Pretrial Practice and Civil Procedure Category Archives — Page 7 of 10 — The Virginia Business Litigation Blog Published by Virginia and Washington, D.C. Litigation & Appeals Attorney

December 18, 2012

Leesburg Business Wins Summary Judgment After Defendant Fires Lawyers

Earlier this year I noted the case of Precision Franchising, LLC v. Catalin Gatej, a breach of contract case filed by the Leesburg-based franchisor of the Precision Tune Auto Care system against a Massachusetts resident. The Eastern District of Virginia had denied the defendant’s motion to dismiss the case and had issued a detailed written opinion explaining the grounds therefor. What happened next? Mr. Gatej promptly fired his lawyers, then proceeded to ignore Precision’s discovery requests until several weeks after responses were due. The predictable result was another written opinion, this time granting summary judgment in favor of Precision Franchising.

Requests for admissions are deemed admitted if not timely answered. Gatej failed to respond timely to Precision’s requests for admissions, resulting in certain key facts being deemed established. Precision, relying on those admissions, moved for Judge Cacheris.jpg summary judgment. Late responses, however, are generally treated as motions to withdraw or amend the admissions, which courts can allow if allowing the late or amended responses would promote “the presentation of the merits of the action” and “would not prejudice the party that obtained the admission.” (See Federal Rule of Civil Procedure 36). Gatej filed late responses.

Judge Cacheris found that although allowing Gatej to amend his responses would certainly promote presentation on the merits, it would cause prejudice to Precision. Precision reasonably relied on the deemed admissions in preparing its motion. Allowing Gatej to amend his responses so late in the process would force Precision to expend more time and money to prove what the deemed admissions already conclusively established. Perhaps most importantly, Gatej filed his responses over two months beyond an extended deadline as part of a pattern of “general unresponsiveness and repeated delinquency.” The looming discovery deadline left no room for Precision to complete more discovery. And the Court had already warned Gatej that his repeated noncompliance could result in sanctions, including the entry of a default judgment. Though the result was perhaps harsh, Judge Cacheris concluded that litigants must be able to rely on the rules of procedure or there is no point to having them.

December 11, 2012

Does Virginia’s Subpoena Power Extend to Foreign Corporations?

by Lee E. Berlik

In yet another case involving alleged defamatory Yelp reviews, Hadeed Carpet Cleaning has filed a “John Doe” action in Alexandria Circuit Court, seeking to first learn the identities of the anonymous posters, then recover damages from them. Yelp is based in California but conducts substantial business in Virginia, so Hadeed served Yelp’s registered agent with a subpoena duces tecum seeking to identify the individuals who wrote the negative reviews. Yelp refused to comply.

Yelp objected to the subpoena on several grounds. It argued that serving a Virginia subpoena on its registered agent was insufficient to confer jurisdiction over a California company, that its advertising agreement with Hadeed required the parties to resolve their disputes in California, and that Hadeed did not meet constitutional requirements to compel Yelp to reveal the anonymous posters’ identities.

The court rejected these arguments, finding that Hadeed complied with Virginia Code § 8.01-407.1, which spells out what a party must do to discover the identities of anonymous posters on the Internet. The court found that service of a subpoena on the registered agent was sufficient to confer jurisdiction, but even if it wasn’t, Yelp would be subject to personal jurisdiction anyway due to its substantial business activities in Virginia. The forum-selection clause in Yelp’s advertising agreement was inapplicable because the dispute did not arise under that contract.

November 26, 2012

Joinder of Involuntary Plaintiff Permitted Only “In a Proper Case”

by Lee E. Berlik

Federal Rule of Civil Procedure 19(a)(2) permits courts to join necessary parties as involuntary plaintiffs “in a proper case.” Whatever a “proper case” might look like for purposes of Rule 19(a) joinder, Judge James P. Jones of the Western District of Virginia recently found that the case before him– Childress v. UBS Financial Services–did not qualify.

Gary Childress established an IRA, naming Terry Lee Dodson, his wife, as the account’s beneficiary. UBS Financial Services managed the account. The couple divorced and when Childress died six years later, Dodson sued UBS in state court seeking to be declared the beneficiary. Edward Childress, the estate administrator, then sued UBS in federal court based on diversity jurisdiction. Childress argued the divorce revoked, as a matter of law, the original beneficiary designation of Dodson. UBS moved to join Dodson as a necessary party plaintiff.

The Federal Rules require a court to join as a “necessary party” anyone who claims an interest in the action’s subject matter and whose absence from the suit could hurt that person’s ability to protect the interest or potentially result in another party being subjected to multiple or inconsistent obligations. The person has to be “subject to service of process” and the joinder cannot destroy the court’s subject matter jurisdiction.

November 10, 2012

Expert Witness Excluded From Bernsen Case, Settlement Reached Days Later

by Lee E. Berlik

Actor Corbin Bernsen has settled his breach-of-contract case against Innovative Legal Marketing, days after a Norfolk magistrate judge granted his motion to exclude the testimony of ILM’s proffered expert witness. The case was seemingly progressing in Bernsen’s favor – he survived ILM’s motion for summary judgment back in August, when the court held that the jury could conceivably find that ILM waived not only the morality clause it contended Bernsen breached, but also the contract’s non-waiver clause. The trial began November 7th and settled the next day.

One week before the trial commenced, the court granted Bernsen’s motion in limine to exclude the testimony of ILM’s expert witness, Randy Dinzler, finding that his anticipated testimony amounted to nothing more than an “explanation of common sense principles.”

ILM designated Dinzler, a contract employee for ILM, to testify as to how Bernsen’s actions negatively impacted his effectiveness as a spokesperson for ILM. ILM conceded that Dinzler lacked sufficient foundation to testify to any specific impact Bernsen’s actions may have had on ILM’s marketing campaign, but it asserted that he should be permitted to give general opinions about the use and impact of a spokesperson in an advertising campaign and factors by which marketing companies evaluate a spokesperson’s conduct based on his seventeen years of experience in legal marketing. His opinion would be that advertising campaigns use spokespersons to evoke certain reactions from the potential consumer and that negative press coverage of the spokesperson creates an unfavorable impression in the minds of potential consumers.

October 5, 2012

Misrepresentation of Present Intent to Perform Contract

by Lee E. Berlik

In Virginia, a fraud claim must state (1) a false representation, (2) of a material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reliance by the party misled, and (6) resulting damage to the party misled. Fraud claims cannot be based on unfulfilled promises or statements regarding future events. Promises to perform future acts are not legal representations and failure to perform them doesn’t change that fact. But if a defendant, at the time of making that promise, had no intention of carrying it out, that promise is considered a misrepresentation of present fact that can form the basis for a fraud claim. As demonstrated by the recent case of Cyberlock Consulting v. Information Experts, however, mere failure to perform is not evidence of the defendant’s lack of intent at the time the contract was formed.

Information Experts (IE) and Cyberlock Consulting had a history of working together. As they were completing the work on a contract with OPM, they learned the agency would be seeking bids for a similar new project. So they entered into a teaming arrangement to land the new prime contract. The teaming agreement called for IE to give Cyberlock 49% of the work under a fixed price subcontracting agreement. Cyberlock would submit cost and price data to support IE’s pricing strategy planning and the parties would use reasonable efforts to negotiate a subcontract. Ultimately, IE was awarded the prime contract but the parties were unable to reach agreement on the terms of a subcontract. Cyberlock sued IE, alleging breach of contract, fraud, and unjust enrichment. IE moved to dismiss the fraud claim.

Cyberlock claimed that, when they formed the teaming arrangement, IE had no intention of executing a subcontract. Instead, it claimed, IE planned to push Cyberlock out and hire its employees so it could perform the contract itself.

September 26, 2012

Virginia Right to Nonsuit Unaffected by Federal Court Dismissal

by Lee E. Berlik

Dr. Adel S. Kebaish filed a defamation case in Fairfax County Circuit Court against INOVA Health Care Services and several doctors alleging defamation, breach of contract, tortious interference, conspiracy, wrongful termination and unjust enrichment. Defendants removed the case to federal court, where Dr. Kebaish filed an amended complaint. He later filed a Notice of Voluntary Dismissal and then re-filed the case in Fairfax. The case proceeded to a jury trial, and on the second day of the trial Dr. Kebaish invoked the Virginia rule allowing plaintiffs to take one voluntary nonsuit as a matter of right. INOVA objected, arguing that because Dr. Kebaish had taken a voluntary dismissal in federal court, he had effectively already taken a nonsuit. The trial court disagreed and allowed Dr. Kebaish to nonsuit. INOVA appealed.

On appeal, the court was guided by well-settled principles of statutory review which bind courts to the plain meaning of statutory language and require them to apply the expressed legislative intent. Virginia’s nonsuit statute was first enacted in 1789 and applied only to actions at law tried by a jury. The statute was amended in 1932 and again in 1954, the later amendment providing for a voluntary dismissal as a matter of right only up to the time the suit had been submitted for decision at law or in equity. Courts have recognized that the 1954 amendment intended the term “nonsuit” to be used in a comprehensive sense whether at law or in equity.

The current nonsuit statute allows a plaintiff to take one nonsuit as a matter of right before a motion to strike the evidence has been sustained, before the jury retires, or before the action has been submitted to the court for decision. Va. Code § 8.01-380(B). In federal court, a plaintiff may take a voluntary dismissal as a matter of right before the opposing party serves either an answer or a motion for summary judgment. Fed. R. Civ. P. 41(a)(1)(A)(i).

September 17, 2012

Attorneys’ Eyes Only Expert Reports Sealed From Public Scrutiny

by Lee E. Berlik

The law presumes that the public should have access to judicial records. This presumption stems from both common law and First Amendment concerns and may be abrogated only in unusual circumstances. Fourth Circuit case law indicates that a district court can seal court documents if competing interests outweigh the public’s right to access.

When faced with a request to seal documents, a court must first determine the source of the right to access in order to weigh the competing interests. The court must then (1) give notice of the request to seal and allow interested parties a reasonable opportunity to object; (2) consider less drastic alternatives to sealing the documents; and (3) provide specific reasons and factual findings supporting its decision to seal the documents. A local rule in the United States District Court for the Eastern District of Virginia requires the party moving to seal documents to provide (1) a non-confidential description of the documents to be sealed; (2) a statement as to why sealing is necessary; (3) references to governing case law; and (4) a statement as to the period of time the party seeks to have the matter sealed and as to how the matter is to be handled upon unsealing.

In a recent case in the Eastern District of Virginia, East West, LLC v. Rahman, the plaintiff sought to seal four exhibits relating to the parties’ expert reports. The reports were designated “Attorney’s Eyes Only” under a confidentiality order entered during discovery that allowed the parties to so designate documents that contained highly sensitive business or personal information, the disclosure of which might cause significant harm.

July 30, 2012

Without Proof of Meritorious Defense, Default Stands

by Lee E. Berlik

A defendant who failed to timely answer a complaint was recently rebuffed in his attempt to set aside the ensuing entry of default. Magistrate Judge Davis of the Eastern District of Virginia found that a brief filed by defendant’s counsel, which consisted of a single page referring the Court to an affidavit filled with grammatical errors and incoherent statements, failed to meet a “minimum threshold of proficiency” and demonstrated “a lack of respect for this Court.” The court found that the defendant failed to show “good cause” under Rule 55(c) for setting aside the default in that he failed to establish the existence of a meritorious defense.

MSSI Acquisition (“MSSI”) sued Tariq Azmat for breach of a financing contract in December 2011. Process was served (and later mailed) on Azmat’s cousin at Azmat’s residence on December 7, but Azmat claimed to have not come across the notice until February 2012 because he was on multiple trips and did not have a chance to check his mail until then. When Azmat failed to respond in a timely manner, MSSI filed for a default judgment on February 17, 2012. Azmat promptly reacted and filed a motion to set aside the default entered against him on March 12, 2012, asserting that he was fraudulently induced into making the financing contract with an insolvent corporation and that the contract in question had been rescinded anyway.

In Virginia, fraudulent inducement exists where a party intentionally and knowingly makes a false representation of a material fact and the other party suffers damages as a result of relying on that misrepresentation. In this case, the court found that Azmat could not have reasonably relied on any alleged misrepresentations as to MSSI’s solvency because the contract language drafted by Azmat’s own attorney referred to MSSI’s bankruptcy reorganization and Azmat had access to MSSI’s financial information, since the company was publicly traded. Moreover, the court pointed out that Azmat failed later to disavow the contract, even though he clearly knew about MSSI’s insolvency by that point, thus suggesting he did not rely on the misrepresentation that MSSI was solvent in deciding whether to enter into the financing contract.

June 25, 2012

Court Declines to Amend Judgment under Rule 59(e)

by Lee E. Berlik

After a federal court enters a judgment, a litigant has 28 days to file a motion to amend the judgment pursuant to Federal Rule of Civil Procedure 59(e). This rule allows a district court to correct its own errors and spare the parties and appellate courts the burden of unnecessary appeal. A Rule 59(e) motion is an extraordinary remedy to be used sparingly, and a court can grant such a motion only in narrow circumstances: (1) to accommodate an intervening change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct a clear error of law or prevent manifest injustice. A party’s mere disagreement with a ruling does not warrant a Rule 59(e) motion, and parties may not use it to raise arguments or legal theories that could have been pursued before judgment. The United States District Court for the Eastern District of Virginia (Alexandria division) recently addressed this rule in Western Industries-North, LLC v. Blaine Lessard.

Lessard was an employee of Western, a pest control company. When Western terminated Lessard’s employment, Lessard had possession of a bedbug scent dog named Dixie, and a dispute arose over which party owned the dog. The court granted Western’s Emergency Motion for a Temporary Restraining Order and directed Lessard to return Dixie to Western. After an evidentiary hearing on Western’s Emergency Motion for a Preliminary Injunction, the court found that Western failed to satisfy the heightened showing required for a mandatory preliminary injunction and ordered Western to return Dixie to Lessard. Western then filed a Motion for Reconsideration pursuant to Rule 59(e) and attached the Declaration of William Whitstine, the owner of the canine academy that trained Dixie and Lessard.

Western argued that the court should have treated its request for injunctive relief as a request for a prohibitive injunction rather than a mandatory injunction. A prohibitive injunction maintains the status quo, whereas a mandatory injunction alters the status quo and therefore requires a heightened standard of review. The court noted that the status quo is the last uncontested status between the parties which preceded the controversy. Lessard had possession of Dixie when Western terminated him and the controversy arose; therefore, the status quo is Lessard’s possession of Dixie, and an order requiring Lessard to return Dixie to Western would have altered the status quo. Accordingly, the court’s characterization of the injunctive relief as mandatory and subject to heightened scrutiny was proper.

June 7, 2012

Leesburg Business Survives Motions to Dismiss

by Lee E. Berlik

Precision Franchising, LLC, a Virginia limited liability company based in Leesburg, licenses the Precision Tune Auto Care system. Catalin Gatej entered into a franchise agreement to operate a Precision Tune Auto Care system in Massachusetts. The agreement required Gatej to pay Precision Franchising an operating fee of 7.5 percent of weekly gross sales and an advertising fee equal to 1.5 percent of gross weekly sales. It also required him to spend 7.5 percent of gross weekly sales for advertising directly benefiting Precision Franchising. When Precision Franchising sued for breach of contract, Gatej moved to dismiss on two separate grounds. The court rejected both of them.

In 2011, Gatej ceased operations and transferred assets to another who is not operating as a Precision Tune Auto Center. Precision Franchising sued for breach of contract seeking $55,055.97 for required advertising Gatej hadn’t spent while he ran the center, $86,756.40 for lost profits due to the early termination of operation, and attorney fees and costs.

Gatej moved to dismiss the complaint. Because the parties were from different states, jurisdiction in this case was based on diversity. In such cases, at least $75,000 must be in controversy and Gatej claimed the company’s claims could not satisfy that requirement. He also claimed the wrong party sued him because Precision Franchising, LLC was not the company with which he’d signed the agreement.