Articles Posted in Pretrial Practice and Civil Procedure

Although a plaintiff asserting a fraud claim in federal court may allege malice, intent, knowledge, and other conditions of a person’s mind in general terms, he must plead the circumstances constituting the fraud with particularity, identifying the time, place, content, and maker of each alleged fraudulent circumstance. Failure to plead fraud with sufficient particularity will result in dismissal under Federal Rule of Civil Procedure 12(b)(6), as demonstrated by the recent failed case against Capella University.

Melvin Murphy had a Bachelor of Arts degree and was pursuing an M.B.A. when he received online advertisements for Capella University’s doctoral programs in business management. Capella’s “enrollment counselors” responded aggressively to Murphy’s initial inquiries with calls, emails and marketing materials. Murphy contends that Capella’s promotional materials contained misstatements and misrepresentations upon which he relied when he enrolled in the school’s Ph.D. program in Organization and Management with a specialization in Leadership. For example, one brochure featured testimonials from supposed Capella doctoral students accompanied by photographs and quotes. Murphy asserts that at least one person pictured and quoted was not a graduate of Capella, was not a current student in the Ph.D. program and did not give permission for Capella to use his image. According to Murphy, the promotional materials were false and misleading as Capella did not award doctoral degrees in the field of Organization and Management and had no plans to do so. Capella agents allegedly reemphasized these misrepresentations when speaking with Murphy.

Murphy complains that Capella also failed to tell him that a doctoral candidate in any subject must pass Comprehensive Exams in order to be eligible for a Ph.D. and that most candidates fail these exams. According to Murphy, only 10% of Capella’s degree candidates obtained their desired degree. He asserts that these material omissions happened despite frequent contact with “representatives of Capella, including the Capella ‘enrollment counselors.'”

When companies sue their former employees on the ground that they allegedly breached a broadly-worded noncompete agreement, a common defense tactic has been to file a demurrer, arguing that the complaint fails to state a claim upon which relief can be granted. The thinking was that if the noncompete agreement at issue was overly broad on its face, it would be deemed unenforceable as a matter of law and incapable of supporting a lawsuit. Those days are over, according to Assurance Data Inc. v. Malyevac, an employer-friendly ruling of Virginia’s high court decided earlier this month.

Assurance Data, Inc. (ADI) entered into an agreement with John Malyevac which required Malyevac to sell ADI’s computer products and services. The agreement contained non-competition, non-solicitation, non-disclosure and return-of-confidential-information provisions. A few months after entering into the agreement, Malyevac resigned. ADI filed a complaint in Fairfax County Circuit Court alleging that Malyevac violated the agreement. Malyevac demurred, asserting that the complaint failed to state a cognizable claim.

Like the 12(b)(6) motion to dismiss used in federal court, a demurrer tests the legal sufficiency of the facts alleged in the complaint and determines whether a complaint states a cause of action upon which relief can be granted. When ruling on a demurrer, a court may not decide the merits of a claim. (That’s what trials are for). If a complaint contains sufficient facts to VSC.JPGinform a defendant of the nature and character of a claim, the complaint will survive a demurrer.

A plaintiff employee with no direct evidence of disability discrimination must establish a prima facie case of wrongful termination. If he succeeds, the defendant employer is required to articulate a legitimate, non-discriminatory reason for the termination. The burden then shifts back to plaintiff to show that the reason offered was merely a pretext for discrimination. The United States District Court for the Western District of Virginia recently employed this burden shifting framework in Ruggles v. Virginia Linen Service, Inc. and granted the employer’s motion for summary judgment.

Timothy Ruggles was a route salesman for Virginia Linen Service and New System Linen Service. His duties included bringing extra linens to clients who had run out of linens before their scheduled delivery date. The extra linens rarely weighed more than 25 pounds. Ruggles also acted as a substitute driver for ill or vacationing employees, although he contended that substitute driving or “running a route” was not a primary function of his position. Running a route required him to make new deliveries of linens and pick up bags of soiled linens from customers. Occasionally, the bags of soiled linens weighed up to 100 pounds. When running a route, Ruggles and other employees often separated the heaviest bags of soiled linens into smaller bags to reduce the weight and make the bags easier to lift.

Ruggles suffered a back injury that was not related to his work. As a result, his doctor ultimately placed him on restrictions that prevented him from lifting more than 10 pounds for four weeks. Later, an orthopedic specialist permanently restricted laundry.jpgRuggles from lifting more than 50 pounds and/or continuous lifting of more than 25 pounds. Defendants offered Ruggles a sales position that would not require heavy lifting, but Ruggles rejected the offer. Defendants eventually terminated him based on the permanent restrictions the orthopedic specialist put in place.

Upon a showing of a change in circumstances since the suit was originally filed, a plaintiff can successfully move for a change of venue to a district where the case might have originally been brought if such a transfer would be convenient to parties and witnesses and would serve the interests of justice. A federal court in Hawaii engaged in a balancing test to determine whether a plaintiff could successfully transfer venue in Reyes v. Schuttenberg.

Lidinila Reyes sued her cousin, sister and niece for libel and slander in Hawaii. Reyes’ cousin lives in New York, and her sister and niece live in Hawaii. Reyes lived with her sister in Hawaii from 2007 until 2012, when Reyes moved to Nevada. During the years Reyes lived in Hawaii, defendants allegedly made defamatory statements to relatives and acquaintances outside of Hawaii which Reyes contends injured her relationships with her children and other relatives and harmed her professional reputation, livelihood, and health. Reyes asserts that defendants delivered much of the defamatory matter to her daughter in Nevada via telephone, Facebook, email and in person. Comments also were allegedly communicated to other parties in Nevada as well as to parties in California and North Carolina.

Reyes asserts that when she learned of defendants’ actions, she moved out of her sister’s house and suffered emotional and physical setbacks to her already fragile health. Due to health concerns, Reyes could not travel to her home in Nevada, so she filed the lawsuit in Hawaii. Three months after filing in Hawaii, the court denied Reyes’ Motion to Transfer Venue to Nevada but did so without prejudice and granted Reyes leave to re-file a Motion to Transfer Venue should facts change. Two months later, Reyes renewed her Motion to Transfer Venue.

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.

A federal court has jurisdiction over causes of action created by federal law and over cases in which the plaintiff’s right to relief depends on the resolution of a substantial question of federal law. If a federal court lacks subject matter jurisdiction, the case must be remanded to state court, even if the parties both argue in favor of keeping the case in federal court. The United States District Court for the Eastern District of Virginia addressed this issue two days ago in PORTCO v. NISH.

The AbilityOne Program requires government agencies to procure certain goods and services from nonprofit companies that employ severely disabled people. A committee administers the program and determines what products and services are appropriate and which nonprofit agencies meet the criteria necessary to participate in the program. NISH is a nonprofit agency that facilitates the committee’s distribution of government contracts among other nonprofits. NISH evaluates the qualifications and capabilities of nonprofits, provides information to the committee, recommends products and services for procurement to the committee, and allocates government orders among nonprofit agencies after the committee approves them. NISH follows the committee’s policy guidelines and also has its own Best Practices which include notifying the nonprofit agencies of available opportunities by a posting on its website. According to NISH’s Best Practices, if an agency brings a new project opportunity to NISH’s attention or takes steps to identify such opportunities, that agency will receive the opportunity on a first come first considered basis.

PORTCO alleges that it worked with the Naval Medical Center-Portsmouth Contracting Authority for several years to bring a contracting opportunity to NISH. PORTCO understood NISH’s Best Practices to mean that PORTCO would receive the opportunity. NISH did not recommend PORTCO for the opportunity, and PORTCO contends that this constituted a violation of NISH’s best practices. PORTCO sued NISH in The United States District Court for the Eastern District of Virginia allegingstatevfed.jpg federal question jurisdiction.

The Fourth Circuit clarified last week that after a case is filed in state court, a defendant desiring a federal forum should seek removal rather than file a separate declaratory judgment action in its federal district court of choice. In VRCompliance v. HomeAway, Inc., the court noted that the federal removal statute is the primary avenue for obtaining federal court review of already pending state law claims, and allowing a party to file a case in a federal forum when the same claims are pending in state court would result in a “regime of forum shopping.”

HomeAway, Inc. operates websites that facilitate vacation home rentals. These rentals, unlike the booking of hotel rooms, tend to deprive localities of tax revenue. Eye Street Solutions has developed computer software that can identify vacation homeowners who have not paid locality taxes. Eye Street licensed the software to VRCompliance, LLC, and VRCompliance uses the software to investigate tax compliance on behalf of localities such as the Colorado Association of Ski Towns (“CAST”).

Believing that Eye Street’s software was impermissibly accessing its websites and “scraping” data, HomeAway sent a letter to Eye Street and CAST demanding that CAST’s members stop using the software. HomeAway asserted that the software’s access of HomeAway’s websites violated the terms of conditions of use of the sites and constituted unlawful interference with contractual relations as well as a deceptive and unfair trade practice in violation of state law. HomeAway sent a second letter tocart.jpg CAST and copied CAST’s members, and it sent a letter to Eye Street and VRCompliance reiterating its allegations and threatening legal action unless the companies ceased scraping data from HomeAway’s websites and turned over any data already obtained.

A shareholder acting on behalf of a corporation may bring a “derivative suit” against corporate directors and management for fraud, mismanagement, self-dealing or dishonesty. Before bringing such a suit, the shareholder must make a written demand that clearly identifies the alleged wrong and demands the corporation take action to redress it. A court will examine a complaint and a written demand to insure that they are sufficiently connected. A Norfolk Circuit Court recently addressed the sufficiency of a demand letter in Williams v. Stevens and Dornemann.

Alex Williams, Eric Stevens and Karl Dornemann were the sole shareholders of Dogsbollocks, Inc., a corporation that managed restaurants. Williams alleged that Stevens and Dornemann (the defendants) prevented him from involvement with the corporation and refused to give him pertinent corporate information. He also alleged that the defendants developed a restaurant independently. Williams’ attorney sent two letters to the defendants. The first letter demanded access to the corporation’s financial records and requested the name of the corporation’s accounting firm, and the second letter accused defendants of ignoring the first letter and gave the defendants notice that Williams was requesting financial records pursuant to Virginia Code ยง 13.1-774. Williams later filed a derivative suit. In response to an Amended Complaint, defendants filed a plea in bar, arguing that Williams’ suit was barred because he failed to make a written demand before bringing the derivative action. Williams contended that his two letters fulfilled the demand requirement.

The court considered what components a document must contain in order to satisfy the written demand requirement. No Virginia court had previously addressed the question, so the court looked to rules established in North Carolina, where the demand requirement is almost identical to Virginia’s. Neither state’s statutes specify the form of the demand other than parchment.jpgrequiring it to be written. North Carolina courts have held that the document should set forth the facts of share ownership and describe the remedy demanded with enough specificity to allow the corporation to correct the problem or bring a lawsuit on its own behalf. See e.g., LeCann v. CHL II, LLC, 2011 NCBC 29 (2011). In North Carolina, emails, sworn affidavits and letters have satisfied the written demand requirement where they identified the allegedly wrongful acts and demanded redress in a clear and particular manner sufficient to put the corporation on notice as to the substance of the shareholder’s complaint.

When Cecil Addison was passed over for promotion, he sued Volvo Trucks North America and Ivan Mitchell in the Western District of Virginia for breach of contract and discrimination. Volvo Trucks had a contract agreement with the United Auto Workers Union. Addison alleged the defendants changed the contract’s job requirements without Union approval so they could put a white male employee in the position for which Addison, a black male, was the most senior qualified employee. He also claimed that, when he complained, they retaliated by terminating his employment. Addison sought $25 million for the career he said they destroyed, and an additional $25 million for pain and suffering. But this wasn’t the first time he filed a lawsuit like this.

Addison made substantially the same allegations, plus others, in an earlier suit he filed in the same court in 2009. In that case, he didn’t communicate with the defendants for over five months, failed to appear at his own scheduled deposition and, when the magistrate judge ordered him to show cause why the case shouldn’t be dismissed, failed to respond. So that case was dismissed.

The principle of res judicata (Latin for “a thing adjudicated”) bars a party from filing a new lawsuit if that party has filed a prior suit on the same claim or on claims arising from the same transactions that could have been raised in that prior suit. The Supreme Court has acknowledged the important reasons for this doctrine, which include (1) preventing the cost and vexation of stacks.jpgmultiple lawsuits, (2) conserving judicial resources, and (3) preventing inconsistent judicial decisions so parties can rely on adjudications.

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