The Virginia Business Litigation Blog

June 14, 2013

Parties Cannot Stipulate to Existence of Federal Question Jurisdiction

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 alleging federal question jurisdiction.

June 4, 2013

Recent ADA Guidelines on How to Treat Applicants and Employees with Cancer or Intellectual Disabilities

by Guest Blogger

While most people know that the Americans with Disabilities Act (ADA) protects employees who have obvious visual, hearing, and physical impairments, how the law relates to employees with cancer and intellectual disabilities can sometimes raise questions. The Equal Employment Opportunity Commission (EEOC), the agency that enforces the employment provisions of the ADA and where an employee must initiate a charge of discrimination before filing a lawsuit, endeavors to answer these questions with its recently issued guidelines on how the ADA applies to employees with these conditions.

For employees living with cancer, the new guidelines discuss when an employer may ask an applicant or employee questions about their cancer, what type of reasonable accommodations employees may need, and handling safety concerns about employees with cancer. An employee who has cancer and is currently undergoing treatment or has a history of cancer has a disability within the meaning of the ADA. Misguided assumptions and discrimination abound about an employee’s ability to concentrate and how much leave they will need for treatment and doctor visits. These Guidelines explain in detail who may be told about an employee’s cancer, the various accommodations available from telecommuting to control over the office thermostat, and when an employer may or may not grant the accommodation requested.

The Guidelines characterize “intellectual disabilities” as significant limitations both in intellectual functioning and in adaptive behavior that may affect a person’s daily social and practical skills such as communication. The EEOC lists several accommodations for employees with intellectual disabilities such as demonstrating what a job entails (not just describing it), reallocation of marginal tasks to other employees, repeating instructions, breaking tasks down into manageable chunks, and the use of detailed schedules for task completion. The EEOC guidelines also discuss, in detail, when an supervisor can ask about a person’s intellectual disability and what may be asked.

May 30, 2013

Removal, Rather Than Procedural Gamesmanship, Is How to Secure Federal Forum

by Lee E. Berlik

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 to 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.

May 20, 2013

Prior to Derivative Suit, Shareholder Demand Must Clearly Identify Wrong and Demand Action

by Lee E. Berlik

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 § 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 requiring 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.

April 15, 2013

An Unsigned Contract is No Party for Wiz Khalifa

by Lee E. Berlik

Musical artist Cameron Jibril Thomaz, better known as “Wiz Khalifa,” recently saw his breach of contract case against It’s My Party get dismissed. Mr. Thomaz had hired The Agency Group as his booking agent for a new tour which would have included a concert at The Patriot Center in Northern Virginia. The Agency Group asked It’s My Party Inc. (I.M.P.) to promote the concert, and it represented to I.M.P. that Mr. Thomaz would soon release a new album. The Agency Group emailed a contract to I.M.P. and asked I.M.P. to sign and return it to The Agency Group for approval and signature by Mr. Thomaz. The contract provided that it would not be binding unless signed by all parties. The contract was never signed.

Mr. Thomaz’ release of a new album was crucial to I.M.P.’s interest in promoting the concert because it did not believe he could attract a sufficient number of fans to warrant his appearance at the venue without the support of a new album. I.M.P. asserted that the parties tentatively agreed upon a date for the concert and the terms of I.M.P.’s promotion of the concert, but it denied having committed to promote the concert.

Mr. Thomaz argued that the parties entered into a contract for him to perform a live concert and that he relied on I.M.P.’s representations in turning down an opportunity to perform on the same date at a different venue using a different promoter. According to Mr. Thomaz, I.M.P. partially performed the contract by advertising, promoting and marketing the concert. He also contends that he partially performed the contract but that I.M.P. refused to pay him any money and canceled the concert after fans already had purchased tickets. I.M.P. asserted that it declined to execute the contract but agreed to reschedule the concert because Mr. Thomaz’s album release was delayed. The Agency Group and I.M.P. agreed to sell tickets to the concert before finalizing the agreement, but as I.M.P. had predicted, sales tanked in the absence of the album release. The parties were unable to come to mutually agreeable terms, and I.M.P. ultimately cancelled the concert and withdrew its offer to promote it. Mr. Thomaz sued I.M.P. for breach of contract and I.M.P. moved to dismiss the complaint.

April 2, 2013

Res Judicata: Double Jeopardy’s Civil-Lawsuit Cousin

by Lee E. Berlik

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 multiple lawsuits, (2) conserving judicial resources, and (3) preventing inconsistent judicial decisions so parties can rely on adjudications.

March 19, 2013

How Much Is Your Emotional Distress Worth?

by Lee E. Berlik

Federal laws protect whistleblowers from retaliation because the government wants people to report fraud in government contracts. When Weihua Huang, a principal investigator on a National Institutes of Health (NIH) research grant at the University of Virginia, discovered unauthorized changes that diverted grant money to unrelated salaries and expenses, he reported it to the head of UVa’s Department of Psychiatry and Neurobehavioral Sciences. Soon thereafter, he was told his employment contract wouldn’t be renewed. Huang sued for False Claims Act retaliation and won a jury verdict of $159,915 in lost wages plus $500,000 in compensatory emotional-distress damages. Not surprisingly, the defendants (Huang’s supervisor Dr. Ming D. Li, and Department Chair Dr. Bankole A. Johnson) asked the court to reduce the damages award as excessive.

Specifically, the defendants invoked a process known as remittitur, asking Judge Norman K. Moon to either reduce the emotional distress damages to $10,000, or order a new trial. They pointed out that the only evidence of emotional distress was Huang’s own unsupported testimony. There was no evidence, for example, of medical treatment or other corroborating evidence. They argued that where the injury consists of emotional distress, the Fourth Circuit usually finds six-figure damages awards excessive when not supported by medical evidence.

A jury’s compensatory damages award will be considered excessive if it is “against the clear weight of the evidence or based on evidence which is false.” Under Rule 59(a) of the Federal Rules of Civil Procedure, if a plaintiff won’t accept a trial court’s reduction of an excessive jury award, the court can order a new trial.

March 4, 2013

Unserved Forum Defendants Can’t Remove to Federal Court

by Lee E. Berlik

If a literal reading of 28 U.S.C. 1441 (the forum defendant rule) would lead to an absurd result, then it should not be interpreted that way, according to a recent decision of Judge Morgan of the Norfolk Division of the Eastern District of Virginia.

Eddie Campbell sued his former employer, Hampton Roads Bankshares, Inc., and related entities in the Circuit Court for the City of Norfolk for breach of contract. Mr. Campbell is a citizen of North Carolina. The bank defendants, who are citizens of Virginia, removed the action to federal court prior to being served with process. Mr. Campbell moved to remand the case back to Norfolk state court, and the court granted the motion.

Federal law permits a defendant to remove a state court action to federal court only if the plaintiff could have originally filed that action in federal court. The defendants claimed federal jurisdiction was proper because the case raised a federal question under 18 U.S.C. § 1331 and claimed diversity jurisdiction under 18 U.S.C. § 1332.

February 18, 2013

Tortious Interference with Business Expectancy Requires More Than Usual Workplace Conflict

by Lee E. Berlik

Jennifer Taylor worked for Allied Waste Industries. When Allied merged with Republic Services, Inc., Taylor found the new management’s style different and problematic. Her new supervisors were described as “micromanagers,” and Taylor clashed with them over many issues, including her job performance with which her supervisors’ were dissatisfied. Taylor attempted to resolve the issues through the Human Resources office, but ultimately separated from Republic. According to Taylor, she would have continued employment with Republic but for the allegedly tortious actions of her supervisors. Taylor sued Republic and her supervisors for various torts including tortious interference with business expectancy. Defendants moved for summary judgment on the tortious interference claim.

To state a claim for tortious interference in Virginia, a plaintiff must prove: (1) a valid contractual relationship or business expectancy; (2) knowledge of the relationship or expectancy on the part of the interferer; (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. In an at-will employment situation such as this, the plaintiff must also prove that the method of interference was improper. Improper methods of interference include means that are contrary to law or regulation and methods that employ violence, threat, intimidation, or fraud. Actions motivated by spite do not necessarily constitute improper means.

A tortious interference claim usually requires three actors – two parties to the contract and a third party who interferes with the contract, so typically, the alleged interferer is not a party to the contract. However, a tortious interference claim may lie where an agent of one of the contractual parties acts outside the scope of his employment in tortiously interfering with the contract. An act is within the scope of employment if (1) it was expressly or impliedly directed by the employer or is naturally incident to the business, and (2) it was performed with the intent to further the employer’s interest.

February 15, 2013

The Consequences of Destroying Evidence

by Lee E. Berlik

Spoliation of evidence can result not only in an adverse inference instruction to the jury, but in an award of attorneys fees and expenses incurred in proving the spoliation. As demonstrated by the contentious trade secret litigation between E.I. DuPont de Nemours and Company and Kolon Industries, Inc., those fees and expenses can be substantial.

Several months ago, the court found that several key Kolon employees had intentionally deleted relevant emails, hampering DuPont’s ability to present and prove its case. As a result, the court granted DuPont’s request to instruct the jury that it could assume the destroyed evidence contained information damaging to Kolon. DuPont won the case, then sought an award of fees and expenses incurred in connection with proving the spoliation.

The court noted that DuPont had engaged in a “long, and oftentimes tortuous, journey” to discover emails Kolon had deleted and documents it had destroyed. Complicating DuPont’s burden was what the court called Kolon’s “overall obfuscatory conduct.” Still, DuPont had to prove the reasonableness of the fees requested.

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