Pretrial Practice and Civil Procedure Category Archives — Page 7 of 10 — The Virginia Business Litigation Blog Published by Virginia and Washington, D.C. Litigation & Appeals Attorney

February 5, 2013

Failure to Allege Basis for Subject Matter Jurisdiction Can Result in Sanctions

If you’re going to file a lawsuit against someone, you’d better explain the basis for it. A complaint doesn’t need to include much detail, but it must at least allege facts showing that you’ve been wronged and that you are entitled to a remedy of some sort. In federal court, you must also demonstrate a basis to invoke the court’s jurisdiction. Failure to do so can result in monetary sanctions.

Take the case of Michael Harris v. Jeffrey Seto, brought in the Harrisonburg Division of the Western District of Virginia. Michael F. Harris and his company, M. F. Harris Research, Inc., filed a complaint against Jeffrey K. Seto, Matthew S. Johnson, and others, alleging fraud, breach of fiduciary duty, and corporate diversion. Harris stated in conclusory fashion that Seto and others defrauded him by scheming to take over his company and steal confidential information and business opportunities.

The complaint consisted of a two-page handwritten document. (Hint: that’s not the best way to make a good first impression with the judges). The complaint alleged nine counts but did not set forth the factual basis supporting them. According to the civil cover sheet filed with the complaint, Harris asserted the court’s jurisdiction was based on a federal question. He checked boxes describing the case as being in the nature of “Assault, Libel & Slander,” “Property Damage Product Liability,” and “Patent.” Defendant Johnson was the only defendant served and he wisely moved to dismiss the action for failure to state a claim.

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.

January 28, 2013

Lumping Defendants Together Can Result in Dismissal

by Lee E. Berlik

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.

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.

December 11, 2012

Does Virginia’s Subpoena Power Extend to Foreign Corporations?

by Lee E. Berlik

In yet another case involving alleged defamatory Yelp reviews, Hadeed Carpet Cleaning has filed a “John Doe” action in Alexandria Circuit Court, seeking to first learn the identities of the anonymous posters, then recover damages from them. Yelp is based in California but conducts substantial business in Virginia, so Hadeed served Yelp’s registered agent with a subpoena duces tecum seeking to identify the individuals who wrote the negative reviews. Yelp refused to comply.

Yelp objected to the subpoena on several grounds. It argued that serving a Virginia subpoena on its registered agent was insufficient to confer jurisdiction over a California company, that its advertising agreement with Hadeed required the parties to resolve their disputes in California, and that Hadeed did not meet constitutional requirements to compel Yelp to reveal the anonymous posters’ identities.

The court rejected these arguments, finding that Hadeed complied with Virginia Code § 8.01-407.1, which spells out what a party must do to discover the identities of anonymous posters on the Internet. The court found that service of a subpoena on the registered agent was sufficient to confer jurisdiction, but even if it wasn’t, Yelp would be subject to personal jurisdiction anyway due to its substantial business activities in Virginia. The forum-selection clause in Yelp’s advertising agreement was inapplicable because the dispute did not arise under that contract.

November 26, 2012

Joinder of Involuntary Plaintiff Permitted Only “In a Proper Case”

by Lee E. Berlik

Federal Rule of Civil Procedure 19(a)(2) permits courts to join necessary parties as involuntary plaintiffs “in a proper case.” Whatever a “proper case” might look like for purposes of Rule 19(a) joinder, Judge James P. Jones of the Western District of Virginia recently found that the case before him– Childress v. UBS Financial Services–did not qualify.

Gary Childress established an IRA, naming Terry Lee Dodson, his wife, as the account’s beneficiary. UBS Financial Services managed the account. The couple divorced and when Childress died six years later, Dodson sued UBS in state court seeking to be declared the beneficiary. Edward Childress, the estate administrator, then sued UBS in federal court based on diversity jurisdiction. Childress argued the divorce revoked, as a matter of law, the original beneficiary designation of Dodson. UBS moved to join Dodson as a necessary party plaintiff.

The Federal Rules require a court to join as a “necessary party” anyone who claims an interest in the action’s subject matter and whose absence from the suit could hurt that person’s ability to protect the interest or potentially result in another party being subjected to multiple or inconsistent obligations. The person has to be “subject to service of process” and the joinder cannot destroy the court’s subject matter jurisdiction.

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 5, 2012

Misrepresentation of Present Intent to Perform Contract

by Lee E. Berlik

In Virginia, a fraud claim must state (1) a false representation, (2) of a material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reliance by the party misled, and (6) resulting damage to the party misled. Fraud claims cannot be based on unfulfilled promises or statements regarding future events. Promises to perform future acts are not legal representations and failure to perform them doesn’t change that fact. But if a defendant, at the time of making that promise, had no intention of carrying it out, that promise is considered a misrepresentation of present fact that can form the basis for a fraud claim. As demonstrated by the recent case of Cyberlock Consulting v. Information Experts, however, mere failure to perform is not evidence of the defendant’s lack of intent at the time the contract was formed.

Information Experts (IE) and Cyberlock Consulting had a history of working together. As they were completing the work on a contract with OPM, they learned the agency would be seeking bids for a similar new project. So they entered into a teaming arrangement to land the new prime contract. The teaming agreement called for IE to give Cyberlock 49% of the work under a fixed price subcontracting agreement. Cyberlock would submit cost and price data to support IE’s pricing strategy planning and the parties would use reasonable efforts to negotiate a subcontract. Ultimately, IE was awarded the prime contract but the parties were unable to reach agreement on the terms of a subcontract. Cyberlock sued IE, alleging breach of contract, fraud, and unjust enrichment. IE moved to dismiss the fraud claim.

Cyberlock claimed that, when they formed the teaming arrangement, IE had no intention of executing a subcontract. Instead, it claimed, IE planned to push Cyberlock out and hire its employees so it could perform the contract itself.

September 26, 2012

Virginia Right to Nonsuit Unaffected by Federal Court Dismissal

by Lee E. Berlik

Dr. Adel S. Kebaish filed a defamation case in Fairfax County Circuit Court against INOVA Health Care Services and several doctors alleging defamation, breach of contract, tortious interference, conspiracy, wrongful termination and unjust enrichment. Defendants removed the case to federal court, where Dr. Kebaish filed an amended complaint. He later filed a Notice of Voluntary Dismissal and then re-filed the case in Fairfax. The case proceeded to a jury trial, and on the second day of the trial Dr. Kebaish invoked the Virginia rule allowing plaintiffs to take one voluntary nonsuit as a matter of right. INOVA objected, arguing that because Dr. Kebaish had taken a voluntary dismissal in federal court, he had effectively already taken a nonsuit. The trial court disagreed and allowed Dr. Kebaish to nonsuit. INOVA appealed.

On appeal, the court was guided by well-settled principles of statutory review which bind courts to the plain meaning of statutory language and require them to apply the expressed legislative intent. Virginia’s nonsuit statute was first enacted in 1789 and applied only to actions at law tried by a jury. The statute was amended in 1932 and again in 1954, the later amendment providing for a voluntary dismissal as a matter of right only up to the time the suit had been submitted for decision at law or in equity. Courts have recognized that the 1954 amendment intended the term “nonsuit” to be used in a comprehensive sense whether at law or in equity.

The current nonsuit statute allows a plaintiff to take one nonsuit as a matter of right before a motion to strike the evidence has been sustained, before the jury retires, or before the action has been submitted to the court for decision. Va. Code § 8.01-380(B). In federal court, a plaintiff may take a voluntary dismissal as a matter of right before the opposing party serves either an answer or a motion for summary judgment. Fed. R. Civ. P. 41(a)(1)(A)(i).

September 17, 2012

Attorneys’ Eyes Only Expert Reports Sealed From Public Scrutiny

by Lee E. Berlik

The law presumes that the public should have access to judicial records. This presumption stems from both common law and First Amendment concerns and may be abrogated only in unusual circumstances. Fourth Circuit case law indicates that a district court can seal court documents if competing interests outweigh the public’s right to access.

When faced with a request to seal documents, a court must first determine the source of the right to access in order to weigh the competing interests. The court must then (1) give notice of the request to seal and allow interested parties a reasonable opportunity to object; (2) consider less drastic alternatives to sealing the documents; and (3) provide specific reasons and factual findings supporting its decision to seal the documents. A local rule in the United States District Court for the Eastern District of Virginia requires the party moving to seal documents to provide (1) a non-confidential description of the documents to be sealed; (2) a statement as to why sealing is necessary; (3) references to governing case law; and (4) a statement as to the period of time the party seeks to have the matter sealed and as to how the matter is to be handled upon unsealing.

In a recent case in the Eastern District of Virginia, East West, LLC v. Rahman, the plaintiff sought to seal four exhibits relating to the parties’ expert reports. The reports were designated “Attorney’s Eyes Only” under a confidentiality order entered during discovery that allowed the parties to so designate documents that contained highly sensitive business or personal information, the disclosure of which might cause significant harm.