The Virginia Business Litigation Blog

February 9, 2015

RICO: Not Just For Gangsters Anymore

The Racketeer Influenced and Corrupt Organizations Act (commonly known as “RICO“) became effective on October 15, 1970. It was originally intended primarily to assist in the prosecution of mafia leaders, as it permitted them to be tried for crimes they ordered others to do rather than committed themselves. Congress never intended to limit RICO to organized crime, however. G. Robert Blakey, the primary author of the statute, once told Time Magazine, “We don’t want one set of rules for people whose collars are blue or whose names end in vowels, and another set for those whose collars are white and have Ivy League diplomas.” The statute includes a civil provision, found at 18 USC § 1964(c), that has proven particularly popular in business litigation as it allows for the recovery of treble damages and attorneys fees.

RICO makes it unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt. (See 18 USC § 1962(c)). Key concepts in civil RICO cases typically include whether a true “enterprise” exists, whether the defendant has engaged in “racketeering activity,” and, if so, whether such activity constitutes a “pattern.”
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January 5, 2015

Retaining Jurisdiction Does Not Suspend Finality of Judgment in Federal Court

by Lee E. Berlik

Federal appellate courts have jurisdiction to hear appeals only from “final decisions” of the district courts. (See 28 U.S.C. § 1291). Subject to limited exceptions, an appeal is timely if the litigant seeking review of the final decision files a notice of appeal within 30 days after its entry. (See 28 U.S.C. § 2107(a); Fed. R. App. P. 4(a)(1)(A)). Sometimes a district court, after ruling on the merits of a case, will “retain jurisdiction” for purposes of enforcing an injunction or entertaining a motion for attorneys’ fees. What happens then? Is the decision really “final” if jurisdiction has been retained? In Virginia state court, the answer has been no; that when a court retains jurisdiction to entertain motions for fees, the judgment is not yet final and appealable. However, in the recent Fourth Circuit case of Hudson v. Pittsylvania County, No. 13-2160, 2014 WL 7210330 (4th Cir. Dec. 17, 2014), the court was faced with this very issue and held decisively that in federal court, retaining jurisdiction to consider attorneys’ fees does not affect the finality of the underlying judgment or toll the 30-day appeal period.

As in Virginia state court, a federal district court’s decision is “final” if it ends the litigation on the merits and leaves nothing for the court to do but execute the judgment. The Hudson court found, however, that a district court’s retaining jurisdiction over its permanent injunction order did not affect the order’s finality within the meaning of Section 1291. It reasoned that the court’s ability to modify or terminate an injunction post-judgment is simply part of its “inherent power” that exists in every case. Relying on the Supreme Court’s decision in Ray Haluch Gravel Co. v. Cent. Pension Fund of Int’l Union of Operating Eng’rs & Participating Emp’rs, 134 S. Ct. 773, 777 (2014), the court also held that “a decision on the merits is a final decision under § 1291 even if the award or amount of attorney’s fees for the litigation remains to be determined.” This result is hard to reconcile with the definition of “finality,” but it’s now unquestionably the law in the Fourth Circuit.
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December 15, 2014

Tortious Interference Supported by Allegations of Business Retaliation

by Lee E. Berlik

Suppose you’re a senior executive at a company that regularly transacts large volumes of business with another company, when the wife of the other company’s CEO files what you believe to be an unwarranted sexual harassment lawsuit against your company, presumably with the consent or approval of her husband. I suspect many would assume that you would have the right to cease doing business with that company due to the strain on the relationship caused by the wife’s lawsuit. Shouldn’t you have the right to decide for yourself which companies deserve your business? Well, be careful. In an opinion written by Eastern District of Virginia Judge James C. Cacheris last month, the court found that allegations like these were sufficient to state a claim for tortious interference with contract under Virginia law.

Tortious interference is a legal theory that requires a plaintiff to allege (and eventually prove) the following elements: (1) the existence of a valid contractual relationship or business expectancy; (2) knowledge of the relationship or expectancy on the part of the interferor; (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy; and (4) resultant damage to the party whose relationship or expectancy has been disrupted. If the contract is “at will,” such as the typical employment contract that either party is free to terminate at any time, it must also be proven that the defendant employed “improper methods.” After the case of Stephen M. Stradtman v. Republic Services, Inc., it would appear that “business retaliation” can qualify as the required “improper method” to support a tortious interference claim.
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November 18, 2014

Are those clients really yours? Consider this before you quit.

by Guest Blogger

“I made a copy of the client list because they are my clients; I won the business for my company” is a refrain I hear often in consulting with former employees. We’re sorry to have to tell you that this commonly held belief is not accurate. Those clients and customers you may have generated as an employee are not “yours” to take with you. They belong to the company. Making a copy of such a list by printing it, downloading a file, copying it onto a flash drive, or emailing the list to yourself can get you into a lot of trouble because such actions violate Virginia common law as well as certain Virginia statutes. This is true whether or not employees are subject to a noncompete or nonsolicitation agreement. Here are several laws a former or soon-to-be former employee may be violating by copying or taking a former employer’s client or customer list:

If you copy, download, or upload the company’s client and/or customer lists, you may be committing the business tort (the legal term for a civil “wrong”) of conversion. Conversion is the wrongful exercise over another’s property, which deprives the owner of possession, or any act of dominion wrongfully exerted over the property in denial of or inconsistent with the owner’s rights. This means that if your former employer gets its IT people to inspect your computer or work phone and discovers you’ve taken a client list, you may be found liable for conversion of the employer’s property.
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November 10, 2014

Virginia Consumer Protection Act Not Limited to Fraud

by Lee E. Berlik

The Virginia Consumer Protection Act (“VCPA”) has long been thought of as a statute that addressed fraud in consumer transactions. But as the Supreme Court of Virginia clarified in a ruling last month, “the VCPA’s proscription of conduct by suppliers in consumer transactions extends considerably beyond fraud.”

A plain reading of the statute shows this to be the case. The VCPA, by its terms, prohibits broadly not just acts of fraud but the use of “any other deception, …false pretense, false promise, or misrepresentation in connection with a consumer transaction.” (See Va. Code § 59.1-200 (14)).
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October 31, 2014

Fraudulent Joinder Won’t Defeat Diversity

by Lee E. Berlik

A common strategy for plaintiffs wishing to avoid federal court is to ensure at least one of the defendants is non-diverse. In theory at least, this would preclude the defendants from removing a case based on state-law claims from Virginia circuit court to federal court. In a ruling issued earlier this month, Judge Kiser of the Western District of Virginia clarified that this strategy will not always be effective: if the joinder of the non-diverse defendant is found to be fraudulent, the citizenship of that party will be disregarded for the purpose of analyzing whether subject-matter jurisdiction exists.

Federal courts have subject-matter jurisdiction primarily in two situations: where a federal question is raised, and where “complete diversity” exists. Complete diversity refers to a situation where no plaintiff resides in the same state as any defendant, and the amount in controversy exceeds $75,000. (See 28 U.S.C. § 1332(a)). If any defendant resides in the same state as any plaintiff, complete diversity is lacking and the court would lack jurisdiction to decide the case. So if Company A wants to sue Company B for breach of contract (a claim that does not involve a federal question) in state court, but the two companies are citizens of different states and the amount in dispute exceeds $75,000, Company A might be tempted to add a second defendant (such as an employee of Company B) who resides in the same state as Company A, simply for the purpose of destroying any basis for federal-court jurisdiction.
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October 10, 2014

Has the Recent Same-Sex Marriage “Decision” Paved the Way for Increased Protection Against Sexual-Orientation Discrimination in Employment?

by Guest Blogger

A few days ago, SCOTUS (the Supreme Court of the United Sates) surprised us some by deciding not to hear appeals from several states that sought to prohibit same-sex marriage. However, the non-ruling has been hailed as a historical and momentous event changing an untold number of lives. What happened? Well, the Supreme Court “denied cert“–that is, it declined to review appellate decisions–from cases in Virginia, Utah, Indiana, and some other states, which had held that bans on same-sex marriage were unconstitutional. By refusing to hear the appeals, the court gave tacit approval of the lower courts’ decisions, making gay marriage legal in 11 more states. Legal gay marriage across the country is happening, people, as it’s now legal (or about to become legal) in 35 states, including the District of Columbia.

On October 7, hot on the heels SCOTUS’s denial of cert of 4th Circuit decisions allowing same-sex marriage in Virginia, the Virginia Commonwealth University in Richmond announced that it intended to broaden its discrimination policies to include gender identity and sexual orientation. These developments are interesting as they may be portentous as Virginia state law does not yet include gender identity and sexual orientation as protected classes, which enables employers to fire an employee for being gay.
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October 6, 2014

Severance of Non-Compete Restrictions in Virginia

by Lee E. Berlik

Last month, I wrote about blue-penciling of non-competition and non-solicitation agreements and about the fact that if you are dealing with an unenforceable noncompete in Virginia, the entire clause will likely be stricken rather than amended. If you are a Virginia employer seeking to ensure your employees are actually bound by their agreements not to complete with your business post-employment, one thing you may be able to do is specify in the agreement that it will be governed by the law of a different state (i.e., one whose laws permit blue-penciling or which are otherwise considered more favorable to employers). This approach, however, will only be viable if your company (or the employee) has some significant connection with the selected state, as it is considered a violation of due process rights to surprise employees with arbitrary choice-of-law provisions. There is an easier way to ensure the noncompete provisions have teeth: make the obligations severable.

Virginia law will permit you to include a “severability clause” when drafting a noncompete agreement, permitting the court to analyze and enforce the various noncompete and non-solicitation provisions separately. The benefit to employers is that if the court finds one of the sections overly broad and therefore unenforceable, the court can “sever” the unenforceable provision and enforce the other sections, provided they don’t suffer from the same enforceability issues. For this to work, the parties need to reach an agreement (preferably expressed explicitly in the contract itself) to the effect that any restrictive covenant found by a court to be unenforceable can be severed from the agreement, leaving the remainder of the provisions intact. Such a clause might look something like this:

Severability. If any clause, provision, covenant or condition of this Agreement, or the application thereof to any person, place or circumstance, shall be held to be invalid, unenforceable, or void, the remainder of this Agreement shall remain in full force and effect.

September 30, 2014

Dealing with the Limitations of Virginia’s Subpoena Power When Discoverable Information Is Located In D.C. or Maryland

by Guest Blogger

Fewer aspects of civil litigation make me groan louder than attempting to obtain a subpoena in a foreign jurisdiction to obtain testimony or documents for a case pending in Virginia state court. Reading about getting a “commission” or dealing with a “letter rogatory” makes me want to run and hide (or at least remove the case to federal court, where practitioners enjoy nationwide subpoena power). Over the years, we’ve obtained subpoenas from California, Pennsylvania, Illinois, the District of Columbia, and Maryland. Despite the passage in each of these states of some form of the Uniform Interstate Depositions and Discovery Act–which is supposed to streamline the procurement of foreign subpoenas–obtaining a foreign subpoena remains a complicated and contradictory matter, confusing attorneys and jurisdictions alike. So let me save you a bit of trouble and share with you some key things you’ll want to know in order to get your subpoenas issued with a minimum of delay and hassle.

First, a few preliminary considerations: my best rule of thumb is to pick up the phone and call the clerk of the court located in the jurisdiction in which you need a subpoena, and be as nice, warm, and polite to that person as you’re capable of being. Clerks are people too, and much of the day, they have demanding attorneys barking at them, ignorant parties asking questions they can’t answer, and too much to do with not enough time to do it. Establishing some rapport with the clerk can go a long way if you’re trying to extract information and obtain what you need promptly.

Next, if you’re issuing a witness subpoena, call or email the deponent to see if the date you’ve chosen is convenient for the witness. Witnesses tend to be more cooperative when you consider their schedule. You are not the only one with a busy workweek.
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September 22, 2014

Virginia Won’t Allow You to Blue-Pencil that Non-Compete

by Lee E. Berlik

In Virginia, covenants not to compete (a.k.a. non-competition agreements or simply “noncompetes”) are considered restraints on trade and are therefore disfavored in the law. Unlike California, which prohibits them outright, Virginia will enforce such agreements if (and only if) they (1) satisfy the general principles of contract formation and enforceability, and (2) are no broader than necessary to protect the employer’s legitimate business interests. In examining breadth and overall reasonableness, Virginia courts will look primarily to provisions regarding the duration of the restriction, the geographic scope, and the activities that the agreement purports to restrict. What happens, you might ask, if a noncompete is found to be just a tad broader than it needs to be to protect the employer’s interests? Will it still be enforced to the “fullest extent of the law,” disregarding whatever phrase rendered the agreement overly broad? While that might seem the most fair outcome to many employers, if the agreement is governed by Virginia law, the noncompete will be stricken in its entirety and the employee will be free to compete as if the agreement never existed.

In some states, courts will modify any noncompete deemed unreasonable and enforce it to a degree deemed reasonable. For example, if a noncompete prohibits competitive activity for a 5-year period when the business really can’t justify imposing such a restriction beyond one year, the noncompete will be enforced but only for one year rather than the five stated in the agreement. This practice has become known as blue-penciling. Other states allow blue-penciling only if the restrictive covenant as a whole does not reveal any deliberate intent by the employer to place unreasonable and oppressive restraints on the employee. Virginia, however, does not allow blue-penciling at all. As a general rule, unreasonable covenants not to compete will be declared void and unenforceable, and courts will not modify them by re-writing contracts previously agreed to by the parties.
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