The Virginia Business Litigation Blog

August 17, 2015

Derivative Actions Carry Heightened Pleading Standard

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.
Continue reading

July 16, 2015

The Fifth Unstated Element of Tortious Interference Claims

by Lee E. Berlik

Most Virginia litigators will tell you that there are four elements to a claim of tortious interference with contractual relations in Virginia: (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.

There is a line of cases in federal court, however, that recognizes a fifth, “unstated” element of tortious interference; namely, the existence of a competitive relationship between the party interfered with and the interferor. In 17th St. Associates, LLP v. Markel Int’l Ins. Co., 373 F. Supp. 2d 584, 600 (E.D. Va. 2005), the court found that a reading of pertinent Virginia Supreme Court cases implied that “the tort of intentional interference with a business expectancy contain[s] a fifth, unstated element to the prima facie case: a competitive relationship between the party interfered with and the interferor.”
Continue reading

June 30, 2015

The Obergefell Effect On Employment

by Guest Blogger

On June 26, 2015, the Supreme Court of the United States (“SCOTUS”) decided the 5-4 landmark decision, Obergefell v. Hodges, No. 14-556 (June 26, 2015). What’s so important about this case, which has resulted in nationwide parades, rainbow lighting of the White House, and rainbow-tinted profile pictures on Facebook? And, more important to us here at BerlikLaw, what might the Obergefell ruling portend for the employment discrimination realm?

Well, I’ll tell you. Obergefell determined that the states could not ban same-sex marriage. Prior to June 26, 2015, thirty-six states permitted same-sex marriage, but the remaining states still prohibited it. Then, last Friday, in a sweeping act of federalism, SCOTUS determined that the states could not constitutionally prevent same-sex couples from legally marrying in any state. SCOTUS answered a “YES” to the pivotal constitutional question: do the Equal Protection and Due Process clauses of the Fourteenth Amendment require all states to perform same-sex marriages? Yes, yes, they do.
Continue reading

June 22, 2015

False Advertising Claims May Be Based on Implied Falsity

by Lee E. Berlik

In a false advertising case brought under the Lanham Act, 15 U.S.C. § 1125(a), a manufacturer of furniture coverings claimed that an advertisement placed in a trade magazine by a major furniture manufacturer was false and misleading. Design Resources, Inc., the plaintiff, argued that even if the ad and accompanying article were couched in terms of opinion, principles of defamation law teach that statements of apparent opinion can be actionable if they imply the existence of underlying facts. The district court accepted this notion but found that the ad in question did not imply any such facts and granted summary judgment for the defendants, Ashley Furniture Industries, Inc., and Leather Industries of America. On June 18, 2015, the Fourth Circuit affirmed.
Continue reading

May 15, 2015

One Racist Act May Be Enough to Support a Title VII Claim

by Guest Blogger

Virginia employers take note: even one racial slur (or sexist comment) by one employee to another can subject you to legal liability under Title VII of the Civil Rights Act of 1964 (“Title VII”), 42 U.S.C. § 2000e-3(a).

Title VII protects employees against discrimination in the workplace if the discriminatory conduct is based on gender, race, color, disability, religion, or national origin. Harassment is unwelcome conduct based on race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. It is not harassment if your supervisor is mean or rude to you–unless said conduct is based on one of aforementioned discriminatory bases.
Continue reading

April 30, 2015

Customer Lists and Pricing Information Aren’t Necessarily Confidential

by Lee E. Berlik

When an employee has signed an enforceable non-competition and non-solicitation agreement, he will be prohibited from soliciting the employer’s customers for a certain length of time after the employment relationship ends. In the absence of an express non-competition clause, a former employee is generally free to compete with his former employer, even if that means contacting the former employer’s customers and offering lower prices. Without the benefit of contractual noncompetes and the remedies they provide, employers who pursue their former employees in court often argue that the employees violated their post-employment fiduciary obligations by making inappropriate use of the employer’s customer list and/or pricing data. In a recent opinion authored by Judge Liam O’Grady of the Eastern District of Virginia, the court held that customer lists aren’t automatically entitled to trade-secret or other “confidentiality” status, and that whether former employees can use the data depends on the steps taken by the employer to keep it confidential.

In Contract Associates, Inc. v. Atalay, Contract Associates, Inc. (“CAI”) sued its former employees, Senem Atalay and Michael Spade, claiming that they breached their fiduciary duties and misappropriated trade secrets when they left to form their own competing company. Neither employee had a written employment agreement. Within hours of tendering their resignations, they called three of CAI’s major clients to announce their resignations and the formation of their new, competing company. Shortly thereafter, virtually all of CAI’s major clients terminated their at-will agreements with CAI and moved their business to the defendants’ new company, costing CAI “nearly its entire revenue stream.” CAI sued for breach of fiduciary duty, misappropriation of trade secrets, tortious interference with existing and prospective contracts, and statutory business conspiracy.
Continue reading

April 20, 2015

Virginia’s Subpoena Power Does Not Extend Beyond Its Borders

by Lee E. Berlik

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.
Continue reading

March 25, 2015

The Right to Nonsuit in Virginia Litigation

by Lee E. Berlik

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).
Continue reading

February 9, 2015

RICO: Not Just For Gangsters Anymore

by Lee E. Berlik

The Racketeer Influenced and Corrupt Organizations Act (commonly known as “RICO“) became effective on October 15, 1970. It was originally intended primarily to assist in the prosecution of mafia leaders, as it permitted them to be tried for crimes they ordered others to do rather than committed themselves. Congress never intended to limit RICO to organized crime, however. G. Robert Blakey, the primary author of the statute, once told Time Magazine, “We don’t want one set of rules for people whose collars are blue or whose names end in vowels, and another set for those whose collars are white and have Ivy League diplomas.” The statute includes a civil provision, found at 18 USC § 1964(c), that has proven particularly popular in business litigation as it allows for the recovery of treble damages and attorneys fees.

RICO makes it unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt. (See 18 USC § 1962(c)). Key concepts in civil RICO cases typically include whether a true “enterprise” exists, whether the defendant has engaged in “racketeering activity,” and, if so, whether such activity constitutes a “pattern.”
Continue reading

January 5, 2015

Retaining Jurisdiction Does Not Suspend Finality of Judgment in Federal Court

by Lee E. Berlik

Federal appellate courts have jurisdiction to hear appeals only from “final decisions” of the district courts. (See 28 U.S.C. § 1291). Subject to limited exceptions, an appeal is timely if the litigant seeking review of the final decision files a notice of appeal within 30 days after its entry. (See 28 U.S.C. § 2107(a); Fed. R. App. P. 4(a)(1)(A)). Sometimes a district court, after ruling on the merits of a case, will “retain jurisdiction” for purposes of enforcing an injunction or entertaining a motion for attorneys’ fees. What happens then? Is the decision really “final” if jurisdiction has been retained? In Virginia state court, the answer has been no; that when a court retains jurisdiction to entertain motions for fees, the judgment is not yet final and appealable. However, in the recent Fourth Circuit case of Hudson v. Pittsylvania County, No. 13-2160, 2014 WL 7210330 (4th Cir. Dec. 17, 2014), the court was faced with this very issue and held decisively that in federal court, retaining jurisdiction to consider attorneys’ fees does not affect the finality of the underlying judgment or toll the 30-day appeal period.

As in Virginia state court, a federal district court’s decision is “final” if it ends the litigation on the merits and leaves nothing for the court to do but execute the judgment. The Hudson court found, however, that a district court’s retaining jurisdiction over its permanent injunction order did not affect the order’s finality within the meaning of Section 1291. It reasoned that the court’s ability to modify or terminate an injunction post-judgment is simply part of its “inherent power” that exists in every case. Relying on the Supreme Court’s decision in Ray Haluch Gravel Co. v. Cent. Pension Fund of Int’l Union of Operating Eng’rs & Participating Emp’rs, 134 S. Ct. 773, 777 (2014), the court also held that “a decision on the merits is a final decision under § 1291 even if the award or amount of attorney’s fees for the litigation remains to be determined.” This result is hard to reconcile with the definition of “finality,” but it’s now unquestionably the law in the Fourth Circuit.
Continue reading

The VirginiaBusiness Litigation Blog