The Virginia Business Litigation Blog

September 27, 2009

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

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.

June 19, 2009

BB&T Wins Summary Judgment in Virginia Employment Case

by Lee E. Berlik

Proving once again that no good deed goes unpunished, a former employee of BB&T Insurance Services to whom BB&T graciously paid 30 days of severance pay despite terminating his employment for cause–and apparently without requiring the employee to sign a release–sued the company for wrongful termination. On June 17, 2009, however, Judge Wilson of the Western District of Virginia in Harrisonburg had “no hesitancy” in tossing out the case on summary judgment.

The employee’s job duties involved identifying, contacting, and providing services to existing and potential new insurance customers. To assist him in performing those duties, BB&T allowed him to use a company laptop with access to confidential files on the company’s network. At the time of his termination, the employee had 8 years’ worth of sensitive client information stored on his laptop.

While traveling, the employee left the laptop unattended overnight in his vehicle while it was parked in a hotel parking lot. It was stolen. When BB&T learned of the theft, it notified those of its clients affected by the data breach and offered them a credit-monitoring service. These programs cost the company over $24,000.

June 13, 2009

Virginia Lottery Must Be Accessible to People with Disabilities

by Lee E. Berlik

Both the Americans with Disabilities Act (ADA) and the Virginians with Disabilities Act (VDA) prohibit stage agencies and public entities from discriminating against people with disabilities, or denying to them the benefits of their services, programs, or activities. On June 4, 2009, Virginia’s highest court held that the Virginia Lottery, a state agency established to generate revenue to be used for public purposes, must comply with these laws and ensure that disabled persons are not excluded from participation in the lottery.

At issue was whether the lottery operation constitutes a “program, service, or activity” within the meaning of the ADA and VDA. A group of disabled plaintiffs, all of whom use wheelchairs, sued the Lottery in Richmond, claiming that several retail outlets lacked accessible parking spaces, ramps, and paths of travel for disabled persons. The Lottery argued that it was exempt from the ADA and VDA because it did not offer a program, service, or activity within the meaning of those statutes. While the Circuit Court agreed with that argument, the Supreme Court reversed, finding that the Virginia Lottery does operate a “program, service, or activity” and therefore must conduct its operations in compliance with the ADA and the VDA.

The tricky part is determining how, exactly, accessibility is to be achieved. The only party responsible for complying with the ADA with respect to a particular challenged government program is the party with control over that program. (See Bacon v. City of Richmond, 475 F.3d 633 (4th Cir. 2007)).

June 6, 2009

Loudoun County Judge Rejects Bright-Line Test for Work Product Protection

by Lee E. Berlik

In a case brought by two ousted golf-club members against the Benchmark Management Company, the management company behind Lansdowne Golf Club in Leesburg, Virginia, Judge James H. Chamblin ruled that a “case by case” test for determining applicability of the work-product doctrine is preferable to the “bright-line rule” several other Virginia courts have followed.

At issue was whether 23 internal Lansdowne documents concerning an alleged assault on the premises were prepared “in anticipation of litigation” within the meaning of Virginia Supreme Court Rule 4:1(b)(3), which provides that a litigant may not compel an opponent to produce copies of documents prepared in anticipated of litigation except under certain limited circumstances. After reviewing the documents privately, Judge Chamblin found that the documents were prepared in anticipation of litigation and that, because there was no argument by counsel that any exception applied, the documents were protected from discovery by the work-product doctrine.

There has not been a consensus among Virginia circuit courts with respect to determining when litigation is “anticipated.” Some courts apply a bright-line test that applies work-product protection to a document the moment an attorney becomes involved. Other courts decide the issue on a case-by-case basis, examining the particular facts and circumstances of each case and determining whether litigation was reasonably foreseeable, regardless of whether an attorney has been retained. Judge Chamblin favored the case-by-case approach “because things can be done in anticipation of litigation before an attorney becomes involved.”

June 3, 2009

EchoStar and DISH Network Held in Contempt for Violating Injunction

by Lee E. Berlik

TiVo won its patent infringement case against EchoStar, DISH, and affiliated companies back in 2006, obtaining a ruling that EchoStar’s digital video recorder (“DVR”) violated certain claims of U.S. Patent No. 6,233,389, owned by TiVo, and obtaining an injunction against future patent violations. In response to the ruling, EchoStar developed a supposed “workaround.” On June 2nd, 2009, the court held that the workaround did not cure the infringement. The court held them in contempt of court for violating the injunction and again ordered them to stop using TiVo’s technology.

EchoStar, the company behind the DISH Network satellite television service, designs digital video recorders that it provides to customers who subscribe to its satellite T.V. service. TiVo’s ‘389 Patent relates to a similar system that allows for simultaneous storage and playback of television signals from sources such as cable and satellite providers.

At the conclusion of the 2006 trial, the jury found that EchoStar’s DVR receivers infringed nine claims of the ‘389 Patent, either literally or under the doctrine of equivalents. After the verdict, EchoStar and its engineers went to work redesigning their DVR machines to avoid infringing the ‘389 Patent. Two years later, TiVo moved to hold EchoStar in contempt, arguing that the redesigned DVR’s continued to infringe TiVo’s patent.

May 26, 2009

Newegg Sues Kohl’s for Infringing Use of Slogan

by Lee E. Berlik

“Once You Know, You Newegg.” That is the slogan and registered trademark of Newegg, a popular online retailer of consumer electronics and high-tech products. Department-store chain Kohl’s recently began using a similar tagline: “The More You Know, the More You Kohl’s.” On May 14th, Newegg filed a trademark-infringement lawsuit in California seeking to enjoin further use of the similar slogan.

A combination of words used in commerce as a slogan is protectable as a trademark if used to identify and distinguish the source of products or services. Use of a registered slogan by others can be prohibited if there is a likelihood of confusion among the consuming public. Newegg’s action essentially claims that Newegg has a property interest in the “Once You Know, You Newegg” slogan, which it built up at great expense, and that the slogan has become associated in the minds of consumers with “an unsurpassed shopping experience, rapid delivery, and stellar customer service.” According to the lawsuit, Kohl’s, having full knowledge of Newegg’s trademarks and intending to siphon off some of the goodwill associated therewith, began using a deceptively similar slogan in a manner likely to cause direct financial harm to Newegg.

As with most trademark and unfair competition cases, the big question is going to be whether Newegg can prove a likelihood of confusion. Among the more questionable allegations of the lawsuit are those claiming that Kohl’s “attempted to increase traffic to their website by diverting users looking for Newegg’s website” and that confused Newegg customers “visit Kohl’s website believing it to be Newegg’s website.” As suggested by the trademarked slogan itself, Newegg believes its customers are intelligent and savvy — that is why they shop at Newegg. Are these the same people who are going to wind up at Kohl’s website when looking for Newegg, and who are going believe, once they have landed at Kohl’s site, that they have indeed found Newegg? What kind of customer wouldn’t include the term “Newegg” in an online search for Newegg?

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