Pretrial Practice and Civil Procedure Category Archives — Page 9 of 10 — The Virginia Business Litigation Blog Published by Virginia and Washington, D.C. Litigation & Appeals Attorney

May 7, 2011

ADA Plaintiff Perpetrates Fraud on Court, Sees Claim Stricken

In a memorandum opinion dated April 27, 2011, United States District Judge T.S. Ellis, who sits in the Alexandria Division of the Eastern District of Virginia, taught plaintiff Stephanie Holmes that it was not a good idea to change her story multiple times during her deposition. Finding that she had “perpetrated a fraud on the court,” Judge Ellis affirmed the magistrate judge’s recommendation to strike Holmes’s claim for compensatory damages for pain and suffering.

Holmes, who had worked as a stocker at a Wal-mart in Alexandria, Virginia, for four years, filed a complaint with the Equal Employment Opportunity Commission (EEOC), alleging that Walmart had failed to make reasonable accommodations for her hearing impairment. She alleged that Walmart had refused to provide her with an interpreter and with comprehensive notes of meetings and instructions, all of which she needed to perform her job properly. She sought compensation for pecuniary losses, an injunction, punitive damages, and back pay.

The EEOC filed suit on Holmes’s behalf. During Holmes’s deposition in 2010, Walmart’s attorneys asked her about whether she had received any treatment from a mental health provider for emotional distress caused by her employment at Walmart. First, she said, “I don’t need therapy, and I don’t see doctors.” Then she said she saw a therapist just once in 2007. She later changed her story again and said she saw one doctor three times a week from March 2004 through February 2005. Finally, at the end of her deposition, she acknowledged that she had received therapy for anxiety and depression in a 13-year period from 1994 to 2007 and that some of the treatment related to her work at Walmart.

April 11, 2011

Judge Alper Grants Limited Discovery to Lacoste in Counterfeiting Case

by Lee E. Berlik

Lacoste Alligator, S.A., which sells tennis shirts and other apparel with the distinctive green crocodile logo in high-end stores like Nordstrom and Saks Fifth Avenue, will get a chance to find out, through discovery in a lawsuit, which of its distributors (if any) have been selling its products to Costco and other warehouse stores without its express permission, in violation of its trademark rights and in breach of contract.

Lacoste, a Swiss company, is attempting to prevent its clothing from being sold in big-box and other unauthorized retail locations. The first problem facing Lacoste, however, was that although it believed that some distributor was making sales to those stores, it didn’t know who it was. Accordingly, it filed a “John Doe” complaint in Arlington County Circuit Court on trademark-infringement, breach of contract, and other grounds, hoping to use discovery in the case to ferret out the identity of the distributor responsible for the unauthorized sales. After filing the “John Doe” suit, Lacoste promptly served a subpoena on Costco Wholesale Corp., trying to ascertain the source from which it was receiving Lacoste products for resale in its stores. Costco objected to handing over any documents, and Lacoste filed a motion to compel compliance with the subpoena.

Judge Joanne F. Alper overruled most of Costco’s objections and held that Lacoste was entitled to the discovery subject to the entry of an appropriate protective order to prevent misuse of the information.

March 16, 2011

Summary Judgment Granted in Breach of Contract Action

by Lee E. Berlik

A U.S. district judge in Virginia has ruled that a restaurant chain operator is liable for breach of contract and is obligated to pay a franchise consulting company for sales and marketing services that the consultant performed for the chain under the contract between the two companies. Rejecting the contract defenses of lack of standing, fraudulent inducement, lack of specificity, lack of mutuality, and unconscionability, U.S. District Judge T.S. Ellis, III, of the Eastern District of Virginia, granted summary judgment in favor of the consultant.

The case arose from a 2008 contract between Freshii Development, LLC, which owns a chain of healthy fast-food restaurants, and Fransmart, LLC, an Alexandria, Va.-based company that agreed, in exchange for a percentage of franchise fees and revenues, to help Freshii expand by finding appropriate franchisees for its restaurants. In early 2010, Fransmart restructured its business and set up a new company to which it assigned its contracts and transferred its assets and liabilities. Freshii then stopped paying Fransmart under the contract, and Fransmart sued for breach. Freshii asserted five defenses to the lawsuit, all of which Judge Ellis rejected.

Freshii first argued that Fransmart lacked standing because the 2008 agreement was a personal services contract and therefore not assignable to a separate entity (such as the “new Fransmart”) without Freshii’s consent. Judge Ellis rejected this defense, noting that many aspects of the agreement led to the conclusion that it was not a personal services contract. For example, the agreement was between two corporate entities, it was for a duration of ten years, and it did not identify any individual as being material to performance. In any event, the judge wrote, it was not necessary to reach that issue because the contract contained a “successors and assigns” clause, stating that “the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and to their successors and assigns.” This language, the court found, demonstrated that the parties intended the agreement to be assignable to a successor entity like the new Fransmart.

January 22, 2011

Managing Agents Must Travel to Virginia for Depositions

by Lee E. Berlik

During discovery, an examining party has the power to compel the deposition of a corporate defendant’s “managing agents.” If the plaintiff’s lawyer designates an individual to testify who is not an officer, director, or managing agent of the corporate defendant, the lawyer must resort to Federal Rule of Civil Procedure 45, which governs subpoenas issued to third parties. For that reason, there is often a lot of disagreement among litigants regarding whether a particular individual qualifies as a managing agent of the corporation. Another common point of contention is whether foreign managing agents must come to Virginia for their depositions.

In DuPont v. Kolon Industries, a trade secrets case involving alleged misappropriation of confidential commercial information relating to Kevlar, Judge Payne of the Eastern District of Virginia (Richmond Division) utilized a four-factor test to determine whether employees could be classified as “managing agents,” adopting a test laid out in a 1996 Maryland case. Judge Payne wrote that courts faced with the issue should consider:

the discretionary authority that the corporation vests in the employee;

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.

December 1, 2009

Big Changes to the Federal Rules of Civil Procedure

by Lee E. Berlik

Windows 7 was not my idea. But the new amendments to the Federal Rules of Civil Procedure? Maybe! A few years ago I received a stern reprimand from a federal judge in the Eastern District of Virginia for supposedly filing a brief past the 5-day deadline. I respectfully explained to the court that, under the Rules then in effect, because weekend days are not counted in time periods of less than 11 days, and because additional days are added to the deadline when papers are served by facsimile, and because if a deadline expires on a Saturday then the deadline is extended to the following Monday–or Tuesday if Monday happens to be a national holiday–then a “5-day deadline” can actually allow up to 147 days! The judge was not impressed. But I was right (up to a point), so now the Rules have been amended to prevent this sort of nonsense.

Effective today, “days” means days. For lawyers who practice in federal court, this is a radical concept. Perhaps even more radical, defendants now have 21 days in which to respond to a lawsuit rather than merely 20. I pity those about to take the bar exam. In any event, here is a summary of what are, in my view, the most significant changes to the Federal Rules of Civil Procedure:

Rule 6. Computing and Extending Time; Time for Motion Papers

November 17, 2009

Discovery in the Information Age

by Lee E. Berlik

The discovery process, the primary fact-finding tool available to litigants, has always been contentious. Parties are loathe to hand over potentially embarrassing or incriminating documents, and the costs involved can be staggering. The information age has only served to make things more complicated. As the Northern District of Illinois observed in the 2002 case of Byers v. Illinois State Police, “[m]any informal messages that were previously relayed by telephone or at the water cooler are now sent via e-mail.” Now that so many casual conversations are documented in e-mail and are, therefore, potentially subject to discovery, the discovery costs in the typical case have skyrocketed . Two recent United States District Court Cases, one out of Minnesota, Kay Beer Distributing, Inc. v. Energy Brands, Inc., and the other out of Florida, Kilpatrick v. Breg, Inc., provide a window into just how daunting electronic discovery can be, how judges are adapting traditional discovery rules to deal with these new problems, and how parties can do their part to avoid potential problems.

Information is generally discoverable if it is non-privileged and either directly relevant to a party’s claim or reasonably calculated to lead to the discovery of evidence that is directly relevant. In the Kay Beer case, Kay alleged that an oral contract gave it the exclusive right of distribution for Energy Brands’ products. Energy Brands claimed that by its understanding of the agreement, Kay’s distribution rights were limited. This was essentially a run-of-the-mill contract dispute. What made the case unique, however, was the plaintiff’s demand that the defendant hand over five DVDs containing nearly 13 gigabytes (between 650,000 and 975,000 pages) of e-mails and other documents. Each of the documents had been identified as referencing “Kay Beer”, “Kay Distributing”, or simply “Kay” by a keyword search of Energy Brands’ archives. Kay Beer argued that the documents might contain discoverable evidence showing that Energy Brands originally shared Kay’s understanding of their agreement.

The court’s approach to the discovery contest was to weigh Kay Beer’s interest in obtaining the documents against the burden Energy Brands would experience in turning them over. The court found that just because a document references a party does not support the conclusion that it contains relevant evidence. It further reasoned that in contract litigation, the only relevant statements are those made between the representatives of the companies involved; statements made by lower-level employees not empowered to speak for the company are not relevant to the official understanding of the contract. The court concluded that Kay Beer’s interest in the documents was relatively minor.

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.

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.