The Virginia Business Litigation Blog

March 18, 2012

Virginia Tortious Interference Law More Permissive than Georgia

In Virginia, to state a claim for tortious interference with contractual relationships, a plaintiff generally must allege (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. A person must be a stranger to a contract to tortiously interfere with it; one cannot interfere with his own contract. Some states take this “stranger” requirement further, holding that a plaintiff can sue a defendant for tortious interference only if the defendant is a stranger to both the contract and the underlying business relationship giving rise to the contract.

In those states adhering to the so-called Stranger Doctrine, third-party beneficiaries are not considered strangers to the contract even though they are not parties to it. If a defendant has a legitimate interest in either the contract or a party to the contract, the defendant is not considered a stranger. In Georgia, for example, there can be no tortious interference claim where the plaintiff and defendant were parties to “a comprehensive interwoven set of contracts.” A recent unpublished opinion from the 11th Circuit shows how restrictive this rule can be.

In GT Software, Inc. v. webMethods, Inc., GT Software brought a tortious interference claim against webMethods after webMethods instructed Action Motivation, Inc., to withhold sales leads gathered by GT at Integration World, a convention hosted by webMethods in November 2006. GT had issued a news release that webMethods believed contained certain inaccuracies about one of its partner companies, so webMethods removed GT’s representatives from the convention and instructed TBA Global, the company it had hired to run the convention, to ensure that GT did not receive any of the sales leads that GT had collected during the convention using scanners provided by Action Motivation.

March 7, 2012

Trademark Infringement Action Filed Against Urban Outfitters

by Lee E. Berlik

The Navajo Nation has sued retailer Urban Outfitters and its subsidiaries for trademark infringement, trademark dilution, and related claims. In the suit, filed in the District of New Mexico, the tribe seeks monetary damages and an injunction against using the “Navajo” and “Navaho” names in connection with marketing goods that compete directly with Navajo Nation’s products.

According to the Complaint, Urban Outfitters has been using “Navajo” and “Navaho” on a line of clothing and accessories that competes directly with products offered by Navajo Nation. One of the tribe’s most valuable assets is its NAVAJO trademark which it has used to market such products for a century and a half. That trademark has been registered for over sixty years. The Complaint alleges that through its retail stores, online stores and catalog, Urban Outfitters has sold over twenty “Navajo” products, using geometric patterns similar to ones the Navajo Nation has created over the years, ranging from earrings and tunics to undergarments and liquor flasks. The Navajo Nation takes particular exception to the marketing of flasks bearing the tribe’s name, mark and design, because the sale and consumption of alcohol is prohibited on the Navajo reservation.

Navajo Nation asserts that Urban Outfitters’ actions are “designed to convey to consumers a false association or affiliation with the Navajo Nation, and to unfairly trade off of the fame, reputation, and goodwill of the Navajo Nation’s name and trademarks.” Lawyers for the tribe argue that consumers are being led to believe that Urban Outfitters has contracted with the tribe to sell its products under one of its registered trademark names but that, in fact, Urban Outfitters has no license or sponsorship relationship with the tribe that would permit the company and its subsidiaries to use any of these trademarks. The trademark case includes claims that Urban Outfitters has been diluting the NAVAJO mark’s distinctiveness (dilution by blurring) and harming the mark’s reputation (dilution by tarnishment). The tribe also asserts the company has violated the Indian Arts and Crafts Act by displaying and marketing the products so as to suggest they are authentic Indian-made products.

February 21, 2012

Noncompete Covenants and Covenants Restricting Land Tested By Different Standards

by Lee E. Berlik

Under Virginia law, covenants restricting the free use of land are not favored and must be strictly construed. Restrictive covenants that are unreasonably broad will not be enforced. There is a growing body of case law in Virginia governing noncompete covenants in employment contracts, but does that body of law apply to restrictive covenants in deeds? Earlier this month, the Fourth Circuit answered that question in the negative.

BP Products v. Stanley involved an appeal from the Eastern District of Virginia by BP Products North America, which had lost its motion for summary judgment against Charles V. Stanley and his business, Telegraph Petroleum Properties. BP had sued Stanley and his company to enforce a restrictive covenant in a deed, but the district court found that the restriction was overbroad and unenforceable. The Court of Appeals disagreed and reversed, finding that when analyzed under the appropriate test, the challenged prohibition was too inconsequential to invalidate the entire covenant.

Stanley leased a service station from BP in Alexandria, Virginia, subject to an agreement containing a restriction against selling fuel that was not BP-branded. Following a disagreement regarding the price of the fuel, Stanley stopped selling BP-branded fuel and started selling AmeriGO fuel, prompting the lawsuit. BP Pump.jpg

January 29, 2012

Arbitrating Arbitrability

by Lee E. Berlik

Arbitrability–whether a contract creates a duty for the parties to arbitrate (rather than litigate) a particular grievance–is ordinarily a question of law to be decided by the court. Virginia, however, adheres to a public policy favoring freedom to contract. If two sophisticated businesses reach a deal providing that any arbitrability issues shall be resolved by binding arbitration rather than decided by a court, Virginia courts will enforce that agreement as written and defer to the arbitrator on questions of arbitrability.

An example is found in the recent case of Systems Research and Applications Corporation v. Rohde & Schwarz Federal System, Inc. SRA, a government contractor for the United States Agency for International Development (USAID), hired Rohde & Schwarz as a subcontractor for a project involving telecommunication services equipment in Lebanon. R&S did not complete its performance by the contract deadline and SRA refused to pay its invoices. SRA took the position that the dispute was a “Government Contract Dispute” which, under the terms of the subcontract, could not be submitted to arbitration. R&S disagreed and initiated arbitration proceedings. SRA responded with a declaratory judgment action and a motion to stay the arbitration. The court denied the motion to stay and dismissed the case.

The court found that parties may provide by contract that all matters will be subject to arbitration, including questions of arbitrabilty. However, because allowing an arbitrator to decide issues of arbitrability is contrary to the general rule, “courts should not assume that the parties agree to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.”

January 18, 2012

Copyright Co-Owner Not Indispensable Party in Lawsuit Over YouTube Video

by Lee E. Berlik

“Grandma Got Run Over by a Reindeer” is one of the most popular holiday songs around and is played on radio stations across the country every Christmas season. It is also now the subject of contentious copyright litigation after a federal judge ruled recently that litigation over an allegedly unauthorized YouTube video containing audio of the song can continue despite the absence of a co-owner of the copyright.

Elmo Shropshire owns the copyright to the song along with Patsy Trigg d/b/a Kris Publishing. The copyright was registered with the U.S. Copyright Office on December 27, 1979. The defendant posted a video on YouTube–which has since been removed due to the pending litigation–which combined Christmas-related pictures with audio of a Canadian musical group, “The Irish Rovers,” singing the Grandma song. Shropshire contacted the poster and requested that he either pay the licensing fee or immediately remove the video. The poster refused.

Shropshire filed a copyright infringement suit in federal court, but his first (amended) complaint was dismissed because, among other reasons, Shropshire did not name Trigg or Kris Publishing in the lawsuit. The court gave him permission to amend, however, and the second time around, Shropshire named Kris Publishing as a defendant, but Kris Published settled out and was promptly dismissed. The defendant then filed a motion to dismiss, claiming that Patsy Trigg d/b/a Kris Publishing was a necessary and indispensable party and thus the suit could not go forward without her. The Court disagreed.

January 7, 2012

Fairfax Court Finds Mere Reference to By-Laws Insufficient to Incorporate Into Contract

by Lee E. Berlik

In Virginia, employment is presumed to be at-will, but that presumption can be rebutted with evidence that the employment is for a specific period of time or that it can be terminated only for just cause. Virginia law says that contracts are to be construed as written and if the terms of the contract are clear, then those terms are to be given their plain meaning. A separate writing that is referenced in a written contract is construed as part of that agreement only if it is referred to with specificity and there is some expression of an intent to incorporate its terms into the agreement. As explained in a recent opinion by Judge Bruce D. White of Fairfax, “in order to incorporate the provisions of another document into the employment contract, the plain language of the employment contract must clearly reference and incorporate the terms of the document being incorporated.”

Johnson v. Versar was a lawsuit brought by William Johnson, Alexis Kayanan and Davy Jon Daniels against their former employer Versar, a government contractor based in Springfield, Virginia, for alleged breach of their employment contracts. They claimed that their employment was not at-will but was for a definite term. They based their argument on the fact that they received certain documents upon accepting employment that referenced Versar’s by-laws, which provided that officers “may be removed” by a majority vote of the board of directors. Because a resolution was never passed, they claimed that they were terminated in violation of their employment agreements.

Judge White sustained Versar’s demurrer with prejudice and dismissed the case. The Court found that the plaintiffs were at-will employees because the by-laws were not specifically and intentionally incorporated into the employment agreement. None of the offer letters referenced the by-laws, and the accompanying documents that did reference the by-laws did not indicate any intent to incorporate their terms as part of the employment agreement.

December 31, 2011

Who Owns an Employee’s Twitter Following?

by Lee E. Berlik

Does an employer have any sort of ownership interest in its employees’ tweets or Twitter following? This very current social-media question may be tested in a lawsuit originally filed last July in federal court in California by PhoneDog, a South Carolina-based company that reviews mobile phones and services online, against former employee Noah Kravitz. An amended complaint in the case, filed on November 29, 2011, has attracted considerable media attention.

When Kravitz worked for PhoneDog as a product reviewer and video blogger from 2006 to 2010, he tweeted under the handle @PhoneDog_Noah and attracted some 17,000 followers for his comments and opinions on Twitter. When he left the company, he continued tweeting under the name @NoahKravitz. But he didn’t create a new account with that name; instead, he kept the account (with all its followers) and just changed the Twitter handle to @NoahKravitz. Eight months later, PhoneDog sued Kravitz, alleging that his continued use of the account and his tweeting to his followers constitute a misappropriation of PhoneDog’s trade secrets, intentional interference with prospective economic relationships, and conversion. Phone Dog said that it had suffered loss of advertising revenue as a result and that Kravitz “was unjustly enriched by obtaining the business of PhoneDog’s Followers.”

PhoneDog essentially claims ownership rights due to the fact that it directs its employees to maintain Twitter accounts and instructs them to tweet links to PhoneDog’s website, thus increasing PhoneDog’s page views and generating advertising revenue for PhoneDog. PhoneDog said in the complaint that since Kravitz now works for TechnoBuffalo, a competitor of PhoneDog, he is exploiting PhoneDog’s confidential information on behalf of a competitor. PhoneDog is seeking $340,000 in damages — $2.50 per month per Twitter follower for eight months. Although PhoneDog said in the complaint that “industry standards” peg the value of a Twitter follower at $2.50 per month, the company did not give a source for that estimate. Nor did PhoneDog attempt to distinguish between people who followed Kravitz because of his connection to PhoneDog and those followers who are merely friends of his or enjoy his commentary.

December 30, 2011

Virginia Lawyer’s Tortious Interference and Conspiracy Claims Dismissed

by Lee E. Berlik

In a dispute between two Virginia lawyers, a U.S. District Judge has rejected attorney Cynthia Smith’s claim that another attorney, Timothy Purnell, interfered with her contract with a client and caused her to suffer nearly $4 million in financial losses.

Smith had been representing a Northern Virginia family, the Wieses, in a dispute with their neighbors. Eventually, the Wieses became dissatisfied with her representation and hired Purnell in her place. Smith sought her full $30,000 fee from the Wieses but ended up settling the fee dispute with them for $5,000. She and the Wieses signed a settlement agreement in 2009 that provided for a full release of all claims. Two years later, Smith sued Purnell over his role in representing the Wiese family, alleging that Purnell tortiously interfered with her right to receive the full payment from the client. She said that Purnell at one point promised her that he would ensure that she would be “paid in full” by the Wieses and that he reneged on this promise. She also claimed that she signed the settlement agreement under duress in that her “decision to trust God” led to a series of financial losses.

U.S. District Judge James Cacheris, in a December 9, 2011, ruling, rejected all of Smith’s claims and dismissed the complaint. He turned down her motion for leave to amend her complaint, finding that any amendment would be futile because the facts before him did not state a cause of action. Judge Cacheris wrote that Smith’s claims were barred by the release language in the settlement agreement that she signed in 2009 with the Wieses. In his ruling, the judge pointed out that the agreement extinguishes all claims that Smith might have not only with the Wieses but also with their attorneys. Judge Cacheris ruled further that Smith’s financial distress at the time did not amount to legal “duress” that permitted her to avoid the provisions of the settlement agreement.

December 19, 2011

No Copyright Protection for Yoga Routines, Argues Defense

by Lee E. Berlik

It’s clear that dances composed by choreographers can be subject to copyright as creative works, just like paintings or photographs. It’s also clear that no matter how creative a football player’s evasive “spin move” can be, neither he nor his team can copyright it so as to prevent others from using it without paying royalties. What about a series of yoga poses? Where does that fit into the world of copyright? Three cases now pending in the U.S. District Court for the Central District of California involve that question, and although the issue remains very much in dispute, the U.S. Copyright Office has taken the view that yoga exercises are more like athletic activities or health regimens, which cannot be copyrighted, and less like dance routines, which can be.

In the lawsuits, Bikram’s Yoga College of India, based in California, and its founder, Bikram Choudhury, have sued three yoga providers for copyright and trademark infringement, contending that they have unlawfully used the specific movements and poses of Choudhury’s brand of yoga, known as Bikram Yoga. Bikram Yoga, performed for precisely 90 minutes in a room heated to 105 degrees Fahrenheit, has become quite popular in recent decades. Bikram Yoga includes 26 poses, two breathing exercises, and a carefully scripted dialogue.

Greg Gumucio is a defendant in one of the cases, along with the company he founded, New York City-based Yoga to the People. Gumucio is a former student of Choudhury. According to the complaint in that case, Choudhury “created an original Yoga Pose.jpg work of authorship consisting of a series of instructions and commands that accompany, and correspond to, each poster of Bikram Yoga.” This “original work is recited in a precise manner,” according to the complaint, and the sequence of poses received protection from the U.S. Copyright Office on several occasions. Gumucio and the other yoga studio owners, Choudhury said, had infringed upon the copyrights.

December 12, 2011

Virginia Limited Liability Company (LLC) Membership Interests Analogous to Partnership

by Lee E. Berlik

The Virginia Supreme Court ruled on November 4, 2011, that membership in a Virginia limited liability company is comprised of two components–a control interest and a financial interest–and that only the financial interest is transferable by will when a member dies. Moreover, the court held that a devisee or assignee of a financial interest has no control interest in the limited liability company without becoming a member, just as a control interest in a partnership “cannot be bestowed on another by the unilateral act of a partner.”

The financial interest involves only the right to share in the company’s profits and losses and to receive distributions. It does not entail the right to participate in the management or control of the company’s affairs.

In 1991, the Virginia legislature enacted the Limited Liability Company Act, creating the limited liability company as a hybrid entity, similar in some respects to a partnership and in other respects to a corporation. The statute provides that the transferability of a member’s interest in an LLC should be similar to the transferability of a partner’s interest in a partnership. Last Will.jpg Under the Uniform Partnership Act, the transfer of a partner’s interest in a partnership entitles the transferee only to the financial rights, not the control rights.

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