Contracts Category Archives — Page 5 of 8 — The Virginia Business Litigation Blog Published by Virginia and Washington, D.C. Litigation & Appeals Attorney

November 10, 2012

Expert Witness Excluded From Bernsen Case, Settlement Reached Days Later

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.

July 9, 2012

Liquidated Damages Affirmed for Breach of Non-Solicitation Agreement

by Lee E. Berlik

The Fourth Circuit Court of Appeals has affirmed a Western District of Virginia ruling upholding a non-solicitation clause in a contract for trained personnel. ProTherapy Associates, LLC contracted with nine nursing homes to provide and train licensed physical and occupational therapy and speech/language pathology personnel. To protect its interests, it included in each contract a restrictive covenant precluding the nursing homes from “directly or indirectly” soliciting or hiring Pro Therapy employees:

“Non-Solicitation. During the term of this Agreement and for one year thereafter, [the nursing home] shall not, directly or indirectly, for [the nursing home] or on behalf of any other person or business entity for the benefit of [the nursing home]: (a) solicit, recruit, entice or persuade any Therapists or other employees or contractors of [ProTherapy] who had contact with [the nursing home] pursuant to this Agreement to become employees or contractors of [the nursing home] responsible for providing services to Patients like the Services hereunder; or (b) employ or use as an independent contractor any individual who was employed or utilized as a contractor by [ProTherapy] for the provision of Services at any time during the twelve (12) months prior to such proposed employment or contracting. Recognizing that compensatory monetary damages resulting from a breach of this section would be difficult to prove, [the nursing home] agrees that such breach will render it liable to [ProTherapy] for liquidated damages in the amount of ten thousands dollars ($10,000) for each such individual.”

When the nursing homes asked for a rate reduction, ProTherapy provided a new contract with the same clause. The contract also permitted either party to terminate the contract with 90-days’ notice. Just weeks later, the parent company of the nursing homes gave ProTherapy 90-days’ notice and hired Reliant Pro Rehab, LLC to do the same job at a lower cost. During the remaining 90-day period, Reliant began recruiting ProTherapy’s personnel who were still working in the nursing homes. Reliant was able to meet with them because the nursing homes provided lists of the ProTherapy personnel and helped make them available. As a result, Reliant hired sixty four of the ProTherapy therapists for its contract.

June 7, 2012

Leesburg Business Survives Motions to Dismiss

by Lee E. Berlik

Precision Franchising, LLC, a Virginia limited liability company based in Leesburg, licenses the Precision Tune Auto Care system. Catalin Gatej entered into a franchise agreement to operate a Precision Tune Auto Care system in Massachusetts. The agreement required Gatej to pay Precision Franchising an operating fee of 7.5 percent of weekly gross sales and an advertising fee equal to 1.5 percent of gross weekly sales. It also required him to spend 7.5 percent of gross weekly sales for advertising directly benefiting Precision Franchising. When Precision Franchising sued for breach of contract, Gatej moved to dismiss on two separate grounds. The court rejected both of them.

In 2011, Gatej ceased operations and transferred assets to another who is not operating as a Precision Tune Auto Center. Precision Franchising sued for breach of contract seeking $55,055.97 for required advertising Gatej hadn’t spent while he ran the center, $86,756.40 for lost profits due to the early termination of operation, and attorney fees and costs.

Gatej moved to dismiss the complaint. Because the parties were from different states, jurisdiction in this case was based on diversity. In such cases, at least $75,000 must be in controversy and Gatej claimed the company’s claims could not satisfy that requirement. He also claimed the wrong party sued him because Precision Franchising, LLC was not the company with which he’d signed the agreement.

May 31, 2012

Non-Compete Agreement with Former Bank Executives Deemed Enforceable

by Lee E. Berlik

Although Virginia courts often view non-compete covenants with disfavor, the United States District court for the Eastern District of Virginia recently upheld a non-compete agreement executed between Capital One and two of its former executives. A few months after acquiring North Fork Bank in late 2006, Capital One executed a Separation Agreement (“Agreement”) with the president of its Banking Segment, John Kanas, and Executive Vice President of Commercial Banking, John Bohlsen, both of whom previously held executive positions at North Fork Bank. The Agreement stipulated that Kanas and Bohlsen could not “engage in a Competitive Business . . . in New York, New Jersey, or Connecticut” for five years after leaving Capital One, except that they could own less than 10% of any entity for investment purposes, provide services to a competitor that Capital One did not offer, and work for a private equity firm, investment bank, or hedge fund.

Two years after leaving Capital One, Kanas and Bohlsen opened BankUnited, which only had branches in Florida but held portfolios secured by property located in the Tri-State Area. BankUnited formed a subsidiary the following year that acquired a company that made loans secured by equipment also located in the Tri-State Area. Finally, in 2011, BankUnited entered into negotiations to acquire New York-based bank Herald National, with the stipulation that Kanas and Bohlsen would not provide services to Herald National until the termination of the Agreement. Capital One sued Kanas and Bohlsen for breach of the Agreement. Kanas and Bohlsen sought summary judgment, claiming the non-compete provision in the Agreement was an unreasonable restraint of competition and should be deemed void.

In Virginia, unreasonable covenants not to compete are unenforceable. “A reasonable non-compete is: (1) narrowly drawn [as to geographic scope, duration, and function of the restriction] to protect the employer’s legitimate business interest, (2) not unduly burdensome on the employee’s ability to earn a livelihood, and (3) consistent with public policy.” Virginia courts are less likely to void non-compete covenants if they are found in agreements concerning a sale of a business or goodwill, and if policy considerations would support enforcement of the covenant. If the non-compete provisions are contained in agreements concerning the employer-employee relationship, then the employer has a heavier burden in demonstrating the reasonableness of the provision restricting competition. “Greater latitude is allowed in determining the reasonableness of a restrictive covenant when the covenant relates to the sale of a business,” the court noted.

April 23, 2012

Lawyers Argue Contacting Advertisers Is Tortious Interference

by Lee E. Berlik

Not everyone was happy when KIBZ 104.1 FM (The Blaze) replaced its rock format with new programming. One unhappy listener tried contacting the radio station to express his displeasure but had trouble reaching a live person. So he took his complaints to the station’s advertisers. He succeeded in getting a response, but it came in the form of a cease-and-desist letter from the station’s lawyers, accusing him of defamation and of tortiously interfering with the station’s contractual relationships.

Three Eagles Communications, a Colorado-based company, had rearranged its programming for a Lincoln, Nebraska radio station, The Blaze. It brought in a show from the Omaha market, replacing or rearranging other programming to do so. The new show included political, pop culture and off-color commentary. Many listeners objected to the changes and banded together to boycott the show. They established a Facebook page, started a petition, published a list of those who advertised with the show, and included information on how to contact members of Three Eagles management. They also held a public event, sent emails and letters to Three Eagles management, and sent emails to advertisers with The Blaze. Some stated Three Eagles was not a local operation.

Ted Pool was among those who opposed the changes. He sent emails to some Blaze advertisers objecting to the changes, attributing them to regional and out-of-state decisions, and encouraged the email recipients to sign the petition. He urged the recipients to contact Three Eagles to ask if the company would continue “jeopardizing YOUR advertising dollars by being associated with” the new show.

April 17, 2012

Summary Judgment Reversed Due to Ambiguity in Contract

by Lee E. Berlik

Swiftships Shipbuilders and its defense contract procurement consultant, Lion Associates, are currently in a dispute over a $181 million contract awarded to Swiftships by the United States Navy. In February 2009, Swiftships, which specializes in military vessels, submitted a capability summary to the Naval Sea Systems Command (NAVSEA) in response to a Navy announcement seeking coastal patrol boats to supply to the Iraqi government. After not receiving a response in two months, Swiftships hired Lion Associates to provide marketing and promotion services to attract potential Swiftships clients. In exchange, Swiftships would pay Lion Associates $7,500 a month for 12 months and “3% of each new contract obtained by Lion.” Swiftships later revised the contract so that the 3% commission was limited to “each new contract brought to Swift[ships], which was obtained by Lion.” In the meantime, Admiral Lyons, the CEO, President, and sole member of Lion Associates, worked on procuring the Navy contract for Swiftships by assuring a high-ranking NAVSEA admiral that Swiftships could manage the entire job by itself. The contract was awarded to Swiftships a few months after the singing of the revised contract between Lion Associates and Swiftships, but Swiftships refused to pay Lion Associates the 3% commission on the Navy contract because it did not think that Lion Associates had brought the Navy contract to Swiftships.

Lion Associates sued for breach of contract and unjust enrichment. It argued that it was entitled to a little over $6 million in compensatory damages because the 3% payment provision applied to any contract that Swiftships was unable to obtain without Lion Associates assistance. The Eastern District of Virginia granted summary judgment in favor of Swiftships on both claims, but the United States Fourth Circuit Court of Appeals remanded the case after finding that the contract was ambiguous and that evidence should have been considered to determine its meaning and whether it was breached.

In a breach of contract claim, a court must determine if contractual provisions have been violated by looking at the actual language of the document. If the contract language is ambiguous, the trier of fact can look to extrinsic parol evidence to determine the parties’ intent as to certain provisions. However, resort to extrinsic evidence is limited to situations where language is “susceptible to more than one reasonable construction,” when considered in the context of the contract as a whole.

April 2, 2012

Kevin Costner Denies Breach of Contract with Sculpture Artist

by Lee E. Berlik

Actor Kevin Costner is in the middle of a contract dispute in South Dakota over the placement of 17 buffalo and Lakota warrior sculptures that he had commissioned from artist Peggy Detmers. The sculptures were originally intended for Costner’s proposed resort The Dunbar, but the resort itself was never built and the sculptures were later installed as the centerpiece of a visitor attraction on an adjoining property, dubbed “Tatanka.” Detmers claims she never authorized Costner to install the sculptures at the new location and sued him for breach of contract.

At issue is a contractual provision that stipulates, “if The Dunbar is not built within ten (10) years [of the year 2000] or the sculptures are not agreeably displayed elsewhere, I [Costner] will give you [Detmers] 50% of the profits from the sale of the . . . sculptures after I have recouped all my costs incurred in the creation of the sculptures and any such sale.”

The trial court found in favor of Costner, finding that the sculptures were “agreeably displayed elsewhere.” First, the sculptures were placed “elsewhere” because any place that is not The Dunbar satisfied this contractual provision. Furthermore, the sculptures were found to have been “agreeably displayed” at the alternative location because Detmers had been involved and informed during the location and design process and even spoke at Tatanka’s grand opening. As a result, she could not have reasonably thought that The Dunbar would still be built at some further time in the future.