The Virginia Business Litigation BlogWhen the Virginia Supreme Court decided Assurance Data v. Malyevac a few years ago, most employment lawyers speculated that although Virginia law no longer permitted most non-compete cases to be disposed of summarily on demurrer, a procedural mechanism known as the “plea in bar” could still be used by defendants intent on challenging the enforceability of their noncompete agreements. Assurance Data held that “restraints on competition are neither enforceable nor unenforceable in a factual vacuum” and that evidence is ordinarily required to perform the analysis. Unlike demurrers, pleas in bar allow for the presentation of evidence, so it would seem that the plea in bar would be an appropriate way to dispute a noncompete. A new decision from the Circuit Court of Fairfax County agrees with this approach.
Under SCA, Cloud-Based Emails Remain in “Electronic Storage” Even After They’ve Been Read
The Stored Communications Act (“SCA”) establishes a criminal offense for whoever “intentionally accesses without authorization a facility through which an electronic communication service is provided” or “intentionally exceeds an authorization to access that facility,” and by doing so “obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system.” 18 U.S.C. § 2701(a). The SCA also creates a civil cause of action, in which the plaintiff may obtain damages plus reasonable attorneys’ fees and other costs. 18 U.S.C. § 2707(b).
Federal district courts around the country have reached inconsistent conclusions when grappling with the issue of whether a particular communication is in “electronic storage” at the time it is accessed. The SCA defines electronic storage as “(A) any temporary, intermediate storage of a wire or electronic communication incidental to the electronic transmission thereof; and (B) any storage of such communication by an electronic communication service for purposes of backup protection of such communication.” 18 U.S.C. § 2510(17). Some courts have interpreted subsection (A) as applying only to “unopened” communications, reasoning that the “temporary, intermediate” language contemplates the interception of a communication before it reaches its intended recipient. Others, like Hoofnagle v. Smyth-Wythe Airport Comm’n, No. 1:15CV00008 (W.D. Va. May 24, 2016), found no reason to draw a distinction between “opened” and “unopened” communications for purposes of evaluating SCA liability. Similar disagreement exists with respect to subsection (B), where courts reached different conclusions about the relevance of whether it is the Internet Service Provider or user for whose benefit a backup copy of an email is made. Earlier this month, the Fourth Circuit weighed in on both issues for the first time.
So You Think You’re Going to Recover Attorneys’ Fees?
Virginia courts are not fond of awarding attorneys’ fees in litigation, even to the prevailing party. The general rule in this country is that litigants are responsible for their own attorneys’ fees unless a contract or statute says otherwise. Even if you win a case, you still have to pay your lawyer and can’t force the losing party to reimburse you. Even if a statute authorizes recovery of legal fees, the judge will have discretion to determine the amount. Most statutes that allow recovery of legal fees only allow recovery of a “reasonable” amount, so if the judge feels that no amount of fees would be reasonable to assess against the other side, then no fees will be awarded. Let’s check out a recent case from Fairfax County.
Robert M. Swahn, Jr. v. Nouman Hussain was a dispute between neighbors. Before addressing the issue of whether one of the parties could recover legal fees as the “prevailing party” in the litigation, the court characterized the case (in the very first sentence of the opinion) as one in which “everyone loses.” You know you’re not getting an award of attorneys’ fees when the judge calls you a loser.
Non-Compete Clause Satisfies Janitor Test, Held Enforceable
The best way to predict whether a particular noncompete clause will be deemed enforceable in a Virginia court is to read about how similar clauses have been treated by those same courts. No two cases are exactly alike, but non-compete agreements tend to incorporate similar language (mostly for the reason that lawyers don’t like to re-invent the wheel and do a lot of cutting and pasting from prior agreements when drafting such contracts for their clients). Back in November 2017, I wrote about O’Sullivan Films v. Neaves, in which the court held that it would be premature to rule on the enforceability of a noncompete clause without hearing evidence. Since then, the parties presented evidence to the court and the court reached a decision, so I thought it would be a good time to revisit the case here on the blog.
In its latest opinion, the court (the Western District of Virginia, Harrisonburg Division) doesn’t make any new law, but its ruling can serve as a guide to how courts are likely to interpret and apply in the future noncompetes using language similar to the language at issue in the O’Sullivan Films case. Here’s what the noncompete in that case said:
Only Strangers to a Contract Can Interfere with It.
You can’t interfere with your own contract. A contract is a bargained-for exchange that may entitle you to certain benefits, like money, products, or services. If you do not realize the benefit of your bargain because the other party does not honor the agreement, you may be entitled to sue for breach of contract. What you probably cannot do, if all we’re talking about is disappointed economic expectations resulting from the failure of one party to fulfill his end of the bargain, is sue for tortious interference with contract. From the moment tortious interference became recognized as a cause of action in Virginia in 1985, the claim has been available only against strangers to the contract at issue. In other words, if the person causing the interference is a party to the contract, the appropriate claim for the plaintiff to bring is for breach of contract and not tortious interference.
Under Virginia law, a claim for tortious interference consists of the following four elements:
- the existence of a valid contractual relationship or business expectancy;
- knowledge of the relationship or expectancy on the part of the interferor;
- intentional interference inducing or causing a breach or termination of the relationship or expectancy; and
- resultant damage to the party whose relationship or expectancy has been disrupted.
(See Schaecher v. Bouffault, 290 Va. 83 (2015)). In the 1985 case of Chaves v. Johnson, the Virginia Supreme Court explained that these elements can only be asserted against someone outside the contractual relationship:
Are Attorneys’ Fees Clauses Enforceable?
When you enter into a contract with a business, it’s not uncommon for the contract to contain a clause requiring you to be responsible for reimbursing the business for the legal fees it incurs should it need to bring a lawsuit against you for amounts you owe under the contract. Typically, such attorneys’ fees clauses are buried in lengthy form contracts presented on a take-it-or-leave-it basis by large companies to their consumers, who can choose between signing the contract and receiving niceties like cable TV and Internet service, or refusing to sign and being denied those things.
This strikes a lot of people as unfair. If contracts are supposed to be bargained-for agreements, why should consumers be required to sign whatever pre-printed, boilerplate legaleze is foisted upon them by large corporations in order to receive necessary services? Are there any limits to what companies can force their customers to “agree” to? Contracts requiring the “little guy” to pay the attorneys’ fees incurred by the much larger party are particularly concerning considering the high cost of legal services; consumers usually struggle to afford their own attorneys–requiring them to also pay the other side’s legal team often makes litigation a financially ruinous proposition.
Governor Terry McAuliffe Escapes Fraud Action
You may have heard that a group of Chinese investors filed a fraud action here in Virginia against Governor McAuliffe and others for $17,920,000, plus punitive damages exceeding $53,000,000. Earlier this month, a federal judge dismissed the case, finding that the allegations were insufficient to allow a jury to even consider the claim. Should you, dear reader, ever find yourself on the receiving end of a $71M fraud lawsuit, try to stay calm, and read my earlier blog post about what kind of facts are needed to make out a facially valid fraud claim. The plaintiffs in this particular case were unable to present such facts, so they lost. If a plaintiff cannot allege in good faith facts sufficient to satisfy each element of a fraud claim, the case will be dismissed no matter how much money is at stake.
According to the original complaint filed against Governor McAuliffe (it was originally filed in Fairfax County Circuit Court, then removed to federal court in Alexandria), the case was brought “to remedy a $120 million scam perpetrated by savvy and politically connected operatives and businessmen.” The Defendants allegedly offered–in exchange for a $500,000 investment from each plaintiff in an electric car company–to leverage their political connections to ensure that the plaintiffs’ visa applications would be approved by U.S. Citizenship and Immigration Services. The Chinese investors claimed that McAuliffe lied about a number of things in order to secure those $500,000 investments:
Dismissals With Prejudice vs. Without Prejudice
When a Virginia court dismisses a case, the dismissal order may state that the dismissal of the case is either “with prejudice” or “without prejudice.” In this context, prejudice has nothing to do with racism or discrimination. Rather, it’s simply an indication of whether the case is permanently ended, with no possibility of finding its way back onto the court’s docket, or merely removed from the docket in such a way as to permit its refiling upon the satisfaction of certain conditions. Sometimes it will be up to the judge to decide whether to dismiss a case with or without prejudice; other times (particularly when the defect in the case cannot be fixed), the law will dictate the form of dismissal.
The Virginia Supreme Court explained the distinction in Primov v. Serco, Inc., decided just a few days ago. There, the court noted that a dismissal of a suit “without prejudice” means that the court is not deciding the controversy on its merits, and that the whole subject of litigation will remain as much open to another suit as if no suit had ever been brought. (See Newberry v. Ruffin, 102 Va. 73, 76 (1903)). In other words, dismissing a case without prejudice terminates the action but does not prohibit its refiling.
Proving Unauthorized Access to Private Data Under the SCA
Hackers aren’t the only ones who can gain unauthorized access to your private data. Maybe you shared a password with your spouse, then got divorced and forgot to change it. Maybe you neglected to lock your phone and a passerby was able to pick it up and view your bank-account balances. There are innumerable ways in which your personal files can be exposed to someone you never intended to share them with. Revenge porn laws offer some protection when the files consist of sexually explicit selfies, but when the files at issue consist of mundane (but nevertheless private) emails or texts, the federal Stored Communications Act (“SCA”) often comes into play. The SCA establishes a criminal offense for whoever “intentionally accesses without authorization a facility through which an electronic communication service is provided” or “intentionally exceeds an authorization to access that facility,” and by doing so “obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system.” 18 U.S.C. § 2701(a). The SCA also creates a civil cause of action, in which the plaintiff may obtain damages plus reasonable attorneys’ fees and other costs. 18 U.S.C. § 2707(b).
Many of us store all kinds of files in “the cloud” that we do not intend to share with the world: financial documents, proprietary information, trade secrets, personal notes–the list is endless. Suppose a former colleague intentionally accesses your Apple iCloud account–or your Dropbox account–or your Gmail account–without your knowledge or permission, finds your stuff and downloads copies. In many cases, this kind of behavior would create a right of action under the SCA. But the law contains a number of requirements that may or may not apply in your particular situation, and proof is often hard to come by.
“Improper Methods” Often Key to Tortious Interference Liability
Perhaps a colleague at work is trying to get you fired. Or maybe you did already get fired, and your former boss is contacting prospective employers to make sure you don’t get hired. Either way, you’re not going to be very happy about it, and you may start to look into your legal options. When one person interferes with the employment status of another person, and does or says something with the intention of getting that person fired, and succeeds in that endeavor, the legal claim most often applicable is that of tortious interference with contract. A recent federal case, however, illustrates that successful claims require more than just an intent to disrupt another person’s employment; they require a showing that “improper methods” were used in the course of that disruption.
Because employment contracts are generally terminable at the will of either party (employees can quit, and employers can fire the employee, without being in breach of contract), tortious interference with employment relationships will not be actionable absent additional wrongdoing in the form of so-called improper methods. There is no hard-and-fast definition of “improper methods,” but Virginia cases have held that improper methods include:
- Actions that are illegal or independently tortious
- Violations of an established standard of a trade
- Fraud or deceit
- Unethical conduct
- Sharp dealing
- Overreaching
- Actions that fall far outside the accepted practice of the “rough and tumble” world of free market competition
(See Duggin v. Adams, 234 Va. 221, 228 (1987); Lewis-Gale Med. Ctr., LLC v. Alldredge, 282 Va. 141, 153 (2011)).