The Virginia Business Litigation Blog

June 19, 2010

Virginia Architects Entitled to Copyright Protection

Architectural drawings are not entitled to a great deal of protection under the United States copyright laws, but to the extent a drawing contains a creative, original combination or arrangement of spaces and design elements, the work will be entitled to some level of copyright protection against acts of infringement.

In a recent Virginia case, Commonwealth Architects sued Rule Joy Trammell + Rubio, LLC (“Rule Joy”) in the Eastern District of Virginia, claiming that Rule Joy infringed its copyright in certain architectural drawings by scanning them to PDF format. Rule Joy moved for summary judgment, taking the position that Commonwealth Architects did own any valid copyright in the architectural drawings and that, even if it did, Rule Joy did not copy any protected elements of the drawings. Judge Henry E. Hudson, relying primarily on Intervest Constr., Inc. v. Canterbury Estate Homes, Inc., 554 F.3d 914 (11th Cir. 2008), held that Commonwealth Architects owned “a thin, but valid, copyright” in its architectural drawings, and denied Rule Joy’s motion.

Under the Copyright Act, protected works of authorship include, among other things, “architectural works” under 17 U.S.C. § 102(a)(8). Architectural works are defined as “the design of a building as embodied in any tangible medium of expression, including a building, architectural plans or drawings. The work includes the overall form as well as the arrangement and composition of spaces and elements in the design, but does not include individual standard features,” such as common windows or doors or standard space configurations. The court noted that while individual standard features are not copyrightable, an architect’s original combination or arrangement of such elements involves a degree of creativity and may very well be copyrightable. Still, the court compared the copyright protection affordable to architectural works to “compilations” and described the level of protection as “necessarily thin.”

June 4, 2010

Pay-When-Paid Clauses Enforceable in Virginia

by Lee E. Berlik

Virginia, unlike some other states, adheres to a policy favoring freedom to contract. Virginia law treats most businesses and individuals as presumptively capable of negotiating in their own best interests, and when a deal is reached and a contract is signed, courts rarely interfere with the result, however unfair that result may seem to outside parties.

In construction contracts, for example, it is common to find a “pay when paid” clause, stating that a subcontractor’s right to any payments from the general contractor is expressly conditioned on the general contractor’s first receiving payment from the owner. Some states go out of their way to protect subcontractors from the potential harsh consequences such a provision can cause. Virginia courts, however, will assume that the subcontractor was sophisticated enough to know what it was signing and will enforce contracts as written.

The freedom to contract includes the freedom to negotiate pay-when-paid clauses, and Virginia courts will enforce such clauses provided they are clear and unambiguous. In Universal Concrete Products v. Turner Construction, Universal, a subcontractor, entered into a written agreement with Turner, the general contractor, to install pre-cast concrete on the Granby Tower project in Norfolk, Virginia. When the real estate market collapsed, the owner became unable to finance the construction. Universal, however, substantially completed all of its work on the project, and naturally asked Turner to pay for its services. Turner refused to pay Universal because Turner had not been paid by the owner and the parties’ subcontract contained a pay-when-paid clause.

May 24, 2010

Proving Loss Under the Computer Fraud and Abuse Act

by Lee E. Berlik

Too often, disgruntled departing employees will abuse their employer’s computer system on their way out, snooping into coworkers’ email accounts, erasing important files, downloading trade secrets or other confidential commercial information, or intentionally infecting computers with viruses. In recent years, the Computer Fraud and Abuse Act (CFAA) has become an important weapon in an employer’s arsenal for combating such computer crimes. Civil remedies are available under the CFAA for damage to any “protected computer,” which includes any “computer used in interstate or foreign commerce or communication.” However, a Virginia court recently clarified that the CFAA will not provide a remedy absent an actual “loss” as defined by the statute.

In Global Policy Partners, LLC, v. Yessin, a plaintiff brought claims against her husband and business partner under the CFAA and the Stored Communications Act (SCA), claiming that he had accessed her work email account in order to review her confidential communications with her divorce lawyer. The court rejected the husband’s initial attempts to dismiss the case on the ground that his access to his wife’s email was authorized in that he was a co-manager of the couple’s business. The court reasoned that because there was no legitimate business reason for the snooping, the access was unauthorized. At the summary judgment stage, however, the court granted summary judgment in his favor because the wife did not introduce sufficient evidence to show she had incurred a $5,000 “loss.”

To prevail on a claim brought under the CFAA, a plaintiff must demonstrate that the alleged violation “caused … loss … aggregating at least $5,000 in value.” 18 U.S.C. Section 1030(c)(4)(A)(i). The CFAA specifically defines four categories of potential loss: “[i] the cost of responding to an offense, [ii] [costs of] conducting a damage assessment, and [iii] [costs of] restoring the data, program, system, or information to its condition prior to the offense, and [iv] any revenue lost, cost incurred, or other consequential damages incurred because of the interruption of service.” 18 U.S.C. § 1030(e)(11). According to the Fourth Circuit Court of Appeals, this list “plainly contemplates … costs incurred as part of the response to a CFAA violation, including the investigation of an offense.” A.V. ex rel. Vanderhye v. iParadigms, LLC, 562 F.3d 630, 646 (4th Cir. 2009).

April 19, 2010

Real Estate Fraud Litigation Proceeds Against Juno Loudoun and Ritz Carlton

by Lee E. Berlik

When a couple of home buyers in Loudoun County filed a lawsuit against Ritz-Carlton and a Loudoun developer, they chose Loudoun County Circuit Court as the forum. The immediate response of the defendants’ lawyers was to remove the case to federal court, where summary judgment is much easier to obtain than in Virginia state court. The home buyers, likely worried about having their case dismissed at an early stage by a federal judge, sought to remand the case back to Loudoun County, pointing to a forum-selection clause which provided: “In connection with any litigation between Buyer and Seller arising out of this Agreement…[t]he sole venue for any litigation shall be Loudoun County, Virginia.” The court refused to send the case back to state court. All of that procedural maneuvering meant very little in the end, however, as the court recently denied the defendants’ motion for summary judgment and allowed the case to go forward.

In Nahigian v. Ritz-Carlton, LLC, the home buyers (the Nahigians) claim the defendants fraudulently induced them into buying property by making multiple misrepresentations about the nature and extent of the involvement of the prestigious Ritz-Carlton company in the management of the property and its adjoining private golf course. The Nahigians allege they were duped into buying an expensive property at Creighton Farms near Leesburg by various statements by sales agents referring to the development as a “Ritz-Carlton community” and part of the “Ritz-Carlton Life.” As it turned out, they allege, Ritz-Carlton was merely a temporary manager of the golf club and never had any long-term commitment to the neighborhood. In March of 2009, Ritz-Carlton announced they were pulling out of the development.

The Nahigians sued for fraud and related claims, and the defendants moved for dismissal, arguing that the plaintiffs had failed to plead fraud with sufficient particularity, and that they failed to allege all the requisite elements of a fraud claim. The court disagreed and denied the motions to dismiss.

March 28, 2010

Enjoin Wrongful Foreclosure Before It Is Too Late

by Lee E. Berlik

Those considering retaining a Virginia law firm to help stave off a wrongful foreclosure should keep this useful fact in mind: your lawyer’s job will be a lot easier if you take legal action before the bank forecloses on your property. Seek legal advice when you begin to fall behind on your mortgage or when workout negotiations seem to be faltering. Don’t wait until the trustee enforces the deed of trust and kicks you out of the house before going to an attorney, on the assumption that your smart lawyer will be able to “undo” an unfair foreclosure. In the vast majority of cases, Virginia courts will not set the foreclosure aside.

This reality is aptly illustrated by a recent case out of the United States District Court for the Eastern District of Virginia, Horvath v. Bank of New York, (E.D. Va. Jan. 29, 2010). The plaintiff, John Horvath, found himself unable to keep up with his mortgage payments–an unfortunate predicament all too common these days–and the defendants foreclosed on his house. Mr. Horvath admitted he had fallen behind on his mortgage, but asserted a number of different legal theories revolving around the argument that Bank of New York and other companies with an interest in his mortgage acted improperly and did not adhere to the law when servicing his mortgage, foreclosing on his house, and eventually evicting him. The court shot each argument down, one by one, and dismissed the case for failure to state a legally cognizable claim.

The first count was for a declaratory judgment declaring the foreclosure “void.” The court ruled that declaratory relief would serve “no useful purpose” since the foreclosure sale had already taken place. The court noted that declaratory judgments are reserved for “forward looking actions.”

March 15, 2010

Virginia Court Permits “Discriminatory Discipline” Claim to Go Forward

by Lee E. Berlik

To survive the early stages of litigation in federal court, you need to ensure your complaint not only alleges facts that, if proven true, would support a legal cause of action, but that present a plausible claim for relief. While you are far more likely to win your case at trial if you are represented by an attorney, one of the few situations in which your task may be easier without a lawyer is surviving an initial motion to dismiss. This is because the United States Supreme Court has held expressly that a “pro se” plaintiff (i.e., a litigant not represented by a lawyer) must be held to less stringent standards than those who have legal representation and are more familiar with the rules of formal pleadings.

Michael Bogan is representing himself in a Title VII employment-discrimination action against The Roomstore in Richmond, Virginia. Judge Henry E. Hudson recently denied The Roomstore’s motion to dismiss for failure to state a claim, finding that Mr. Bogan alleged “scant but marginally sufficient” factual allegations to support a claim for discriminatory discipline, an employment practice prohibited by federal employment laws. Had an attorney drafted the complaint, the result might have been different.

Mr. Bogan, an African-American, alleges that his Caucasian supervisor at The Roomstore demanded that he undergo a drug test even though a similarly situated white employee was not required to submit to the test. He claimed the white employee was involved in illegal activity and had missed several days of work. The complaint alleges that The Roomstore terminated his employment for refusing to submit to the test.

March 1, 2010

TubcuT Manufacturer Claims Trademark Infringement

by Lee E. Berlik

Access Designs, Inc., a company that manufactures TubcuT®, a product that alters regular bathtubs to convert them into walk-in showers, has filed a trademark-infringement suit against The BathWorks Company in federal district court in Charlottesville, Virginia. According to the allegations of the Complaint, two former representatives of Access Designs, Greg and Ellen Murphy, formed BathWorks in Rhode Island and began selling a product similar to TubcuT® and marketing it under the name “Tubcut” or “Tubcuts”, creating a likelihood of confusion in the marketplace with respect to the origin of the customized bathtubs.

The suit is based on the provisions of the Lanham Act that govern trademark infringement and unfair competition, 15 U.S.C. §§ 1114 and 1125(a). To win on both allegations, Access Designs must prove three things: (1) that its mark is valid, (2) that The BathWorks Company’s use of the mark is unauthorized, and (3) that BathWorks’ use of the mark is likely to cause customers to be confused.

Access Designs has a little bit of a head start in that TubcuT® is registered with the Patent and Trademark Office, as registered marks carry a presumption of validity. The key issue in the case is likely to be whether BathWorks is using a mark that is likely to cause confusion among consumers as to the source of the parties’ respective products. To determine the likelihood of consumer confusion, courts generally consider factors such as (1) the strength of plaintiff’s mark; (2) the relatedness or “proximity” of the parties’ goods or services; (3) similarity of the parties’ marks; (4) evidence of actual confusion; (5) marketing channels used; (6) the degree of care likely to be exercised by purchasers; (7) the defendant’s intent in selecting the mark; and (8) the likelihood of expansion of product lines.

February 15, 2010

UCC Protects Bank from Breach of Contract Allegations

by Lee E. Berlik

Even in Virginia, which recently placed first in a ranking of the “Best States for Business” by Forbes.com, businesses often fail. Particularly in small companies, relationships among the owners sour and partnership disputes arise. Here in Fairfax County, where my practice is located, it is not uncommon for disgruntled partners to attempt to withdraw large sums from corporate bank accounts prior to dissolution or to attempt to block other owners’ access to the company’s accounts. Banks need to be careful not to get caught in the crossfire by inadvertently facilitating a wrongful cash grab by one of the business owners. Fortunately, as illustrated by a recent decision by Fairfax Judge Bellows, Virginia’s adoption of the Uniform Commercial Code provides some valuable protection to banks.

Khan v. Alliance Bank (Fairfax Circuit Court, Dec. 22, 2009) involved a dispute between two owners of Advantage Title and Escrow, LLC, Khan and Kazmi. Both were authorized signatories on the company’s account held with Alliance Bank. After the two had a falling out, Kazmi instructed the bank to remove Khan as a signatory. A few days later, Khan wrote a $35,000 check against Advantage Title’s account in exchange for a cashier’s check for that amount. Upon learning of the transaction, Kazmi sent an “Affidavit of Unauthorized Transaction” to Alliance Bank. This document alleged, under oath, that Khan obtained the cashier’s check through fraud as Khan was (according to Kazmi) not authorized to withdraw funds from the company’s account. In reliance on that affidavit, Alliance Bank canceled the cashier’s check and credited $35,000 back to the Advantage account.

Normally, putting a stop-payment order on a check is not a big deal. But cashier’s checks, which are governed by the UCC, are different. Unlike personal checks, cashier’s checks carry a promise of the bank to the holder. For that reason Khan sued Alliance Bank, claiming that the promise was unconditional and that, by terminating payment, Alliance was liable to Khan for breach of contract and conversion.

February 1, 2010

BMW Survives Tortious Interference Case

by Lee E. Berlik

Business litigation often involves allegations that a competitor engaged in unfair competition or business tactics designed to injure the plaintiff’s business. Such cases will only be successful, however, if the defendant business has crossed the line between legitimate competitive activity and tortious conduct. In a new Fourth Circuit opinion written by Judge Mark S. Davis of the Eastern District of Virginia, the court affirmed summary judgment in favor of BMW, explaining that not all aggressive competition will be deemed unfair or unlawful; a competitor pursuing its legitimate business interests will often be permitted to do so without incurring liability.

BCD, LLC v. BMW Mfg. Co. involved a dispute over a project to build a new school of engineering on the Clemson University campus. The plaintiff, Rosen (and the companies controlled by him) and BMW were each involved in different aspects of the construction project. Rosen had entered into a tentative agreement with Clemson in 2002, which outlined the responsibilities each would each have in the construction of a wind tunnel. The agreement was not binding, however, because there remained certain unresolved details, and the written agreement specifically allowed either party to withdraw from the project if they could not agree as to those unresolved details. The agreement was thus in the nature of an “agreement to agree” rather than a final, binding contract.

Clemson and BMW, on the other hand, had entered into a final agreement to which each party was bound, and BMW had received a $25 million grant from the state for the project. As preparation for the construction of the school was getting underway, Rosen declared that he wanted the new school to be built on land he owned, but BMW objected because it wanted to keep the state-funded school separate from the privately-funded wind tunnel.jpg wind tunnel. As time wore on, little to no progress was made on the construction of the wind tunnel, and Clemson and Rosen were still unable to come to an agreement on the unresolved details from the 2002 agreement. Finally, Rosen and Clemson signed a new agreement in 2003 that negated the 2002 agreement, resolved all of the details, and included a sale of Rosen’s land to Clemson so the school could be built on land that was now publicly-owned. Rosen did not want to cede control over the property, and felt that BMW coerced Clemson into stalling on the wind tunnel project so BMW could exert control over Rosen’s property. He thus sued BMW for tortious interference with a contract, intentional interference with prospective contractual relations, and civil conspiracy.

January 23, 2010

Virginia Magistrate Judge Finds Reasonableness Paramount When Awarding Discovery Sanctions

by Lee E. Berlik

As any experienced litigation attorney will tell you, the discovery process is where many cases are won and lost. Consequently, the process is often contentious and characterized by wild fishing expeditions, invasion of privacy, and abusive tactics. The Federal Rules of Civil Procedure, however, allow judges to sanction attorneys who cross the line between aggressive, zealous representation and outright discovery abuse. A recent decision out of the United States District Court for the Eastern District of Virginia lays out the guidelines for whether to punish such tactics by awarding attorneys’ fees to the other side, and if so, how much to award.

In Rutherford Controls Int’l Corp. v. Alarm Controls Corp., both the plaintiffs (“Rutherford”) and the defendants agreed to an extended deadline by which the defendants would produce all documents responsive to Rutherford’s discovery requests. The day of the deadline came, and by the close of business, the plaintiffs had not received the promised documents. Rutherford promptly filed a motion to compel the required discovery. The defendants did produce some material prior to receiving notice of the motion to compel, but the production was minimal. The court heard arguments, and while it did not officially grant Rutherford’s motion, the judge expressed serious dissatisfaction with the defendants’ discovery responses (calling them “absolute nonsense”) and commanded them to answer all of the requests more thoroughly and accurately. The defendants, without protest, complied with the judge’s demands.

Rutherford proceeded to move for sanctions in the form of reimbursement of the $11,858.07 in attorneys’ fees it incurred in connection with the motion. Rule 37(a)(5)(A) specifically permits the recovery of “reasonable expenses” incurred in moving to Paper Dump.jpg compel discovery, “including attorney’s fees.” The court quickly determined that an award of attorneys’ fees was appropriate. Rutherford made a good faith attempt to obtain the discovery without court action, the defendants’ inadequate response was not substantially justified, and there were no extenuating circumstances that would make an award of expenses unjust. The real question was whether it would be reasonable to award Rutherford the full amount of fees they incurred.

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