The Virginia Business Litigation Blog

November 12, 2009

Quantum Meruit: A New Tool Available to Virginia Landowners

In Virginia, an action for trespass is no longer the only remedy a landowner has against a trespasser. A Norfolk judge recently held that a landowner may sue for rent even in the absence of an express or implied lease agreement. A duty to pay rent can arise under the doctrine known as quantum meruit.

In the case of City of Norfolk v. Muladhara, LLC, Norfolk managed several lots of prime commercial real estate on which the city collected rents. The Defendant, Muladhara, began conducting business on one of the lots without ever receiving permission from Norfolk. Upon discovering the trespasser, Norfolk informed Muladhara that the city managed the land and collected rent for its use. This conversation prompted the Defendant to pay the back rent the city claimed was due. However, Muladhara continued to occupy the space without any further payment.

The court held that Norfolk may base its claim for recovery on two distinct theories. First, the court found that the conversation between the city and Muladhara that led to the payment of back rent could form the basis of an implied contract. Judge Hall clearly laid out the three elements of an implied contract: offer, acceptance, and a meeting of the minds. Simply put, the city offered to overlook the previous trespass if Muladhara paid back rent, and Muladhara accepted the offer. Even though this agreement only covered Muladhara’s past occupation of the parcel, the Defendant’s payment of back rent constituted a meeting of the minds as to the rental value of the land. Should Muladhara continue to occupy the land, the meeting of the minds forms the content of the implied contract. The city, therefore, is allowed to sue for payment of rent due, and the amount will be determined by looking to the parties’ prior agreement.

November 10, 2009

Virginia Supreme Court Allows 500-Kilovolt Power Line Into Northern Virginia

by Lee E. Berlik

The Virginia Electric and Power Company (VEPCO) and the Trans-Allegheny Interstate Line Company (TrAILCo) plan to build a 265-mile, 500-kilovolt transmission line between Loudoun County, Virginia, and Washington County, Pennsylvania. They claim that due to rapid growth in the Washington, DC metro area, energy consumption along the Potomac will likely continue to grow to levels unsupportable by the current infrastructure, and the anticipated blackouts and line failures would put them in violation of federal regulations. The State Corporation Commission approved the power line, and after a challenge by the Piedmont Environmental Council, the Supervisors of Fauquier County, Prince William County, and Culpeper County, and other interested groups, the Supreme Court upheld the construction permits.

In the case of Piedmont v. VEPCO, the court shed some light on the role of Virginia’s State Corporation Commission in developing an effective and efficient system for energy production and distribution. First, before new lines of that size can be constructed, the North American Electric Reliability Corporation (NERC) must find that they are needed to avoid regulatory violations. Second, regardless of federal approval, because the proposed placement of the lines was in Virginia, approval must be obtained from the State Corporation Commission, to whom regulatory authority has been delegated by the Virginia legislature.

The plaintiffs argued, and the court acknowledged, that the federal approval process heavily favors new transmission line construction over other possible solutions such as demand-side regulation, new power generation, and conservation efforts. The Commission, on the other hand, is required by the Commonwealth to consider the viability of these other possible solutions. Therefore, the plaintiffs claimed, the Commission’s reliance on the NERC’s findings was flawed because the federal process is biased against alternative solutions. The plaintiffs demanded that the Commission independently investigate alternative solutions and require them to be incorporated into their interstate operations.

November 2, 2009

Before Filing Retaliatory Discharge Action, Follow Internal Policies

by Lee E. Berlik

The First Amendment protects a public employee from retaliation by his or her employer when the employee speaks out on a matter of public concern. But before discharged government employees go rushing into court to sue the government entity for which they worked, they would be well advised to take advantage of any and all internal grievance processes offered by the government. A recent case decided by Judge Samuel G. Wilson of the Western District of Virginia demonstrates the potential perils of skipping this important step.

In Stickley v. Sutherly, the court laid out current jurisprudence as it applies to a public employer’s liability under 42 U.S.C. § 1983. (Section 1983 is a federal statute that creates liability for any local government or government officials who violate a person’s clearly-established constitutional rights, such as freedom of speech). Stickley was a police lieutenant in Strasburg, Virginia. Sutherly, the chief of police, demoted Stickley and another officer for violations of department policy. Shortly thereafter, the Northern Virginia Daily (a local newspaper) published an article criticizing Sutherly’s personnel practices. Prompted by the article, a member of Strasburg’s Town Council asked Stickley about his demotion, and Stickley expressed his dissatisfaction about it. After the councilman confronted Sutherly about Stickley’s demotion, Sutherly fired Stickley for insubordination.

Stickley, instead of pursuing the town’s official grievance process, filed suit against Sutherly and the Town of Strasburg. Stickley argued that his firing was in retaliation for his exercise of his First Amendment right to speak freely about matters of public concern; namely, the personnel practices of the police department.

October 7, 2009

How to Draft a Forum Selection Clause

by Lee E. Berlik

When entering into a contract with a party based in another state, Virginia businesses may wish to include in their agreements a clause specifying that any future disputes arising under the contract will be litigated in Virginia rather than the home state of the other party. For example, if you own and operate a Virginia business and you subcontract some IT consulting work out to a subcontractor headquartered in Idaho, you would probably want to make sure that if a dispute arises, the litigation will be brought here in Virginia rather than Idaho. It may also be important to you to have the dispute resolved in Virginia state court rather than in federal court, or vice versa. Can you select a litigation forum in advance by designating the appropriate forum in your contract? Yes, but the words you use are critical to how the courts will enforce the agreement.

Earlier today, in the course of granting a motion to dismiss I had filed on behalf of a client, Judge Payne of the Eastern District of Virginia issued a ruling demonstrating that judicial interpretation of so-called forum selection clauses can hinge on every word used in the agreement. The clause at issue stated that, in the event of a lawsuit, “the proper jurisdiction and venue of any such lawsuit shall be the courts of the Commonwealth of Virginia.” The plaintiff sued my client in federal court in Richmond. In response to our motion to dismiss for improper venue, the plaintiff took the position that the clause was not mandatory but merely permissive; that it specified Virginia state court as one of several permissible venues, rather than the only place a party could sue. The court held the clause was mandatory and dismissed the action.

The court noted that merely specifying “Virginia” as a forum for disputes does not necessarily dispose of the matter. First, inquiry must be made into whether the forum-selection clause designates geography or implicates sovereignty. For example, if the clause had referred to the courts “in” Virginia rather than “of” Virginia, the clause could be interpreted to mean any court sitting within the geographic boundaries of the Commonwealth of Virginia, which would include both state and federal courts. By referring to the courts “of” Virginia, the court interpreted the phrase to implicate courts chartered by a specified sovereign: in other words, Virginia state courts.

September 28, 2009

Lawyers Held Not Entitled to Withdraw Despite Not Getting Paid

by Lee E. Berlik

Lawyers who represent clients in litigation often assume that they can simply withdraw from the case if the client stops paying the lawyer’s bills. Engagement letters and representation agreements often provide that an attorney will withdraw in the event of nonpayment. A federal court sitting in Richmond, Virginia, however, denied a law firm’s withdrawal request in such a situation, demonstrating that lawyers representing corporations in Virginia’s federal courts cannot assume they will be released from their litigation duties when their clients are being uncooperative–even if their clients are not paying the lawyer’s bills.

In Reynolds v. Reliable Transmissions, Inc., the law firm of ThompsonMcMullan, P.C., filed a motion to withdraw from its representation of the defendant. The grounds of the motion were typical: the client failed to make the required fee deposit, failed to pay the law firm’s bill, and failed to respond to the lawyers’ efforts to communicate about the case. The law firm filed its motion early in the case: no discovery had taken place, and no trial date had been set. The posture of the case was such that most lawyers would consider a court’s granting of the motion to be fairly automatic. After all, the Virginia Rules of Professional Conduct expressly permit withdrawal where “the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer’s services,” provided that court approval is obtained. The plaintiff did not even oppose the motion.

Judge Dohnal explained, however, that nonpayment of fees is usually not a sufficient basis, standing alone, to permit an attorney to withdraw from pending litigation in the absence of another attorney ready to take over the case. In Virginia state and federal courts, corporations must appear by counsel; they cannot represent themselves. For this reason, and because no other attorney had been identified to assume the representation, the court denied the motion to withdraw.

September 27, 2009

In Virginia Fraud Case, Defendant’s Website Held Insufficient Basis for Personal Jurisdiction

by Lee E. Berlik

To file a lawsuit in Virginia’s state or federal courts against a non-resident of Virginia or an out-of-state corporation, it is necessary to establish “personal jurisdiction” over the defendant. A court has no power over parties to a lawsuit absent such jurisdiction. Personal jurisdiction will exist only if (1) Virginia’s “long-arm” statute authorizes it; and (2) the defendant has certain “minimum contacts” with Virginia “such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice,” which is required by constitutional due process. In a recent case from the Eastern District of Virginia, Judge Trenga held that a passive website not purposefully targeted at Virginians was not sufficient to create a basis for personal jurisdiction and he dismissed the case.

The case, which contains counts for actual fraud, constructive fraud, negligence, and breach of fiduciary duty, was filed by Dr. Olimpia Rosario, a Virginia psychiatrist, against professional psychic Jeffrey Wands, who operates Psychic Eye Media in New York. Dr. Rosario became impressed with Mr. Wands several years ago when he correctly predicted that she would obtain a residency in a New York-based hospital. Ever since, Dr. Rosario has sought counseling and guidance from Mr. Wands on a wide range of issues, including spiritual issues and substance abuse problems, despite the fact he held no degree or license to practice any type of healing art, medicine, counseling, or social work in either Virginia or New York.

Eventually, Mr. Wands became concerned about certain of Dr. Rosario’s behavior and reported it to both the New York Police Department and the Virginia Board of Medicine. Dr. Rosario sued, claiming Mr. Wands caused her condition to worsen and denying abuse of prescription drugs. Mr. Wands, a resident of New York, moved to dismiss the case for lack of personal jurisdiction.

August 17, 2009

Patent Dispute Over Golf Balls Goes Back to Jury

by Lee E. Berlik

Last Friday, the Court of Appeals for the Federal Circuit threw out a jury verdict against Acushnet Company and vacated a permanent injunction that had prevented it from selling the Titleist Pro V1 line of golf balls that Acushnet had introduced to the market in 2000. The court ordered a new trial because the jury had reached a verdict that was impossible to interpret due to internal inconsistencies. The trial court had found the confusing verdict to be “harmless,” but the Federal Circuit disagreed and held that the only way to resolve the inconsistency was to order a new trial.

Acushnet had argued that patents for the golf balls, owned by Callaway Golf Company, were invalid due to patent doctrines known as “obviousness” and “anticipation.” The requirement that a patent be nonobvious generally means that the differences between the patented invention and the prior art must amount to more than a mere rearrangement of prior art elements with each element predictably performing its same function in the new combination, as viewed from the standpoint of one with ordinary skill in the field. Similarly, a patent will be void for “anticipation” if a single, prior art document decribes every element of the claimed invention, such that a person of ordinary skill in the art could practice the invention “without undue experimentation.” In other words, Acushnet essentially argued that Callaway’s golf-ball patents were nothing special because any competent manufacturer could have come up with the idea simply by reviewing existing golf-ball-related patents.

In reviewing a particular independent claim of the relevant patent, the jury found that it was nonobvious and valid. However, the jury also found that one of its dependent claims to be invalid for obviousness. This finding, the court held, was incomprehensible: “A broader independent claim cannot be nonobvious where a dependent claim stemming from that independent claim is invalid for obviousness.” (See Opinion at 21-22, quoting Ormco Corp. v. Align Tech., Inc., 498 F.3d 1307, 1319 (Fed. Cir. 2007)).

July 25, 2009

Employer Denied Injunction to Enforce Non-Solicitation Agreement

by Lee E. Berlik

In the consolidated cases of Bank of America Investment Services, Inc. v. Michael A. Byrd and Gregory F. Harris, Judge Davis of the Eastern District of Virginia (Norfolk division) denied Bank of America’s motion for a preliminary injunction or temporary restraining order seeking to enjoin its former brokers from contacting clients with whom they had established personal relationships.

Both defendants were financial advisors in Norfolk who left Bank of America in March to join Wells Fargo Advisors. After switching employers, both defendants placed telephone calls to their former Bank of America clients and informed them of their departure and provided new contact information. Bank of America contended that this conduct violated their respective non-solicitation agreements, which provided that the employee:

“will not directly or indirectly solicit, invite, encourage or request any client or customer of the Company…for the purpose of: obtaining that client or customers’ business for himself or herself or any other person or entity, causing such client or customer to discontinue doing business with the Company or otherwise interfering with the relationship between such clients or customers and the Company.”

July 11, 2009

Virginia Court Declines to Enforce Liability Disclaimer in Business Contract

by Lee E. Berlik

Faced with an issue that has not yet been decided by the Virginia Supreme Court, a federal court sitting in Roanoke, Virginia, ruled that contracting parties may not agree in advance to exempt each other from liability resulting from future intentional misconduct. To the extent parties include in their contract a disclaimer purporting to limit liability and legal theories to exclude causes of action targeted at intentional or reckless misconduct, Virginia courts should strike them down as violative of public policy, the court held.

The case was filed in January by All Business Solutions, Inc., against NationsLine, Inc. Both companies provide telecommunications services. The parties entered into a contract providing that NationsLine would manufacture certain telecommunications products and that ABS would market and sell them for a commission. According to ABS, when one of its customers for direct inbound dialing numbers (“DIDs”) realized that ABS was also conducting business with one of its competitors, it resolved to “injure or destroy” ABS and caused NationsLine to abruptly terminate the contract.

One legal theory pursued by ABS was that of statutory business conspiracy under the Virginia Business Conspiracy Act, Va. Code § 18.2-499, -500. The business conspiracy statute is popular among plaintiffs’ attorneys due primarily to its triple-damages provision and allowance for recovery of attorneys’ fees. NationsLine moved to dismiss the claim, arguing (among other things) that the claim was barred by the limitation of liability provision in the parties’ contract.

June 30, 2009

Norfolk Kmart Sued for Disability Discrimination

by Lee E. Berlik

The Equal Employment Opportunity Commission (EEOC) claims a Kmart Super Center in Norfolk, Virginia, fired a store greeter because he used a cane, in violation of the Americans with Disabilities Act (ADA). In a lawsuit filed in the United States District Court for the Eastern District of Virginia, the EEOC alleges that the employee used a cane to walk and stand due to his spinal stenosis, a physical impairment of his back. His back problems did not prevent him from performing his duties as a greeter. Nevertheless, the suit claims, when he was observed using the cane, Kmart terminated his employment.

Prior to terminating the employee, Kmart allegedly refused to allow him to use the cane, even though his condition made it difficult to stand or walk without one, and his job required both. The EEOC filed the lawsuit only after Kmart refused to settle.

The EEOC is seeking most of the remedies permitted under the ADA, including reinstatement of the employee’s job (or placement into a substantially equivalent position), back pay, compensatory damages, and punitive damages for intentional discrimination. The EEOC is also seeking an injunction (as it usually does in the ADA cases it brings) prohibiting discriminatory practices and compelling Kmart to adopt and execute a variety of policies, practices, and training programs to clarify to their employees and the general public that Kmart will takes steps to ensure it does not discriminate against persons with disabilities.

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