The Virginia Business Litigation Blog

July 28, 2023

Defenses to Contract Actions in Virginia

So you got sued for breach of contract. There’s no need to panic. Your legal rights may include a number of valid defenses to the claim, some of which may not be readily obvious. Knowing when to assert these defenses can make the difference between losing a large monetary judgment and getting the case dismissed at the outset. Before you write the plaintiff a check in whatever amount is being demanded in the lawsuit, consider whether one or more of these contract defenses may apply to your situation. There may be perfectly valid reasons why you don’t actually owe that money.

Void or Voidable Contract

A void contract is considered a nullity and has no legal effect. A contract made in violation of a Virginia statute, for example, would be illegal and therefore void. For example, contracts for the payment of interest on a loan will be deemed void if the interest rate is unlawfully high. (See Va. Code § 6.2-303). A plaintiff who brings an action based on a void contract is not entitled to recover damages, even if that contract was breached. A void contract can’t be validated or ratified. A voidable contract is one that starts off as a valid, legal contract, but which permits one or both of the parties to disaffirm or otherwise avoid the obligations created by the contract.

July 14, 2023

Virginia State Court vs. Virginia Federal Court

by Lee E. Berlik

Due to rules governing subject-matter jurisdiction, plaintiffs often don’t have a choice between filing their lawsuit in Virginia state court or federal court. Federal courts possess exclusive jurisdiction over certain types of claims and often lack jurisdiction to hear cases involving claims arising under state law. In many situations, though, plaintiffs have the option to pursue their claims in either state court or federal court. Neither forum is necessarily more advantageous than the other. To help prospective litigants weigh the pros and cons of state court vs. federal court, I’ve summarized some of the key differences below.

1. For fast-paced litigation, choose federal court.

The Eastern District of Virginia is known around the country as the “Rocket Docket” due to how quickly the proceedings move. The average Rocket Docket case is scheduled for trial just 8-10 months after the filing of the complaint. By comparison, trials in Fairfax Circuit Court typically are scheduled close to a year after filing. Litigants in federal court may only have 90 days in which to complete discovery, something unheard of in state court. Continuances are rarely granted in either court, but are even more difficult to get in federal court, where you should just assume the trial date is carved in stone. Basically, if you file your lawsuit in federal court, at least up here in Northern Virginia, expect a whirlwind of litigation from beginning to end. This may be overwhelming to some, but desirable to others. Continue reading

May 23, 2023

Even Without a Noncompete, Employees Must Remain Loyal While Employed

by Lee E. Berlik

Noncompete agreements generally prohibit former employees from joining a competing organization for some specified length of time after the employment relationship ends. Some agreements restrict competitive activity even before the relationship ends. In the absence of such an agreement, many employees might assume that they are free to start competing with their employers at any time they wish. This isn’t necessarily true. Under Virginia law, employees owe a fiduciary duty of loyalty to their employer which prohibits competitive acts during employment. This duty exists irrespective of any contractual agreement. Employees may generally make certain arrangements during their employment to compete in the future (i.e., after they resign) but are prohibited from taking action that would cause competitive harm to the employer.

There are no precise rules regarding exactly what steps an employee can take to prepare for termination without actually engaging in direct competition. Each case is decided on its own facts. “This right, based on a policy of free competition, must be balanced with the importance of the integrity and fairness attaching to the relationship between employer and employee….Under certain circumstances, the exercise of the right may constitute a breach of fiduciary duty….Whether specific conduct taken prior to resignation breaches a fiduciary duty requires a case by case analysis.” (See Feddeman & Co. v. Langan Assoc., 260 Va. 35, 42 (2000)).

April 21, 2023

Shareholders Don’t Need Stock Certificates

by Lee E. Berlik

In business litigation, it’s often necessary to determine whether the litigants are shareholders in a corporation. To bring a lawsuit against an officer or director of a corporation for breaching a fiduciary duty owed to the corporation, for example, the plaintiff must be a shareholder and bring the suit derivatively on behalf of the corporation. (See Va. Code. § 13.1-672.1). In small, closely held corporations, it can be unclear who the shareholders actually are. If an entire corporation is owned and managed by only two or three people, those people may not run the corporation with the same level of formality as a larger company. Board “meetings” may happen in line at Starbucks or not at all. Stock ledgers acquired during the formation of the business may not actually get used. Small corporations often aren’t good about documentation and record-keeping, so when the time comes to issue shares to their stockholders, they may not get around to actually issuing formal stock certificates. Sometimes the only evidence of stock ownership is in the form of a text message or email. This can be a problem when litigation arises because the parties may not agree on how many shares each shareholder owns or who the shareholders even are.

What’s important to note here is that while it’s always preferable to follow corporate formalities and maintain accurate records, shareholders don’t actually need to produce paper stock certificates to prove their status as the owner of corporate stock. Stock is intangible property: it represents ownership in a corporation but does not have a physical form. Stock certificates have physical form but stock certificates are not stock; they are merely evidence of stock ownership. In many cases, stock ownership can be proven without the existence of a stock certificate. Courts look to the totality of the circumstances.

February 4, 2023

The Top 10 Ways to Spot a Scam

by Lee E. Berlik

I wish I could help everyone who comes to me with a problem, but I can’t. People get scammed all the time, then want to hire a lawyer to sue the scammer for damages. Is that ever possible? Sure, but most scams these days occur online and are specifically designed to leave the victim without a remedy. Typically, the scammer communicates through technology that conceals his identity, making it impossible to locate his whereabouts to serve him with suit papers. If you are able to trace the scammer, he’s often found in a foreign country outside the jurisdiction of U.S. courts. Money sent to scammers is often wired to overseas accounts in irreversible transactions. In short, most scam victims will never be able to obtain justice, no matter how many high-priced lawyers are retained to seek it. The best way to protect yourself is to not get scammed in the first place. No one is immune from a clever scam but there are lots of tell-tale signs that everyone should know to minimize the likelihood of falling victim to one. So here I present the top ten ways to know when someone is trying to scam you.

Continue reading

January 11, 2023

Mass Resignation to Form Competing Business Leads to Litigation

by Lee E. Berlik

No employer likes to see a large number of its employees band together and leave en masse to form a competing business. A large number of employees leaving at once can lead to a loss of institutional knowledge and experience, not to mention customers and revenues. Mass departures hurt morale and can lead to increased costs for recruitment and training. A company’s reputation can be irreparably damaged once word gets out that a mass resignation has taken place, making it more difficult for the business to attract new talent. Depending on the circumstances, litigation against the former employees, as well as against the company that hired them, may or may not be warranted.

Possible legal claims include breach of fiduciary duty, breach of non-compete and/or non-solicitation agreement, tortious interference, business conspiracy, misappropriation of trade secrets, and more. Let’s take a quick look at how a Hampton Roads body-piercing business dealt with the sudden resignation of seven employees who went on to form their own body-piercing business in the same region. In the case of Chanah, Inc. v. Summers, currently pending in the Chesapeake Circuit Court, the plaintiff pursued a number of business torts against the departing employees. Most of the counts survived demurrer.

October 19, 2022

The Dead Man’s Statute

by Lee E. Berlik

Virginia’s “Dead Man’s Statute,” found at Va. Code § 8.01-397, does two things: (1) it provides a hearsay exception allowing certain statements to come into evidence when the person who made them is dead or otherwise incapable of testifying; and (2) it prohibits an adverse party in litigation from winning a judgment based solely on uncorroborated testimony that can’t be rebutted due to the other party’s incapacity. The statute makes it more difficult to win a case against someone who has died. If key testimony will relate to conversations between the decedent and the adverse party, or to events that took place in the decedent’s presence, the law does not permit the surviving party to win a judgment based solely on his own uncorroborated testimony when the decedent is not available to challenge that testimony.

The Dead Man’s Statute provides in material part:

In an action by or against a person who, from any cause, is incapable of testifying, or by or against the committee, trustee, executor, administrator, heir, or other representative of the person so incapable of testifying, no judgment or decree shall be rendered in favor of an adverse or interested party founded on his uncorroborated testimony. In any such action, whether such adverse party testifies or not, all entries, memoranda, and declarations by the party so incapable of testifying made while he was capable, relevant to the matter in issue, may be received as evidence in all proceedings including without limitation those to which a person under a disability is a party.

September 14, 2022

Forum Selection Clause Enforceable if Not Induced by Fraud

by Lee E. Berlik

Fraudulent inducement is a defense to a breach-of-contract action. Enforceable contracts require a meeting of the minds as to the subject matter. If one of the contracting parties agreed to the contract terms only because of the other party’s trickery and deceit, there hasn’t really been a true meeting of the minds and the defrauded party can sometimes get out of the deal. For the defense to work, there must be a showing of fraud. One party must make an intentional misrepresentation of fact, material to the purpose of the agreement, which causes the defrauded party to agree to the terms of the contract in reliance on the false statement (believing it to be true). Although a contract induced by fraud is voidable and may be rescinded, there are limits to the defense. A recent case from Fairfax County explains that a forum-selection clause contained within a contract allegedly procured by fraud will still be enforced unless the alleged fraud relates specifically to the forum-selection clause itself.

The case is Boxer Advisors, LLC v. Success Business, Inc. As presented in the opinion, Boxer Advisors was a prime contractor on a government contract and had entered into a subcontract with Success Business (“SBI”). The subcontract contained a forum-selection clause specifying Maryland as the sole venue for any litigation between the parties arising under the agreement. A dispute arose and Boxer sued SBI for fraud, misappropriation of trade secrets, and tortious interference. It filed the lawsuit in Virginia rather than Maryland. SBI objected, pointing to the forum-selection clause. Boxer argued that it wasn’t required to honor the terms of the forum-selection clause because, as alleged in its complaint, the subcontract with SBI had been fraudulently induced.

August 10, 2022

Grossly Excessive Jury Awards Can Be Set Aside or Reduced

by Lee E. Berlik

Juries are usually told they can award to a successful plaintiff whatever amount they decide is appropriate, however high that number might be. The judge, however, will scrutinize any award of monetary damages to ensure it is supported by the evidence admitted at trial. Courts have a duty to correct a verdict that plainly appears to be unfair or would result in a miscarriage of justice. When it appears to the court that a verdict is unfair in that it is out of proportion to the actual damages sustained, the court has a duty to correct the injustice. (See Gazette, Inc. v. Harris, 229 Va. 1, 48 (1985)). A trial court may set aside a verdict if it shocks the court’s conscience, indicating that the jury was likely motivated by passion or prejudice, or that the jury misconceived or misconstrued the facts or law, or where the verdict is so disproportionate to the injuries suffered as to suggest that it is “not the product of a fair and impartial decision.” (See Edmiston v. Kupsenel, 205 Va. 198, 202 (1964)). Trial courts have the power to order a new trial (Va. Code § 8.01-383), or they may give the plaintiff the option of “remittitur” of the excessive verdict in lieu of a new trial (Va. Code § 8.01- 383.1), permitting him to accept judgment for an amount less than the jury awarded.

When analyzing awards of punitive damages for excessiveness, courts look to a number of factors, including (1) the reasonableness between the damages sustained and the amount of the punitive damages award and the measurement of punishment required; (2) whether the award will amount to a double recovery; (3) the proportionality between the compensatory and punitive damages; and (4) the ability of the defendant to pay. (See Baldwin v. McConnell, 273 Va. 650, 657 (2007)). Punitive damage awards that are grossly excessive can also be unconstitutional in that they violate the Due Process Clause of the Fourteenth Amendment. The Due Process Clause requires consideration of factors such as (1) whether the award bears a reasonable relationship to the award of compensatory damages; (2) the relationship between the punitive damages award and the actual or potential damage that might have been caused by the acts; (3) the grievousness or degree of reprehensibility of the acts; (4) the degree of malicious intent; (5) the ratio of the award to civil or criminal penalties that could be imposed for comparable misconduct; and (6) the wealth of the wrongdoer. (See BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 568, 575 (1996)).

July 8, 2022

Interior Designers’ Unauthorized Markups May Be Grounds for Legal Action

by Lee E. Berlik

For homeowners, it can be overwhelming to furnish and accessorize a home without the assistance of a professional interior designer. Trying to pick paint colors, wallpaper, flooring, lighting, and furniture without professional assistance is not for the faint of heart. Unfortunately, there are some unscrupulous interior designers out there who prey on well-to-do homeowners having the means of affording their services. Some interior designers will use deception to convince their clients that furnishings and other materials cost more than they really do, knowing that their customers are trusting them to design their home with their best interests in mind and that they will likely pay whatever invoice is presented to them, no questions asked. On occasion, though, a homeowner will question the charges reflected on an interior designer’s invoice. Recent case law establishes that deceptive behavior like marking up the cost of goods can lead to liability for both breach of contract and violation of the Virginia Consumer Protection Act.

Consider the case filed against Robert Shields Interiors by Dr. Tanya M. Johnson. Johnson hired Robert Shields to provide professional interior design, space planning, and decorating services (including purchasing furniture) for her home in McLean, Virginia. Although the contract allowed Shields to charge Johnson 10% extra on shipping and handling charges, the contract did not allow for any other markups. Johnson alleged that Shields breached their agreement in many ways, including: (a) he charged her for some furniture that was never delivered; (b) he sent her some items in the wrong color; and (c) he charged her unauthorized and undisclosed markups on various items. Discovery revealed that Shields was secretly marking up most of the furniture sourced for Johnson by anywhere from 35 to 100 percent. He charged $4800 for a chaise lounge that only cost him $2481. He charged his customer $11,000 for a table that only cost him $5999.40.

The VirginiaBusiness Litigation Blog

Void or Voidable Contract

1. For fast-paced litigation, choose federal court.