The Virginia Business Litigation Blog

November 28, 2010

Judge Cacheris Permits Vicarious Copyright Infringement Claim to Proceed

Recovering damages for copyright infringement may be difficult in situations where the infringing party is “dummy” or “shell” corporation with no assets that can be used to satisfy a judgment. Sometimes, however, there may be a parent corporation or other entity that may be held liable on a theory of “vicarious liability.” As demonstrated by a recent decision of Judge Cacheris of the District Court for the Eastern District of Virginia, this doctrine may be utilized to pursue a contractor for the infringing activities of its subcontractor, even if the contractor knows nothing about the alleged infringement.

In Softech Worldwide, LLC v. Internet Technology Broadcasting Corp., Fedstore Corporation entered into a contract with the United States Department of Veterans Affairs (the “VA”) to develop various software, including software relating to the Digital-Media-Architecture (“DMA”) Pilot Project–a platform for scaling electronic media to various electronic devices. Fedstore subcontracted the work to Internet Technology Broadcasting Corporation (“ITBC”), who in turn hired the Plaintiff, Softech Worldwide, LLC, to perform various software services under the VA contract. Softech claims it performed these services from 2002 until early 2010, and that in early 2010, ITBC stopped making regular payments. Shortly thereafter, Softech claims it delivered the DMA source code and other proprietary information to ITBC at its request, and that ITBC refused to return the materials while continuing to use, maintain, and update Softech’s products.

Softech sued both ITBC and Fedstore for copyright infringement and violation of Virginia’s Uniform Trade Secrets Act. Fedstore moved to dismiss the case for failure to state a claim. Fedstore’s position was essentially that the claims pertained to actions allegedly taken by ITBC, not by Fedstore. Softech responded that Fedstore should be held responsible under theories of contributory liability and vicarious liability.

September 26, 2010

Discrimination Claims in Virginia Must Be Brought Promptly

by Lee E. Berlik

Virginia is a “deferral state” for Title VII purposes, meaning that it has a state law prohibiting discriminatory employment practices and has a state or local agency (e.g., the Virginia Council on Human Rights) authorized to grant relief from such practices. To allege discriminatory employment practices in deferral states like Virginia, prior to filing any lawsuit, an aggrieved employee must exhaust administrative remedies by initiating an EEOC charge within 300 days. Otherwise, the claim will be forever barred. (See 42 U.S.C. § 2000e-5(e)(1)). In a case decided recently by Judge Spencer of the Eastern District of Virginia, a plaintiff found this out the hard way.

In McKelvy v. Capital One Services, LLC, the plaintiff was an African-American Director of IT services, over 40 years of age. After obtaining a “right-to-sue” letter from the EEOC, he sued Capital One, claiming that the removal of his supervisory responsibilities and the failure to promote him was based on his race or his age, and thus violated Title VII’s prohibitions against unlawful discrimination in employment. Finding that the alleged discrimination took place more than 300 days before the plaintiff filed his EEOC charge, the court granted summary judgment in Capital One’s favor and dismissed the plaintiff’s claims with prejudice.

The court also observed that, even if the plaintiff had not failed to exhaust administrative remedies, he could not prevail on his claim because he failed to present supportive facts (beyond his personal belief), to rebut Capital One’s assertion that his direct reports were taken away because other associates complained about his leadership style and because of some poor performance appraisals. To survive a motion for summary judgment, a plaintiff must come forward with supportive evidence.

September 12, 2010

Virginia Trade Secrets Act Analyzed by Fairfax Court

by Lee E. Berlik

What is a trade secret? In Virginia, trade secrets generally consist of commercial information that (1) derives independent economic value from not being generally known to, and not being readily ascertainable by proper means by, other businesses which would benefit from its disclosure; and (2) is the subject of reasonable efforts by the business to be kept secret. (The full definition is provided in the Virginia Uniform Trade Secrets Act itself, found at Va. Code § 59.1-336). Judge Bellows of Fairfax County Circuit Court recently had the occasion to consider the extent to which vendor and customer lists may qualify as protectible trade secrets.

Tryco, Inc. v. U.S. Medical Source, LLC involved a dispute chiefly between Tryco, a small business authorized to sell medical and dental equipment to the United States government, and former employee Brian Thomas, who had left Tryco to join U.S. Medical Source, LLC (“USMS”), a competing firm founded by his sister-in-law. Prior to leaving, Mr. Thomas cleaned out his desk and copied his personal files onto a flash drive. In the process, however, he also (inadvertently, the court found) copied two Tryco documents, one containing a list of buyer contact information and other providing certain information regarding Tryco’s vendors. When accused by Tryco of stealing confidential information for the purpose of benefiting a competitor, Mr. Thomas promptly returned the entire flash drive, explaining that the copying was inadvertent and stating that he never copied the drive, never showed it to anyone at USMS, and never used it.

Tryco sued both Mr. Thomas and USMS for misappropriation of trade secrets. Tryco also brought claims for civil conspiracy under Virginia’s business conspiracy statute, breach of fiduciary duty, and tortious interference. After four days of trial testimony, the defendants moved to strike Tryco’s evidence as insufficient to state a claim. Judge Bellows agreed with the defendants the Tryco had failed to prove theft of trade secrets within the meaning of the Virginia Uniform Trade Secrets Act, and found in favor of the defendants on all counts.

August 31, 2010

Noncompete Agreements: Getting Them to Stick

by Lee E. Berlik

Non-competition and non-solicitation clauses found in employment agreements often do not provide employers with the protection the employers assume they are getting. Virginia courts will refuse to enforce such “noncompetes” if they are written in vague terms or if they are broader than necessary to meet the employer’s legitimate business interests. As restraints on trade, restrictive covenants are disfavored by the courts. Consequently, any ambiguities in the contract will be construed in the employee’s favor. Fairfax Circuit Court Judge Michael F. Devine recently illustrated these principles in Daston Corp. v. MiCore Solutions, Inc., in which he upheld a nonsolicitation clause but struck down a noncompete agreement as unenforceable.

The case was brought by Daston Corporation, an information technology company that provides, among other things, a range of services based on Google Apps software, against two former employees who went to work for MiCore Solutions, a business offering similar services. Both employees had signed identical employment agreements with Daston containing both a noncompete clause and a nonsolicitation clause. The employees sought to dismiss Daston’s claims, arguing that the employment agreement’s restrictions were unenforceable. Judge Devine agreed in part and disagreed in part.

The court began its analysis by noting that, in Virginia, non-competition agreements will be enforced only “if the contract is narrowly drawn to protect the employer’s legitimate business interest, is not unduly burdensome on the employee’s ability to earn a living, and is not against public policy.”

August 9, 2010

Protect Your Trademark in Virginia Through the ACPA

by Lee E. Berlik

Lawyers around the country have come to learn of the Eastern District of Virginia’s legendary “rocket docket.” With divisions located in Alexandria, Norfolk, Richmond, and Newport News, Virginia’s federal court is known as the most efficient in the country for handling intellectual property cases and complex business litigation. Also known for being friendly to business, trademark owners around the country often look for ways to establish venue in Virginia instead of a location closer to home where cases move at a slower pace. In the context of protecting trademark rights, one such opportunity can be found in the Anticybersquatting Consumer Protection Act.

The ACPA provides for a cause of action against those who register or use a domain name confusingly similar to, or dilutive of, the trademark of another. Enacted in 1999, the ACPA was designed to address the practice of “cybersquatting,” which generally involves the practice of registering a domain name containing somebody else’s name or trademark with the intention of either profiting from the resulting confusion or of selling the domain name to the less-Internet-savvy trademark owner. You could sue the individual in the jurisdiction of his residence, but what if that person lives in the District of Minnesota, one of the slowest federal courts in the country? Or what if the registrant took steps to shield his identity when registering the domain name and you can’t determine whom to sue?

One option available to you is to sue the domain name itself. And because VeriSign–the world’s largest registry and operator of the .com and .net top-level domains–is located in Dulles, Virginia, which falls within the jurisdiction of the Eastern District of Virginia, there is a good chance you can bring that action in the Rocket Docket, regardless of where the actual registrant resides.

June 19, 2010

Virginia Architects Entitled to Copyright Protection

by Lee E. Berlik

Architectural drawings are not entitled to a great deal of protection under the United States copyright laws, but to the extent a drawing contains a creative, original combination or arrangement of spaces and design elements, the work will be entitled to some level of copyright protection against acts of infringement.

In a recent Virginia case, Commonwealth Architects sued Rule Joy Trammell + Rubio, LLC (“Rule Joy”) in the Eastern District of Virginia, claiming that Rule Joy infringed its copyright in certain architectural drawings by scanning them to PDF format. Rule Joy moved for summary judgment, taking the position that Commonwealth Architects did own any valid copyright in the architectural drawings and that, even if it did, Rule Joy did not copy any protected elements of the drawings. Judge Henry E. Hudson, relying primarily on Intervest Constr., Inc. v. Canterbury Estate Homes, Inc., 554 F.3d 914 (11th Cir. 2008), held that Commonwealth Architects owned “a thin, but valid, copyright” in its architectural drawings, and denied Rule Joy’s motion.

Under the Copyright Act, protected works of authorship include, among other things, “architectural works” under 17 U.S.C. § 102(a)(8). Architectural works are defined as “the design of a building as embodied in any tangible medium of expression, including a building, architectural plans or drawings. The work includes the overall form as well as the arrangement and composition of spaces and elements in the design, but does not include individual standard features,” such as common windows or doors or standard space configurations. The court noted that while individual standard features are not copyrightable, an architect’s original combination or arrangement of such elements involves a degree of creativity and may very well be copyrightable. Still, the court compared the copyright protection affordable to architectural works to “compilations” and described the level of protection as “necessarily thin.”

June 4, 2010

Pay-When-Paid Clauses Enforceable in Virginia

by Lee E. Berlik

Virginia, unlike some other states, adheres to a policy favoring freedom to contract. Virginia law treats most businesses and individuals as presumptively capable of negotiating in their own best interests, and when a deal is reached and a contract is signed, courts rarely interfere with the result, however unfair that result may seem to outside parties.

In construction contracts, for example, it is common to find a “pay when paid” clause, stating that a subcontractor’s right to any payments from the general contractor is expressly conditioned on the general contractor’s first receiving payment from the owner. Some states go out of their way to protect subcontractors from the potential harsh consequences such a provision can cause. Virginia courts, however, will assume that the subcontractor was sophisticated enough to know what it was signing and will enforce contracts as written.

The freedom to contract includes the freedom to negotiate pay-when-paid clauses, and Virginia courts will enforce such clauses provided they are clear and unambiguous. In Universal Concrete Products v. Turner Construction, Universal, a subcontractor, entered into a written agreement with Turner, the general contractor, to install pre-cast concrete on the Granby Tower project in Norfolk, Virginia. When the real estate market collapsed, the owner became unable to finance the construction. Universal, however, substantially completed all of its work on the project, and naturally asked Turner to pay for its services. Turner refused to pay Universal because Turner had not been paid by the owner and the parties’ subcontract contained a pay-when-paid clause.

May 24, 2010

Proving Loss Under the Computer Fraud and Abuse Act

by Lee E. Berlik

Too often, disgruntled departing employees will abuse their employer’s computer system on their way out, snooping into coworkers’ email accounts, erasing important files, downloading trade secrets or other confidential commercial information, or intentionally infecting computers with viruses. In recent years, the Computer Fraud and Abuse Act (CFAA) has become an important weapon in an employer’s arsenal for combating such computer crimes. Civil remedies are available under the CFAA for damage to any “protected computer,” which includes any “computer used in interstate or foreign commerce or communication.” However, a Virginia court recently clarified that the CFAA will not provide a remedy absent an actual “loss” as defined by the statute.

In Global Policy Partners, LLC, v. Yessin, a plaintiff brought claims against her husband and business partner under the CFAA and the Stored Communications Act (SCA), claiming that he had accessed her work email account in order to review her confidential communications with her divorce lawyer. The court rejected the husband’s initial attempts to dismiss the case on the ground that his access to his wife’s email was authorized in that he was a co-manager of the couple’s business. The court reasoned that because there was no legitimate business reason for the snooping, the access was unauthorized. At the summary judgment stage, however, the court granted summary judgment in his favor because the wife did not introduce sufficient evidence to show she had incurred a $5,000 “loss.”

To prevail on a claim brought under the CFAA, a plaintiff must demonstrate that the alleged violation “caused … loss … aggregating at least $5,000 in value.” 18 U.S.C. Section 1030(c)(4)(A)(i). The CFAA specifically defines four categories of potential loss: “[i] the cost of responding to an offense, [ii] [costs of] conducting a damage assessment, and [iii] [costs of] restoring the data, program, system, or information to its condition prior to the offense, and [iv] any revenue lost, cost incurred, or other consequential damages incurred because of the interruption of service.” 18 U.S.C. § 1030(e)(11). According to the Fourth Circuit Court of Appeals, this list “plainly contemplates … costs incurred as part of the response to a CFAA violation, including the investigation of an offense.” A.V. ex rel. Vanderhye v. iParadigms, LLC, 562 F.3d 630, 646 (4th Cir. 2009).

April 19, 2010

Real Estate Fraud Litigation Proceeds Against Juno Loudoun and Ritz Carlton

by Lee E. Berlik

When a couple of home buyers in Loudoun County filed a lawsuit against Ritz-Carlton and a Loudoun developer, they chose Loudoun County Circuit Court as the forum. The immediate response of the defendants’ lawyers was to remove the case to federal court, where summary judgment is much easier to obtain than in Virginia state court. The home buyers, likely worried about having their case dismissed at an early stage by a federal judge, sought to remand the case back to Loudoun County, pointing to a forum-selection clause which provided: “In connection with any litigation between Buyer and Seller arising out of this Agreement…[t]he sole venue for any litigation shall be Loudoun County, Virginia.” The court refused to send the case back to state court. All of that procedural maneuvering meant very little in the end, however, as the court recently denied the defendants’ motion for summary judgment and allowed the case to go forward.

In Nahigian v. Ritz-Carlton, LLC, the home buyers (the Nahigians) claim the defendants fraudulently induced them into buying property by making multiple misrepresentations about the nature and extent of the involvement of the prestigious Ritz-Carlton company in the management of the property and its adjoining private golf course. The Nahigians allege they were duped into buying an expensive property at Creighton Farms near Leesburg by various statements by sales agents referring to the development as a “Ritz-Carlton community” and part of the “Ritz-Carlton Life.” As it turned out, they allege, Ritz-Carlton was merely a temporary manager of the golf club and never had any long-term commitment to the neighborhood. In March of 2009, Ritz-Carlton announced they were pulling out of the development.

The Nahigians sued for fraud and related claims, and the defendants moved for dismissal, arguing that the plaintiffs had failed to plead fraud with sufficient particularity, and that they failed to allege all the requisite elements of a fraud claim. The court disagreed and denied the motions to dismiss.

March 28, 2010

Enjoin Wrongful Foreclosure Before It Is Too Late

by Lee E. Berlik

Those considering retaining a Virginia law firm to help stave off a wrongful foreclosure should keep this useful fact in mind: your lawyer’s job will be a lot easier if you take legal action before the bank forecloses on your property. Seek legal advice when you begin to fall behind on your mortgage or when workout negotiations seem to be faltering. Don’t wait until the trustee enforces the deed of trust and kicks you out of the house before going to an attorney, on the assumption that your smart lawyer will be able to “undo” an unfair foreclosure. In the vast majority of cases, Virginia courts will not set the foreclosure aside.

This reality is aptly illustrated by a recent case out of the United States District Court for the Eastern District of Virginia, Horvath v. Bank of New York, (E.D. Va. Jan. 29, 2010). The plaintiff, John Horvath, found himself unable to keep up with his mortgage payments–an unfortunate predicament all too common these days–and the defendants foreclosed on his house. Mr. Horvath admitted he had fallen behind on his mortgage, but asserted a number of different legal theories revolving around the argument that Bank of New York and other companies with an interest in his mortgage acted improperly and did not adhere to the law when servicing his mortgage, foreclosing on his house, and eventually evicting him. The court shot each argument down, one by one, and dismissed the case for failure to state a legally cognizable claim.

The first count was for a declaratory judgment declaring the foreclosure “void.” The court ruled that declaratory relief would serve “no useful purpose” since the foreclosure sale had already taken place. The court noted that declaratory judgments are reserved for “forward looking actions.”

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