actor Corbin Bernsen has settled his breach-of-contract case against Innovative Legal Marketing, days after a Norfolk magistrate judge granted his motion to exclude the testimony of ILM’s proffered expert witness. The case was seemingly progressing in Bernsen’s favor – he survived ILM’s motion for summary judgment back in August, when the court held that the jury could conceivably find that ILM waived not only the morality clause it contended Bernsen breached, but also the contract’s non-waiver clause. The trial began November 7th and settled the next day.

One week before the trial commenced, the court granted Bernsen’s motion in limine to exclude the testimony of ILM’s expert witness, Randy Dinzler, finding that his anticipated testimony amounted to nothing more than an “explanation of common sense principles.”

ILM designated Dinzler, a contract employee for ILM, to testify as to how Bernsen’s actions negatively impacted his effectiveness as a spokesperson for ILM. ILM conceded that Dinzler lacked sufficient foundation to testify to any specific impact Bernsen’s actions may have had on ILM’s marketing campaign, but it asserted that he should be permitted to give general opinions about the use and impact of a spokesperson in an advertising campaign and factors by which marketing companies evaluate a spokesperson’s conduct based on his seventeen years of experience in legal marketing. His opinion would be that advertising campaigns use spokespersons to evoke certain reactions from the potential consumer and that negative press coverage of the spokesperson creates an unfavorable impression in the minds of potential consumers.

October 8, 2012

Non-Compete Held Enforceable, Lost Profits Sufficiently Proven

by Lee E. Berlik

The Supreme Court of Virginia recently heard appeals in Preferred Systems Solutions, Inc. v. GP Consulting, LLC, a Fairfax non-compete case previously covered by this blog. The case involved a dispute between a government contractor, Preferred Systems Solutions, Inc. (PSS) and its subcontractor, GP Consulting, LLC (GP). GP terminated its contract with PSS and entered into a contract with a PSS competitor. PSS sued GP alleging breach of contract, misappropriation of trade secrets and tortious interference with contract. The trial court awarded PSS compensatory damages based on its finding that GP breached the non-compete clause in the parties’ contract and that PSS was entitled to recover its lost profits, which it had proven with reasonable certainty. The Virginia Supreme Court affirmed.

Contracts that limit competition are not favored in Virginia and are enforceable only if narrowly drawn to protect an employer’s legitimate business interest, not unduly burdensome on an employee’s ability to earn a living and not against public policy. The court considers the function, geographic scope, and duration of the restriction in evaluating these factors.

Here, the court found that the function of the non-compete clause was narrowly drawn as it was limited to work in support of a particular program run under the auspices of a particular government agency and limited to the same or similar type of Money Stream.jpg information technology support offered by PSS. Likewise, the twelve month duration of the non-compete was narrowly drawn in the court’s view. The court found that the lack of a specific geographic limitation was not fatal to the non-compete clause because it was so narrowly drawn to this particular project and the handful of companies in direct competition with PSS. Accordingly, the court found that the clause was enforceable.

August 27, 2012

Virginia Court Allows Corbin Bernsen Lawsuit to Proceed

by Lee E. Berlik

Innovative Legal Marketing, LLC, a Virginia Beach company, provides attorney and law firm marketing through various media. In 2009, the company entered into a spokesperson agreement with actor Corbin Bernsen, one of the stars of the popular television series, L.A. Law. The agreement gave Innovative the right to use Bernsen’s likeness, voice and image to market the company and its clients. Innovative was to pay him $1,000,000 over five years in increments of $200,000 annually under a defined formula.

The parties fulfilled their advertising roles for almost two years with Innovative paying a total of $331,818.12 to the actor. But in June 2011, Bernsen said Innovative’s managing director orally terminated the contract. The company stopped paying Bernsen but, as late as September 2011, continued airing certain Bernsen television commercials and featuring his photographs, recorded messages and video clips on the internet.

Bernsen sued the company for breach of contract and unjust enrichment, seeking the remaining balance, $668,181.88, along with incidental and consequential damages, interest, fees and costs.

August 1, 2012

An Agreement to Agree is not a Binding Contract in Virginia

by Lee E. Berlik

A “letter of intent” which recites the terms of a transaction contemplated in the future, or which sets forth terms to be embodied in a more formal agreement to be executed at a later time, is presumed to be a non-binding “agreement to agree” rather than an enforceable contract. In Virginia, unlike some other jurisdictions, a letter of intent, reflecting each party’s commitment to negotiate open issues in good faith to reach a contractual objective within an agreed framework, will not be construed as a binding contract absent circumstances suggesting the parties intended to bind themselves. The Eastern District of Virginia recently dealt with this issue in Virginia Power Energy Marketing, Inc. v. EQT Energy, LLC.

EQT contracted with a pipeline to buy natural gas once the pipeline completed its expansion. The purchase was subject to the pipeline’s FERC (Federal Energy Regulatory Commission) gas tariff and applicable laws, orders, rules and regulations. EQT then sought to sell some of the excess capacity to VPEM, a distributer, in a non-biddable release. By regulation, a non-biddable release must use the maximum applicable rate. The parties signed a letter of intent (LOI) for 30,000 dekatherms per day with the rate to be paid as the lesser of $0.84 per dekatherm or the rate applicable to EQT under the NLRA (the negotiated rate letter agreement between the pipeline and EQT). Subsequently, the applicable rate was set at $0.88 so either the LOI rate had to be revised or EQT was free to release the capacity to the highest bidder.

The letter of intent stated EQT “propose[d] to release a portion of (the pipeline’s capacity) to VPEM.” Before the pipeline completed its expansion, however, gas prices rose and the value of EQT’s capacity increased. EQT received bids that exceeded VPEM’s and asked VPEM to pay an additional $12 million for the capacity. VPEM refused and EQT abandoned the transaction. VPEM then sued EQT in the Eastern District of Virginia for breach of contract.