The Virginia Business Litigation Blog

January 13, 2019

Non-Compete Clause Satisfies Janitor Test, Held Enforceable

The best way to predict whether a particular noncompete clause will be deemed enforceable in a Virginia court is to read about how similar clauses have been treated by those same courts. No two cases are exactly alike, but non-compete agreements tend to incorporate similar language (mostly for the reason that lawyers don’t like to re-invent the wheel and do a lot of cutting and pasting from prior agreements when drafting such contracts for their clients). Back in November 2017, I wrote about O’Sullivan Films v. Neaves, in which the court held that it would be premature to rule on the enforceability of a noncompete clause without hearing evidence. Since then, the parties presented evidence to the court and the court reached a decision, so I thought it would be a good time to revisit the case here on the blog.

In its latest opinion, the court (the Western District of Virginia, Harrisonburg Division) doesn’t make any new law, but its ruling can serve as a guide to how courts are likely to interpret and apply in the future noncompetes using language similar to the language at issue in the O’Sullivan Films case. Here’s what the noncompete in that case said:

Continue reading

December 4, 2018

Only Strangers to a Contract Can Interfere with It.

by Lee E. Berlik

You can’t interfere with your own contract. A contract is a bargained-for exchange that may entitle you to certain benefits, like money, products, or services. If you do not realize the benefit of your bargain because the other party does not honor the agreement, you may be entitled to sue for breach of contract. What you probably cannot do, if all we’re talking about is disappointed economic expectations resulting from the failure of one party to fulfill his end of the bargain, is sue for tortious interference with contract. From the moment tortious interference became recognized as a cause of action in Virginia in 1985, the claim has been available only against strangers to the contract at issue. In other words, if the person causing the interference is a party to the contract, the appropriate claim for the plaintiff to bring is for breach of contract and not tortious interference.

Under Virginia law, a claim for tortious interference consists of the following four elements:

the existence of a valid contractual relationship or business expectancy;
knowledge of the relationship or expectancy on the part of the interferor;
intentional interference inducing or causing a breach or termination of the relationship or expectancy; and
resultant damage to the party whose relationship or expectancy has been disrupted.

(See Schaecher v. Bouffault, 290 Va. 83 (2015)). In the 1985 case of Chaves v. Johnson, the Virginia Supreme Court explained that these elements can only be asserted against someone outside the contractual relationship:

Continue reading

October 15, 2018

Are Attorneys’ Fees Clauses Enforceable?

by Lee E. Berlik

When you enter into a contract with a business, it’s not uncommon for the contract to contain a clause requiring you to be responsible for reimbursing the business for the legal fees it incurs should it need to bring a lawsuit against you for amounts you owe under the contract. Typically, such attorneys’ fees clauses are buried in lengthy form contracts presented on a take-it-or-leave-it basis by large companies to their consumers, who can choose between signing the contract and receiving niceties like cable TV and Internet service, or refusing to sign and being denied those things.

This strikes a lot of people as unfair. If contracts are supposed to be bargained-for agreements, why should consumers be required to sign whatever pre-printed, boilerplate legaleze is foisted upon them by large corporations in order to receive necessary services? Are there any limits to what companies can force their customers to “agree” to? Contracts requiring the “little guy” to pay the attorneys’ fees incurred by the much larger party are particularly concerning considering the high cost of legal services; consumers usually struggle to afford their own attorneys–requiring them to also pay the other side’s legal team often makes litigation a financially ruinous proposition.

September 29, 2018

Governor Terry McAuliffe Escapes Fraud Action

by Lee E. Berlik

You may have heard that a group of Chinese investors filed a fraud action here in Virginia against Governor McAuliffe and others for $17,920,000, plus punitive damages exceeding $53,000,000. Earlier this month, a federal judge dismissed the case, finding that the allegations were insufficient to allow a jury to even consider the claim. Should you, dear reader, ever find yourself on the receiving end of a $71M fraud lawsuit, try to stay calm, and read my earlier blog post about what kind of facts are needed to make out a facially valid fraud claim. The plaintiffs in this particular case were unable to present such facts, so they lost. If a plaintiff cannot allege in good faith facts sufficient to satisfy each element of a fraud claim, the case will be dismissed no matter how much money is at stake.

According to the original complaint filed against Governor McAuliffe (it was originally filed in Fairfax County Circuit Court, then removed to federal court in Alexandria), the case was brought “to remedy a $120 million scam perpetrated by savvy and politically connected operatives and businessmen.” The Defendants allegedly offered–in exchange for a $500,000 investment from each plaintiff in an electric car company–to leverage their political connections to ensure that the plaintiffs’ visa applications would be approved by U.S. Citizenship and Immigration Services. The Chinese investors claimed that McAuliffe lied about a number of things in order to secure those $500,000 investments:

Continue reading

August 31, 2018

Dismissals With Prejudice vs. Without Prejudice

by Lee E. Berlik

When a Virginia court dismisses a case, the dismissal order may state that the dismissal of the case is either “with prejudice” or “without prejudice.” In this context, prejudice has nothing to do with racism or discrimination. Rather, it’s simply an indication of whether the case is permanently ended, with no possibility of finding its way back onto the court’s docket, or merely removed from the docket in such a way as to permit its refiling upon the satisfaction of certain conditions. Sometimes it will be up to the judge to decide whether to dismiss a case with or without prejudice; other times (particularly when the defect in the case cannot be fixed), the law will dictate the form of dismissal.

The Virginia Supreme Court explained the distinction in Primov v. Serco, Inc., decided just a few days ago. There, the court noted that a dismissal of a suit “without prejudice” means that the court is not deciding the controversy on its merits, and that the whole subject of litigation will remain as much open to another suit as if no suit had ever been brought. (See Newberry v. Ruffin, 102 Va. 73, 76 (1903)). In other words, dismissing a case without prejudice terminates the action but does not prohibit its refiling.

July 23, 2018

Proving Unauthorized Access to Private Data Under the SCA

by Lee E. Berlik

Hackers aren’t the only ones who can gain unauthorized access to your private data. Maybe you shared a password with your spouse, then got divorced and forgot to change it. Maybe you neglected to lock your phone and a passerby was able to pick it up and view your bank-account balances. There are innumerable ways in which your personal files can be exposed to someone you never intended to share them with. Revenge porn laws offer some protection when the files consist of sexually explicit selfies, but when the files at issue consist of mundane (but nevertheless private) emails or texts, the federal Stored Communications Act (“SCA”) often comes into play. The SCA establishes a criminal offense for whoever “intentionally accesses without authorization a facility through which an electronic communication service is provided” or “intentionally exceeds an authorization to access that facility,” and by doing so “obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system.” 18 U.S.C. § 2701(a). The SCA also creates a civil cause of action, in which the plaintiff may obtain damages plus reasonable attorneys’ fees and other costs. 18 U.S.C. § 2707(b).

Many of us store all kinds of files in “the cloud” that we do not intend to share with the world: financial documents, proprietary information, trade secrets, personal notes–the list is endless. Suppose a former colleague intentionally accesses your Apple iCloud account–or your Dropbox account–or your Gmail account–without your knowledge or permission, finds your stuff and downloads copies. In many cases, this kind of behavior would create a right of action under the SCA. But the law contains a number of requirements that may or may not apply in your particular situation, and proof is often hard to come by.

June 20, 2018

“Improper Methods” Often Key to Tortious Interference Liability

by Lee E. Berlik

Perhaps a colleague at work is trying to get you fired. Or maybe you did already get fired, and your former boss is contacting prospective employers to make sure you don’t get hired. Either way, you’re not going to be very happy about it, and you may start to look into your legal options. When one person interferes with the employment status of another person, and does or says something with the intention of getting that person fired, and succeeds in that endeavor, the legal claim most often applicable is that of tortious interference with contract. A recent federal case, however, illustrates that successful claims require more than just an intent to disrupt another person’s employment; they require a showing that “improper methods” were used in the course of that disruption.

Because employment contracts are generally terminable at the will of either party (employees can quit, and employers can fire the employee, without being in breach of contract), tortious interference with employment relationships will not be actionable absent additional wrongdoing in the form of so-called improper methods. There is no hard-and-fast definition of “improper methods,” but Virginia cases have held that improper methods include:

Actions that are illegal or independently tortious
Violations of an established standard of a trade
Fraud or deceit
Unethical conduct
Sharp dealing
Overreaching
Actions that fall far outside the accepted practice of the “rough and tumble” world of free market competition

(See Duggin v. Adams, 234 Va. 221, 228 (1987); Lewis-Gale Med. Ctr., LLC v. Alldredge, 282 Va. 141, 153 (2011)).

May 28, 2018

How To Enforce a Non-Compete or Non-Solicitation Agreement

by Lee E. Berlik

It happens to every business eventually. A rogue employee defects to a competitor and immediately starts soliciting the former employer’s customers and clients, using the former employer’s trade secrets or other confidential commercial information against it. Although non-compete and non-solicitation agreements are generally disfavored in Virginia, most Virginia judges nevertheless recognize that employers have a legitimate business interest in protecting themselves from competition by former employees who possess sensitive information and will, in appropriate circumstances, compel former employees to honor their contractual commitments. This blog post provides a brief overview of the process involved in obtaining such relief from the legal system, divided into two basic steps.

Step One: Write an enforceable noncompete agreement.

The most common mistake employers make in their efforts to prevent unfair competition is to present their employees with overbroad, overreaching employment agreements. Many businesses, knowing that 99% of new employees will sign whatever piece of paper you put in front of them, cannot resist the temptation to draft their noncompete agreements in a way that is completely one-sided in favor of the employer. They might draft agreements that prohibit the employee from contacting any of its customers for 10 years after leaving the company, or that prohibit former employees from taking any kind of job within a 500-mile radius of the employer’s office. When an employer goes too far in its efforts to secure loyalty by forcing its employees to sign unreasonable contracts, those efforts can backfire by causing the contracts to become unenforceable as a matter of law.

April 23, 2018

Discovery Rule Extends Statute of Limitations in Fraud Cases

by Lee E. Berlik

The statute of limitations for fraud cases in Virginia is two years from the time the cause of action accrues. See Va. Code § 8.01-243. This is not necessarily two years from the time the fraud was committed. Fraud cases are subject to a “discovery rule,” meaning that the cause of action will not accrue until the alleged misrepresentation is either discovered, or, by the exercise of due diligence, reasonably should have been discovered. See Va. Code § 8.01-249(1). The clock on the two-year period does not begin ticking until that moment in time. As you might expect, precisely when that moment occurs is often the subject of fierce disagreement.

To exercise due diligence, as contemplated by the statute, a plaintiff must use “such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent [person] under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case.” (See Schmidt v. Household Fin. Corp., II, 276 Va. 108, 118 (2008)). Who gets to decide whether a plaintiff exercised this level of prudence, activity, and assiduity? In most cases, it will be the jury. A motion to dismiss or plea in bar based on the statute of limitations normally will not be successful unless all the facts necessary for resolving the “due diligence” question appear on the face of the pleadings or are not in dispute. If there’s a factual dispute about whether due diligence was exercised, the case will normally need to go forward so that the jury can hear evidence on the matter.

March 17, 2018

The Source of Duty Rule

by Lee E. Berlik

Zealous lawyers seeking to maximize their clients’ monetary recovery in court will often sue for as many different claims as their highly trained legal minds can conjure up. And they will usually try to come up with at least one viable tort claim (such as fraud or business conspiracy) to pursue in addition to any breach-of-contract claims, because tort claims often allow the recovery of punitive damages in addition to compensatory damages. But there are important differences between the law of contracts and the law of torts. The law of torts is designed to protect broad societal interests such as safety of persons and property. Contract law, on the other hand, is concerned with the protection of bargained-for expectations. Therefore, several rules have developed to prevent turning every breach-of-contract claim into a tort action.

The economic loss rule, for example, holds that where a contracting party’s loss is limited to disappointed economic expectations, his remedy is limited to one for breach of contract. A similar rule is known as the “source of duty” rule. It looks to the source of the duty alleged to have been violated. Before a court will allow a contracting party to recover on a tort theory, it must be satisfied that the duty tortiously or negligently breached is a common law duty, and not one existing solely by virtue of a contract between the parties. If the source of the duty allegedly violated is a contract, then the plaintiff should be limited to remedies available in breach-of-contract actions.

The VirginiaBusiness Litigation Blog

Step One: Write an enforceable noncompete agreement.