The Virginia Business Litigation Blog

January 11, 2023

Mass Resignation to Form Competing Business Leads to Litigation

No employer likes to see a large number of its employees band together and leave en masse to form a competing business. A large number of employees leaving at once can lead to a loss of institutional knowledge and experience, not to mention customers and revenues. Mass departures hurt morale and can lead to increased costs for recruitment and training. A company’s reputation can be irreparably damaged once word gets out that a mass resignation has taken place, making it more difficult for the business to attract new talent. Depending on the circumstances, litigation against the former employees, as well as against the company that hired them, may or may not be warranted.

Possible legal claims include breach of fiduciary duty, breach of non-compete and/or non-solicitation agreement, tortious interference, business conspiracy, misappropriation of trade secrets, and more. Let’s take a quick look at how a Hampton Roads body-piercing business dealt with the sudden resignation of seven employees who went on to form their own body-piercing business in the same region. In the case of Chanah, Inc. v. Summers, currently pending in the Chesapeake Circuit Court, the plaintiff pursued a number of business torts against the departing employees. Most of the counts survived demurrer.

October 19, 2022

The Dead Man’s Statute

by Lee E. Berlik

Virginia’s “Dead Man’s Statute,” found at Va. Code § 8.01-397, does two things: (1) it provides a hearsay exception allowing certain statements to come into evidence when the person who made them is dead or otherwise incapable of testifying; and (2) it prohibits an adverse party in litigation from winning a judgment based solely on uncorroborated testimony that can’t be rebutted due to the other party’s incapacity. The statute makes it more difficult to win a case against someone who has died. If key testimony will relate to conversations between the decedent and the adverse party, or to events that took place in the decedent’s presence, the law does not permit the surviving party to win a judgment based solely on his own uncorroborated testimony when the decedent is not available to challenge that testimony.

The Dead Man’s Statute provides in material part:

In an action by or against a person who, from any cause, is incapable of testifying, or by or against the committee, trustee, executor, administrator, heir, or other representative of the person so incapable of testifying, no judgment or decree shall be rendered in favor of an adverse or interested party founded on his uncorroborated testimony. In any such action, whether such adverse party testifies or not, all entries, memoranda, and declarations by the party so incapable of testifying made while he was capable, relevant to the matter in issue, may be received as evidence in all proceedings including without limitation those to which a person under a disability is a party.

September 14, 2022

Forum Selection Clause Enforceable if Not Induced by Fraud

by Lee E. Berlik

Fraudulent inducement is a defense to a breach-of-contract action. Enforceable contracts require a meeting of the minds as to the subject matter. If one of the contracting parties agreed to the contract terms only because of the other party’s trickery and deceit, there hasn’t really been a true meeting of the minds and the defrauded party can sometimes get out of the deal. For the defense to work, there must be a showing of fraud. One party must make an intentional misrepresentation of fact, material to the purpose of the agreement, which causes the defrauded party to agree to the terms of the contract in reliance on the false statement (believing it to be true). Although a contract induced by fraud is voidable and may be rescinded, there are limits to the defense. A recent case from Fairfax County explains that a forum-selection clause contained within a contract allegedly procured by fraud will still be enforced unless the alleged fraud relates specifically to the forum-selection clause itself.

The case is Boxer Advisors, LLC v. Success Business, Inc. As presented in the opinion, Boxer Advisors was a prime contractor on a government contract and had entered into a subcontract with Success Business (“SBI”). The subcontract contained a forum-selection clause specifying Maryland as the sole venue for any litigation between the parties arising under the agreement. A dispute arose and Boxer sued SBI for fraud, misappropriation of trade secrets, and tortious interference. It filed the lawsuit in Virginia rather than Maryland. SBI objected, pointing to the forum-selection clause. Boxer argued that it wasn’t required to honor the terms of the forum-selection clause because, as alleged in its complaint, the subcontract with SBI had been fraudulently induced.

August 10, 2022

Grossly Excessive Jury Awards Can Be Set Aside or Reduced

by Lee E. Berlik

Juries are usually told they can award to a successful plaintiff whatever amount they decide is appropriate, however high that number might be. The judge, however, will scrutinize any award of monetary damages to ensure it is supported by the evidence admitted at trial. Courts have a duty to correct a verdict that plainly appears to be unfair or would result in a miscarriage of justice. When it appears to the court that a verdict is unfair in that it is out of proportion to the actual damages sustained, the court has a duty to correct the injustice. (See Gazette, Inc. v. Harris, 229 Va. 1, 48 (1985)). A trial court may set aside a verdict if it shocks the court’s conscience, indicating that the jury was likely motivated by passion or prejudice, or that the jury misconceived or misconstrued the facts or law, or where the verdict is so disproportionate to the injuries suffered as to suggest that it is “not the product of a fair and impartial decision.” (See Edmiston v. Kupsenel, 205 Va. 198, 202 (1964)). Trial courts have the power to order a new trial (Va. Code § 8.01-383), or they may give the plaintiff the option of “remittitur” of the excessive verdict in lieu of a new trial (Va. Code § 8.01- 383.1), permitting him to accept judgment for an amount less than the jury awarded.

When analyzing awards of punitive damages for excessiveness, courts look to a number of factors, including (1) the reasonableness between the damages sustained and the amount of the punitive damages award and the measurement of punishment required; (2) whether the award will amount to a double recovery; (3) the proportionality between the compensatory and punitive damages; and (4) the ability of the defendant to pay. (See Baldwin v. McConnell, 273 Va. 650, 657 (2007)). Punitive damage awards that are grossly excessive can also be unconstitutional in that they violate the Due Process Clause of the Fourteenth Amendment. The Due Process Clause requires consideration of factors such as (1) whether the award bears a reasonable relationship to the award of compensatory damages; (2) the relationship between the punitive damages award and the actual or potential damage that might have been caused by the acts; (3) the grievousness or degree of reprehensibility of the acts; (4) the degree of malicious intent; (5) the ratio of the award to civil or criminal penalties that could be imposed for comparable misconduct; and (6) the wealth of the wrongdoer. (See BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 568, 575 (1996)).

July 8, 2022

Interior Designers’ Unauthorized Markups May Be Grounds for Legal Action

by Lee E. Berlik

For homeowners, it can be overwhelming to furnish and accessorize a home without the assistance of a professional interior designer. Trying to pick paint colors, wallpaper, flooring, lighting, and furniture without professional assistance is not for the faint of heart. Unfortunately, there are some unscrupulous interior designers out there who prey on well-to-do homeowners having the means of affording their services. Some interior designers will use deception to convince their clients that furnishings and other materials cost more than they really do, knowing that their customers are trusting them to design their home with their best interests in mind and that they will likely pay whatever invoice is presented to them, no questions asked. On occasion, though, a homeowner will question the charges reflected on an interior designer’s invoice. Recent case law establishes that deceptive behavior like marking up the cost of goods can lead to liability for both breach of contract and violation of the Virginia Consumer Protection Act.

Consider the case filed against Robert Shields Interiors by Dr. Tanya M. Johnson. Johnson hired Robert Shields to provide professional interior design, space planning, and decorating services (including purchasing furniture) for her home in McLean, Virginia. Although the contract allowed Shields to charge Johnson 10% extra on shipping and handling charges, the contract did not allow for any other markups. Johnson alleged that Shields breached their agreement in many ways, including: (a) he charged her for some furniture that was never delivered; (b) he sent her some items in the wrong color; and (c) he charged her unauthorized and undisclosed markups on various items. Discovery revealed that Shields was secretly marking up most of the furniture sourced for Johnson by anywhere from 35 to 100 percent. He charged $4800 for a chaise lounge that only cost him $2481. He charged his customer $11,000 for a table that only cost him $5999.40.

June 21, 2022

Public Employees Can’t Be Fired for Exercising Free Speech Rights

by Lee E. Berlik

Freedom of speech is protected by the First Amendment to the United States Constitution. In the employment context, the First Amendment offers special protection to state and federal employees. Public employees have some extra job security as they cannot (at least not legally) be terminated for exercising their free-speech rights. (If you work for a private company, the First Amendment doesn’t do much for you because it’s a limit on government power, not private entities). If a public employee gets fired for saying something his government employer didn’t like, he may, in appropriate circumstances, be entitled to pursue a Section 1983 claim for monetary damages.

If you’ve been following the drama down in Pound, Virginia, you know that the town is on the verge of collapse. Town funds were embezzled, the Town Attorney was fired, and so many council members quit that the council was left without a quorum and unable to conduct business. This is a place that actually did defund the police, terminating the employment of the town’s entire police department. The town may or may not exist at the end of next year. But back to the Town Attorney. As a public employee, he enjoyed the First Amendment right to freely express his personal views without giving his employer grounds to terminate him. But according to the complaint he filed against former Town Council member Clifton Cauthorne and others (a complaint which, as an interesting aside, appears to have been written with a typewriter), the Town fired him in retaliation for his criticism of the Town’s Mayor. A federal judge recently opined that if the allegations in the complaint are true, the Town violated the attorney’s First Amendment rights.

March 31, 2022

No Post-Judgment Interest on Trebled or Punitive Damages

by Lee E. Berlik

A successful civil lawsuit generally results in a judgment for some amount of money. Interest accumulates on that judgment, either at the rate lawfully specified in the contract or at Virginia’s standard “judgment rate” of six percent. (See Va. Code § 6.2-302). Money judgments can consist of many different types of damages awarded to the plaintiff, such as compensatory damages, punitive damages, costs and expenses, liquidated damages, trebled damages, and other damages authorized by statute. For years, many successful plaintiffs have garnished wages, seized assets, and taken other action to collect their judgments on the assumption that they were entitled to add 6% interest to the total amount of the judgment, regardless of how that judgment amount was reached. On March 24, 2022, the Supreme Court of Virginia held that post-judgment interest should only run on the portion of the judgment representing compensatory damages. Things like punitive damages and trebled damages do not fit within this category.

Yacoub Sidya v. World Telecom Exchange Communications, LLC, was a business dispute between a telecommunications company, its former CEO, and the owner of Y-Telecom, a vendor to World Telecom. World Telecom sued Sidya on various counts and was successful on its claims for misappropriation of trade secrets, tortious interference with business expectancy, and business conspiracy. The jury awarded $1.332 million, trebled to $3.996 million, punitive damages of $350,000, attorneys fees, and post-judgment interest of 6% applied to the judgment as a whole. Sidya had a problem with the trial court awarding 6% interest on the entire judgment of roughly $6.5M rather than applying interest only to the $1.332M attributable to compensatory damages. On appeal, the Virginia Supreme Court didn’t agree with all of Sidya’s arguments, but it agreed that post-judgment interest should be restricted to awards that are compensatory, rather than punitive, in nature.

January 29, 2022

Put Your Contracts In Writing

by Lee E. Berlik

If it’s important, put it in writing. Seems like common sense, doesn’t it? Yet you’d be surprised how much business gets done in the absence of a written agreement. Legally speaking, written contracts aren’t strictly necessary in many situations. A contract will exist, regardless of whether reduced to writing, if the evidence shows an offer was made and accepted, that legally sufficient consideration was exchanged, and that both parties agreed on all material terms. The statute of frauds requires that certain types of contracts–like real estate contracts and contracts for the sale of goods worth over $500–be in writing or supported by written evidence, but contracts not covered by the statute of frauds are enforceable in Virginia even if they are purely oral. (See Va. Code §§ 8.2-201, 11-2). But why would you want to go through the trouble of having to prove the existence of a verbal agreement? The whole point of entering into a contract is to acquire a legally enforceable right. If the other party breaches the agreement and you need to enforce your rights in court, you’ll need to be able to prove the existence of a valid contract, that it was breached by the other party, and that you were damaged as a result. Proving these three things is a lot easier if the terms of the agreement are reflected in a document signed by both parties.

As I read the recent opinion in Monogram Snacks Martinsville, LLC v. Wilde Brands, Inc. (a case that involved a dispute between two snack-food manufacturers, one of which is one of the largest in the country), I was surprised to learn the parties never bothered to put the terms of their agreement in writing. As a result, when Monogram decided to sue Wilde for breach of contract, it had to go through a whole ordeal to convince the court that a contract even existed in the first place.

December 11, 2021

Preliminary Injunctions Not Automatic in Noncompete Cases

by Lee E. Berlik

When I wrote about how to enforce a noncompete agreement against a departed employee a couple of years ago, I made it sound pretty easy: write an enforceable noncompete agreement, then move for a preliminary injunction to prevent the employee from doing further damage to your business. It should be noted, however, that injunctive relief is considered an “extraordinary” remedy in Virginia and is by no means automatic, even if an employee is in clear violation of an enforceable noncompete agreement. A recent decision from Fairfax County showcases what can happen if the employer is unable to prove irreparable harm.

To obtain a preliminary injunction against a former employee, the employer needs to convince the court that all of the following are true: (1) the employer will suffer irreparable harm if a preliminary injunction is not granted; (2) the employee will not be harmed if the preliminary injunction is granted (or would suffer less than the employer would suffer if the injunction is denied; in other words, the “balance of equities” tips in the employer’s favor); (3) the employer will likely succeed on the merits (i.e., win the case) when it ultimately goes to trial; and (4) the public interest would be served (or at least not harmed) by granting the preliminary injunction. (See Real Truth About Obama, Inc. v. Fed. Election Comm’n, 575 F.3d 342 (4th Cir. 2009); Wings v. Capitol Leather, LLC, 88 Va. Cir. 83 (Fairfax 2014)).

October 6, 2021

VUTSA Preemption Held Insufficient Basis for Pretrial Dismissal

by Lee E. Berlik

The Virginia Uniform Trade Secrets Act (“VUTSA”) contains a section stating that “this chapter displaces conflicting tort, restitutionary, and other law of this Commonwealth providing civil remedies for misappropriation of a trade secret.” (See Va. Code § 59.1-341). Known as the preemption provision, it is designed to prevent inconsistent theories of relief for the same underlying harm by eliminating alternative theories of common law recovery premised on misappropriation of trade secrets. (See Smithfield Ham & Products Co., Inc. v. Portion Pac, Inc., 905 F.Supp. 346, 348 (E.D. Va. 1995)). The General Assembly has decided that if you’re going to file a lawsuit for a tort based on the unlawful taking or use of a trade secret, your sole remedy should lie in VUTSA. Any common-law claim premised entirely on a claim for misappropriation of a trade secret will be deemed preempted by the statute. To avoid preemption, a plaintiff must be able to demonstrate that the distinct theories of relief sought are supported by facts unrelated to the alleged misappropriation of the trade secret. (See Combined Ins. Co. of Am. v. Wiest, 578 F. Supp. 2d 822, 833 (W.D. Va. 2008)).

If a plaintiff sues a defendant for misappropriation of trade secrets under VUTSA but also for conversion, unjust enrichment, and tortious interference, one might suppose that the three common-law torts would be preempted and that a motion to dismiss would be in order. As noted by a recent decision in the case of Signature Flight Support, LLC v. Catherine Carroll, however, the preemption issue often cannot be decided at the outset of a case and must wait for trial to be resolved. This is primarily because the determination of whether a particular piece of confidential commercial information qualifies as a “trade secret” under VUTSA is generally a question of fact to be determined at trial. If the plaintiff can’t prove the existence of trade secrets, then preemption won’t apply and the tort claims would become viable.

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