The Virginia Business Litigation Blog

October 30, 2015

Proximate Cause Is Required to Win Your Fraud Claim

To state a cause of action for fraud in Virginia, a plaintiff must plead that there was (1) a false representation of (2) a material fact, (3) made intentionally and knowingly, (4) with intent to mislead, and that the plaintiff (5) reasonably relied on that false representation and (6) that his reliance resulted in damages. What lawyers and judges often overlook is that to survive demurrer, a plaintiff must also show (as part of the causation requirement of elements 5 and 6) that the damage was proximately caused by the defendant’s alleged misrepresentation. (See, e.g., Cohn v. Knowledge Connections, Inc., 266 Va. 362, 369 (2003); Murray v. Hadid, 238 Va. 722, 731 (1989)). Not just caused–proximately caused.

The Virginia Supreme Court has defined proximate cause of an event as “that act or omission which, in natural and continuous sequence, unbroken by an efficient intervening cause, produces the event, and without which that event would not have occurred.” Beale v. Jones, 210 Va. 519, 522 (1970). According to the Restatement of Torts, the concept of proximate cause encompasses both (1) causation in fact, which exists where a plaintiff’s reasonable reliance is a “substantial factor in determining the course of conduct” that results in the plaintiff’s loss; and (2) legal causation, which exists where the loss might “reasonably be expected to result from the reliance.” (See Restatement (Second) of Torts §§ 546, 548A). It’s this second element that is most often neglected. Proximate cause is more than simple “but for” causation, which refers only to the first element of the test (i.e., causation in fact).

September 17, 2015

Claim Preclusion, Issue Preclusion, and the Various Forms of Res Judicata

by Lee E. Berlik

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.
Continue reading

August 31, 2015

Newly Released EEOC Directive To Assist Federal Employees Alleging Discrimination When Potential Conflict of Interest Exists

by Guest Blogger

As you may know from past posts, the U.S. Equal Employment Opportunity Commission (EEOC) enforces five federal laws that prohibit employment discrimination against applicants for federal employment, current federal employees, or former federal employees: Title VII of the Civil Rights Act of 1964, as amended (prohibiting discrimination on the basis of race, color, religion, sex, or national origin); the Equal Pay Act of 1963 (prohibiting agencies from paying different wages to men and women performing equal work in the same work place); the Age Discrimination in Employment Act of 1967, as amended (prohibiting discrimination against persons age 40 or older); Sections 501 and 505 of the Rehabilitation Act of 1973, as amended (prohibiting discrimination on the basis of disability); and Title II of the Genetic Information Nondiscrimination Act of 2008 (prohibiting discrimination based on genetic information).

But what if the individual discriminating against a federal employee is the head of the agency or division wielding vast influence not only in the employee’s division but the entire agency? What if the alleged discrimination is inflicted by the head of the EEO office? Federal employees may fear that the EEO office is not investigating thoroughly such claims of discrimination and/or is predisposed not to find that any discriminatory conduct occurred.
Continue reading

August 17, 2015

Derivative Actions Carry Heightened Pleading Standard

by Lee E. Berlik

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

The VirginiaBusiness Litigation Blog