Articles Posted in Pretrial Practice and Civil Procedure

This isn’t what I was taught in law school 20 years ago, but res judicata comes in many flavors. I was taught that there were only two doctrines relating to re-litigating civil claims: claim preclusion, known as res judicata, and issue preclusion, known as collateral estoppel. That’s wrong, at least here in Virginia. In an opinion published earlier today by the Virginia Supreme Court, the court describes in detail how there are actually four different types of res judicata: two types of claim preclusion (“bar” and “merger”) and two types of issue preclusion (“direct estoppel” and “collateral estoppel”). All four of these concepts fall under the res judicata umbrella.

The case is Paul Lee v. Lisa Spoden, originally filed in Fairfax County Circuit Court. Lee formed Strategic Health Care Company, Inc. (“SHC”), a consulting company providing services to healthcare organizations and professionals, in 1994, and gave Spoden (his wife–or maybe fiancee–at the time) a 50% ownership interest the following year. When they divorced in 2009, the parties entered into an agreement in which Spoden agreed to give up her 50% interest in exchange for a number of things, including the right to “direct use” of certain real estate owned by the company, and to receive all proceeds when the property was sold. In 2013, Spoden filed an action against Lee for breach of contract and breach of fiduciary duty, claiming that he had listed the property for sale without her knowledge or permission and that he had violated various other provisions of the property settlement agreement, which was incorporated (but not merged) into the final divorce decree.
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Derivative actions are a mainstay of modern business litigation. They allow a shareholder of a corporation to enforce a right the corporation has but is wrongfully refusing to enforce. Normally, corporate management would be responsible for deciding whether to pursue litigation against someone, but sometimes it’s the management itself–such as an officer or director–that is causing the problem. In such situations, the board of directors may be reluctant to initiate a lawsuit against one of their own, so allowing a shareholder to bring the suit in the name of the corporation can be the only practical way to protect the interests of the corporation. Still, derivative suits are considered an extraordinary procedural device, permitted only when it is clear that the corporation will not act to enforce its rights. The pleading requirements are laid out in Federal Rule of Civil Procedure 23.1.

Because it’s normally up to the board of directors to decide whether to pursue litigation in the interest of the corporation or shareholders, it’s necessary to plead both the plaintiff’s demand on the corporation and the corporation’s refusal to comply. Under Rule 23.1, any complaint purporting to be a derivative action must state with particularity (a) any effort by the plaintiff to obtain the desired action from the directors or comparable authority and, if necessary, from the shareholders or members; and (b) the reasons for not obtaining the action or not making the effort. The reason for this requirement is that derivative suits may proceed only if the shareholder shows that the board’s refusal was wrongful. If the board’s refusal to pursue litigation is justified, there will not be grounds for a derivative action.
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Back in 2012, the Alexandria Circuit Court ruled in an Internet defamation case that discovery could be obtained from a nonresident third party by serving a subpoena on the company’s registered agent in Virginia. That decision was reversed last week by the Virginia Supreme Court in an unambiguous ruling that is going to force a lot of Virginia attorneys to make greater use of the Uniform Interstate Depositions and Discovery Act.

I had been following this case–Yelp, Inc. v. Hadeed Carpet Cleaning, Inc.–over the past few years with great interest, not because of the subpoena-power issue, but because the case involved some fascinating First Amendment issues and promised to offer some guidance on the correct application of Virginia’s “unmasking” statute, Section 8.01-407.1. For example, would an interactive computer service like Yelp have standing to object to complying with an enforceable subpoena by invoking the First Amendment rights of its users? Does a plaintiff need to produce evidence to meet 8.01-407.1’s “showing” requirement or can it make the required showing merely by by alleging a prima facie cause of action for defamation? In a case involving online negative reviews phrased as non-actionable statements of opinion but written anonymously by competitors hiding behind a pseudonym, how can a plaintiff demonstrate falsity (i.e., that the reviewer was not an actual customer) without an opportunity to use discovery to ascertain the poster’s true identity? The justices showed keen interest in questions like these at oral argument, but ultimately decided to save addressing them for another day.
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What is a nonsuit? Simply stated, a nonsuit is a voluntary withdrawal or dismissal of a lawsuit by the party that filed it that allows the party to bring a second suit on the same cause of action. (See Va. Code § 8.01-380). It results in a termination of the case “without prejudice,” leaving open the possibility that the plaintiff will bring the same claims a second time. Litigators from other states are often surprised to hear about this Virginia procedural device, as it arguably gives plaintiffs an enormous tactical advantage. If you’re a lawyer admitted pro hac vice to a Virginia state court, this blog post is for you.

Plaintiffs in civil litigation get one “free” nonsuit. This means that, subject to the exceptions described below, the first time a plaintiff moves for a nonsuit with respect to a defendant or cause of action, the court must grant it, no questions asked. Plaintiffs do not need to explain their reasons for wanting to nonsuit. Don’t like the way a juror looked at you? Go ahead and nonsuit if you feel strongly enough about it. It doesn’t even matter if the case was previously in federal court and voluntarily dismissed; you’re entitled to one nonsuit in Virginia state court. The second time the case is brought, it may still be possible to nonsuit, but this time the judge will have discretion to grant or deny your motion. You can also nonsuit a second time if the defendant has no objection (which is often the case as defendants tend to be eager for litigation to end).
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Suppose you’re a senior executive at a company that regularly transacts large volumes of business with another company, when the wife of the other company’s CEO files what you believe to be an unwarranted sexual harassment lawsuit against your company, presumably with the consent or approval of her husband. I suspect many would assume that you would have the right to cease doing business with that company due to the strain on the relationship caused by the wife’s lawsuit. Shouldn’t you have the right to decide for yourself which companies deserve your business? Well, be careful. In an opinion written by Eastern District of Virginia Judge James C. Cacheris last month, the court found that allegations like these were sufficient to state a claim for tortious interference with contract under Virginia law.

Tortious interference is a legal theory that requires a plaintiff to allege (and eventually prove) the following elements: (1) the existence of a valid contractual relationship or business expectancy; (2) knowledge of the relationship or expectancy on the part of the interferor; (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy; and (4) resultant damage to the party whose relationship or expectancy has been disrupted. If the contract is “at will,” such as the typical employment contract that either party is free to terminate at any time, it must also be proven that the defendant employed “improper methods.” After the case of Stephen M. Stradtman v. Republic Services, Inc., it would appear that “business retaliation” can qualify as the required “improper method” to support a tortious interference claim.
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A common strategy for plaintiffs wishing to avoid federal court is to ensure at least one of the defendants is non-diverse. In theory at least, this would preclude the defendants from removing a case based on state-law claims from Virginia circuit court to federal court. In a ruling issued earlier this month, Judge Kiser of the Western District of Virginia clarified that this strategy will not always be effective: if the joinder of the non-diverse defendant is found to be fraudulent, the citizenship of that party will be disregarded for the purpose of analyzing whether subject-matter jurisdiction exists.

Federal courts have subject-matter jurisdiction primarily in two situations: where a federal question is raised, and where “complete diversity” exists. Complete diversity refers to a situation where no plaintiff resides in the same state as any defendant, and the amount in controversy exceeds $75,000. (See 28 U.S.C. § 1332(a)). If any defendant resides in the same state as any plaintiff, complete diversity is lacking and the court would lack jurisdiction to decide the case. So if Company A wants to sue Company B for breach of contract (a claim that does not involve a federal question) in state court, but the two companies are citizens of different states and the amount in dispute exceeds $75,000, Company A might be tempted to add a second defendant (such as an employee of Company B) who resides in the same state as Company A, simply for the purpose of destroying any basis for federal-court jurisdiction.
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Fewer aspects of civil litigation make me groan louder than attempting to obtain a subpoena in a foreign jurisdiction to obtain testimony or documents for a case pending in Virginia state court. Reading about getting a “commission” or dealing with a “letter rogatory” makes me want to run and hide (or at least remove the case to federal court, where practitioners enjoy nationwide subpoena power). Over the years, we’ve obtained subpoenas from California, Pennsylvania, Illinois, the District of Columbia, and Maryland. Despite the passage in each of these states of some form of the Uniform Interstate Depositions and Discovery Act–which is supposed to streamline the procurement of foreign subpoenas–obtaining a foreign subpoena remains a complicated and contradictory matter, confusing attorneys and jurisdictions alike. So let me save you a bit of trouble and share with you some key things you’ll want to know in order to get your subpoenas issued with a minimum of delay and hassle.

First, a few preliminary considerations: my best rule of thumb is to pick up the phone and call the clerk of the court located in the jurisdiction in which you need a subpoena, and be as nice, warm, and polite to that person as you’re capable of being. Clerks are people too, and much of the day, they have demanding attorneys barking at them, ignorant parties asking questions they can’t answer, and too much to do with not enough time to do it. Establishing some rapport with the clerk can go a long way if you’re trying to extract information and obtain what you need promptly.

Next, if you’re issuing a witness subpoena, call or email the deponent to see if the date you’ve chosen is convenient for the witness. Witnesses tend to be more cooperative when you consider their schedule. You are not the only one with a busy workweek.
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Suppose you lose a motion you thought you would almost certainly win. “The court got it wrong,” you tell yourself, perhaps even sincerely. Do you file a follow-up motion asking the court to change its mind? Or do you file it away in the “grounds for appeal” category? Motions for reconsideration are disfavored in every jurisdiction and you’ve already lost once–so the odds are against you–but if the court made a clear mistake of law, it can make sense to inform the court of the mistake. The permissible grounds for seeking reconsideration depend on whether you’re in federal court or state court.

The Federal Rules of Civil Procedure do not expressly allow motions for reconsideration, but district courts generally treat them as being filed under Rule 59 or 60. Still, reconsideration of a judgment is considered an extraordinary remedy which will be granted only sparingly. Rule 60(b) allows for “relief from a final judgment, order, or proceeding” in certain circumstances. Those circumstances include mistake, excusable neglect, newly discovered evidence, fraud by an opposing party, and “any other reason that justifies relief.” That catch-all is not as broad as it sounds, however. The Fourth Circuit has held that Rule 60(b) “does not authorize a motion merely for reconsideration of a legal issue” and that Rule 60 cannot be used to make a motion simply asking the court to change its mind. In federal courts sitting in Virginia, motions for reconsideration cannot be granted where the moving party simply seeks to have the court rethink what it has already thought through–regardless of whether its decision is right or wrong.
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Virginia’s long-arm statute extends personal jurisdiction to the fullest extent permitted by due process. A Virginia court may exercise specific jurisdiction over a defendant when the defendant has sufficient minimum contracts with Virginia such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. To establish “minimum contacts,” a plaintiff must show that the defendant purposefully directed activities at Virginia residents and that the litigation results from alleged injuries arising out of those activities. A court may exercise general jurisdiction over a defendant whose activities in Virginia have been continuous and systematic. A court with general jurisdiction over a defendant may adjudicate claims entirely distinct from the defendant’s in-state activities. To survive a motion to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure Rule 12(b)(2), a plaintiff must demonstrate personal jurisdiction by a preponderance of the evidence. In Hunt v. Calhoun County Bank, the United States District Court for the Eastern District of Virginia analyzed whether it could exercise personal jurisdiction over non-residents in a contract dispute.

James L. Bennett (“Bennett”) is the president and a board member of Calhoun County Bank (the “Bank”), a West Virginia corporation. In June 2007, William H.G. Hunt, Sr. (“Hunt”), a Virginia resident, entered a contract with the Bank in which the Bank agreed to sell Hunt royalty interests for $40,000. Hunt sued the Bank and Bennett for breach of contract and fraud alleging that he transferred $40,000 to an agent of the Bank but that the Bank refused to transfer the royalty interests. He asserts that he suffered over $180,000 in damages as a result of the Bank’s breach and he seeks specific performance or compensatory damages. Hunt also alleges that Bennett fraudulently misrepresented his intention to transfer the royalty interests. The Bank and Bennett moved to dismiss for lack of personal jurisdiction and also for failure to state a claim upon which relief can be granted.
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Due Process is satisfied when a non-resident has sufficient minimum contacts with a state such that exercise of jurisdiction over him does not offend traditional notions of fair play and substantial justice. The minimum contacts analysis focuses on the relationship between the defendant, the forum and the litigation, and the defendant’s conduct must create a substantial connection with the forum state. The relationship must arise out of contacts that defendant himself creates with the forum state, and the contact must be with the forum state itself rather than merely with persons who reside there. The United States Supreme Court recently addressed these concepts in Walden v. Fiore.

Anthony Walden was working as a DEA agent at the Atlanta airport when, after using a drug-sniffing dog to perform a sniff test, he seized almost $97,000 in cash that Nevada residents Gina Fiore and Keith Gipson claimed to have won gambling in San Juan. Walden later helped draft an affidavit to establish probable cause. Fiore and Gipson sued Walden in Nevada alleging violation of their Fourth Amendment rights. Specifically, they asserted that Walden violated their rights by (1) seizing the cash without probable cause; (2) keeping the money after concluding it did not come from drug-related activity; (3) drafting and forwarding a probable cause affidavit to support a forfeiture action while knowing the affidavit contained false statements; (4) willfully seeking forfeiture while withholding exculpatory information; and (5) withholding that exculpatory information from the United States Attorney’s Office.
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