The Virginia Business Litigation Blog

October 8, 2012

Non-Compete Held Enforceable, Lost Profits Sufficiently Proven

The Supreme Court of Virginia recently heard appeals in Preferred Systems Solutions, Inc. v. GP Consulting, LLC, a Fairfax non-compete case previously covered by this blog. The case involved a dispute between a government contractor, Preferred Systems Solutions, Inc. (PSS) and its subcontractor, GP Consulting, LLC (GP). GP terminated its contract with PSS and entered into a contract with a PSS competitor. PSS sued GP alleging breach of contract, misappropriation of trade secrets and tortious interference with contract. The trial court awarded PSS compensatory damages based on its finding that GP breached the non-compete clause in the parties’ contract and that PSS was entitled to recover its lost profits, which it had proven with reasonable certainty. The Virginia Supreme Court affirmed.

Contracts that limit competition are not favored in Virginia and are enforceable only if narrowly drawn to protect an employer’s legitimate business interest, not unduly burdensome on an employee’s ability to earn a living and not against public policy. The court considers the function, geographic scope, and duration of the restriction in evaluating these factors.

Here, the court found that the function of the non-compete clause was narrowly drawn as it was limited to work in support of a particular program run under the auspices of a particular government agency and limited to the same or similar type of Money Stream.jpg information technology support offered by PSS. Likewise, the twelve month duration of the non-compete was narrowly drawn in the court’s view. The court found that the lack of a specific geographic limitation was not fatal to the non-compete clause because it was so narrowly drawn to this particular project and the handful of companies in direct competition with PSS. Accordingly, the court found that the clause was enforceable.

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.

September 5, 2012

Trying to Get Someone Fired: A First Amendment Right?

by Lee E. Berlik

It is not an uncommon sentiment to want to “get someone fired” by conveying unflattering and possibly damaging information to another person’s employer. Most litigation attorneys will tell you that such conduct can put you at risk for a claim for tortious interference with the employee’s employment contract or business relationship. The Minnesota Court of Appeals, however, has held that claims for tortious interference based on truthful, non-defamatory statements made to another’s employer may be constitutionally protected, regardless of the speaker’s motivation.

Moore v. Hoff involved certain statements made by John Hoff (a.k.a. “Johnny Northside”) on his blog, “The Adventures of Johnny Northside.” When Hoff learned that former community council director Jerry Moore was working for a University of Minnesota group studying foreclosure issues, Hoff wrote in his blog that Moore had been fired from his position as executive director of a local community council due to misconduct and that court evidence showed Moore had been involved in a high-profile fraudulent mortgage. Hoff’s friend, Donald Allen, then sent an email to the university, linking Moore to someone under indictment for mortgage fraud, accusing him of a questionable deal, and warning the university it could face a “public relations nightmare” by employing Moore. Allen included a link to Hoff’s blog in the email. The University fired Moore immediately.

Moore sued Hoff for defamation, intentional interference with contract, and interference with prospective advantage. Moore was deemed a “limited purpose public figure” because he’d assumed a prominent role in a public controversy as director of the community council and the alleged defamation related to that controversy. A jury found Hoff interfered with Moore’s contract and prospective business advantage and awarded Moore $60,000. But it also found Hoff’s statements were “not false.” Hoff appealed.

August 27, 2012

Virginia Court Allows Corbin Bernsen Lawsuit to Proceed

by Lee E. Berlik

Innovative Legal Marketing, LLC, a Virginia Beach company, provides attorney and law firm marketing through various media. In 2009, the company entered into a spokesperson agreement with actor Corbin Bernsen, one of the stars of the popular television series, L.A. Law. The agreement gave Innovative the right to use Bernsen’s likeness, voice and image to market the company and its clients. Innovative was to pay him $1,000,000 over five years in increments of $200,000 annually under a defined formula.

The parties fulfilled their advertising roles for almost two years with Innovative paying a total of $331,818.12 to the actor. But in June 2011, Bernsen said Innovative’s managing director orally terminated the contract. The company stopped paying Bernsen but, as late as September 2011, continued airing certain Bernsen television commercials and featuring his photographs, recorded messages and video clips on the internet.

Bernsen sued the company for breach of contract and unjust enrichment, seeking the remaining balance, $668,181.88, along with incidental and consequential damages, interest, fees and costs.

August 20, 2012

Virginia Technology Firm Sued for Trademark Infringement

by Lee E. Berlik

Vienna, Virginia-based Immersonal, Inc., a consumer software and technology services company, has been sued for trademark infringement and related claims in Virginia federal court. Radio and Podcast personality, Ira Glass, and Chicago Public Media say Immersonal’s new “This American Startup” podcast infringes on their award-winning “This American Life” radio and podcast programs. The suit includes counts for trademark infringement and dilution, unfair competition and fraud, and violation of the Virginia Consumer Protection Act.

According to the complaint, Mr. Glass has produced, aired, promoted and distributed the radio show, “This American Life,” since 1996. The show is part of the lineup of Chicago Public Media, an Illinois not-for-profit corporation, which has owned and operated a radio station since 1990. “This American Life” is a Peabody award-winning syndicated program on contemporary American culture, including fiction and nonfiction and original monologues, mini-dramas, documentaries, music and interviews. It is also available on the internet as a podcast and is downloaded about 700,000 times per week. In many weeks, it is the most popular podcast in the country. The program was turned into a television show between 2006 and 2008 and garnered several Emmy awards.

The plaintiffs allege further that the mark, “This American Life,” has been in continuous use since 1996 in entertainment and in connection with the audio program. The plaintiffs co-own this and related marks and have expended significant money and air time to promote and advertise their marks in various media. They say these efforts, combined with quality programming, have led consumers to associate “This American Life” with quality service. In turn, this acceptance and good will has opened the door to additional business opportunities associated with the marks. The plaintiffs claim the mark is famous given its duration of use, reach, extensive consumption and recognition.

August 13, 2012

Trademark Infringement Claimed by Christian Rockers

by Lee E. Berlik

The Newsboys, a Christian rock music group, has filed a trademark infringement lawsuit against the New Boyz rap duo, claiming that despite the contrasts in musical styles and lyrics, the similarity in the bands’ names will cause confusion among its fans. Sounds legit, right?

Actually, as ill-advised as this lawsuit may seem at first, the Newsboys may have a valid concern. To their credit, they registered “Newsboys” as a trademark in 1994 and have used the name continuously since then. According to the complaint, the Newsboys have had 28 number-one singles and produced four albums since 2008. One of their earlier albums was entitled, “Boys will be Boyz.”

In 2011, Warner Brothers began promoting New Boyz. In contrast to the wholesome lyrics favored by the Newsboys on tracks such as “He Reigns” and “In Christ Alone,” the New Boyz favor a raunchier style, rapping lyrics like “You’re a jerk! Jerk Jerk Jerk!” and “Tell all the homies she got bunz, bunz, bunz.”

August 1, 2012

An Agreement to Agree is not a Binding Contract in Virginia

by Lee E. Berlik

A “letter of intent” which recites the terms of a transaction contemplated in the future, or which sets forth terms to be embodied in a more formal agreement to be executed at a later time, is presumed to be a non-binding “agreement to agree” rather than an enforceable contract. In Virginia, unlike some other jurisdictions, a letter of intent, reflecting each party’s commitment to negotiate open issues in good faith to reach a contractual objective within an agreed framework, will not be construed as a binding contract absent circumstances suggesting the parties intended to bind themselves. The Eastern District of Virginia recently dealt with this issue in Virginia Power Energy Marketing, Inc. v. EQT Energy, LLC.

EQT contracted with a pipeline to buy natural gas once the pipeline completed its expansion. The purchase was subject to the pipeline’s FERC (Federal Energy Regulatory Commission) gas tariff and applicable laws, orders, rules and regulations. EQT then sought to sell some of the excess capacity to VPEM, a distributer, in a non-biddable release. By regulation, a non-biddable release must use the maximum applicable rate. The parties signed a letter of intent (LOI) for 30,000 dekatherms per day with the rate to be paid as the lesser of $0.84 per dekatherm or the rate applicable to EQT under the NLRA (the negotiated rate letter agreement between the pipeline and EQT). Subsequently, the applicable rate was set at $0.88 so either the LOI rate had to be revised or EQT was free to release the capacity to the highest bidder.

The letter of intent stated EQT “propose[d] to release a portion of (the pipeline’s capacity) to VPEM.” Before the pipeline completed its expansion, however, gas prices rose and the value of EQT’s capacity increased. EQT received bids that exceeded VPEM’s and asked VPEM to pay an additional $12 million for the capacity. VPEM refused and EQT abandoned the transaction. VPEM then sued EQT in the Eastern District of Virginia for breach of contract.

July 30, 2012

Without Proof of Meritorious Defense, Default Stands

by Lee E. Berlik

A defendant who failed to timely answer a complaint was recently rebuffed in his attempt to set aside the ensuing entry of default. Magistrate Judge Davis of the Eastern District of Virginia found that a brief filed by defendant’s counsel, which consisted of a single page referring the Court to an affidavit filled with grammatical errors and incoherent statements, failed to meet a “minimum threshold of proficiency” and demonstrated “a lack of respect for this Court.” The court found that the defendant failed to show “good cause” under Rule 55(c) for setting aside the default in that he failed to establish the existence of a meritorious defense.

MSSI Acquisition (“MSSI”) sued Tariq Azmat for breach of a financing contract in December 2011. Process was served (and later mailed) on Azmat’s cousin at Azmat’s residence on December 7, but Azmat claimed to have not come across the notice until February 2012 because he was on multiple trips and did not have a chance to check his mail until then. When Azmat failed to respond in a timely manner, MSSI filed for a default judgment on February 17, 2012. Azmat promptly reacted and filed a motion to set aside the default entered against him on March 12, 2012, asserting that he was fraudulently induced into making the financing contract with an insolvent corporation and that the contract in question had been rescinded anyway.

In Virginia, fraudulent inducement exists where a party intentionally and knowingly makes a false representation of a material fact and the other party suffers damages as a result of relying on that misrepresentation. In this case, the court found that Azmat could not have reasonably relied on any alleged misrepresentations as to MSSI’s solvency because the contract language drafted by Azmat’s own attorney referred to MSSI’s bankruptcy reorganization and Azmat had access to MSSI’s financial information, since the company was publicly traded. Moreover, the court pointed out that Azmat failed later to disavow the contract, even though he clearly knew about MSSI’s insolvency by that point, thus suggesting he did not rely on the misrepresentation that MSSI was solvent in deciding whether to enter into the financing contract.

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