The Virginia Business Litigation Blog

July 23, 2018

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.

June 20, 2018

“Improper Methods” Often Key to Tortious Interference Liability

by Lee E. Berlik

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)).

May 28, 2018

How To Enforce a Non-Compete or Non-Solicitation Agreement

by Lee E. Berlik

It happens to every business eventually. A rogue employee defects to a competitor and immediately starts soliciting the former employer’s customers and clients, using the former employer’s trade secrets or other confidential commercial information against it. Although non-compete and non-solicitation agreements are generally disfavored in Virginia, most Virginia judges nevertheless recognize that employers have a legitimate business interest in protecting themselves from competition by former employees who possess sensitive information and will, in appropriate circumstances, compel former employees to honor their contractual commitments. This blog post provides a brief overview of the process involved in obtaining such relief from the legal system, divided into two basic steps.

Step One: Write an enforceable noncompete agreement.

The most common mistake employers make in their efforts to prevent unfair competition is to present their employees with overbroad, overreaching employment agreements. Many businesses, knowing that 99% of new employees will sign whatever piece of paper you put in front of them, cannot resist the temptation to draft their noncompete agreements in a way that is completely one-sided in favor of the employer. They might draft agreements that prohibit the employee from contacting any of its customers for 10 years after leaving the company, or that prohibit former employees from taking any kind of job within a 500-mile radius of the employer’s office. When an employer goes too far in its efforts to secure loyalty by forcing its employees to sign unreasonable contracts, those efforts can backfire by causing the contracts to become unenforceable as a matter of law.

April 23, 2018

Discovery Rule Extends Statute of Limitations in Fraud Cases

by Lee E. Berlik

The statute of limitations for fraud cases in Virginia is two years from the time the cause of action accrues. See Va. Code § 8.01-243. This is not necessarily two years from the time the fraud was committed. Fraud cases are subject to a “discovery rule,” meaning that the cause of action will not accrue until the alleged misrepresentation is either discovered, or, by the exercise of due diligence, reasonably should have been discovered. See Va. Code § 8.01-249(1). The clock on the two-year period does not begin ticking until that moment in time. As you might expect, precisely when that moment occurs is often the subject of fierce disagreement.

To exercise due diligence, as contemplated by the statute, a plaintiff must use “such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent [person] under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case.” (See Schmidt v. Household Fin. Corp., II, 276 Va. 108, 118 (2008)). Who gets to decide whether a plaintiff exercised this level of prudence, activity, and assiduity? In most cases, it will be the jury. A motion to dismiss or plea in bar based on the statute of limitations normally will not be successful unless all the facts necessary for resolving the “due diligence” question appear on the face of the pleadings or are not in dispute. If there’s a factual dispute about whether due diligence was exercised, the case will normally need to go forward so that the jury can hear evidence on the matter.

March 17, 2018

The Source of Duty Rule

by Lee E. Berlik

Zealous lawyers seeking to maximize their clients’ monetary recovery in court will often sue for as many different claims as their highly trained legal minds can conjure up. And they will usually try to come up with at least one viable tort claim (such as fraud or business conspiracy) to pursue in addition to any breach-of-contract claims, because tort claims often allow the recovery of punitive damages in addition to compensatory damages. But there are important differences between the law of contracts and the law of torts. The law of torts is designed to protect broad societal interests such as safety of persons and property. Contract law, on the other hand, is concerned with the protection of bargained-for expectations. Therefore, several rules have developed to prevent turning every breach-of-contract claim into a tort action.

The economic loss rule, for example, holds that where a contracting party’s loss is limited to disappointed economic expectations, his remedy is limited to one for breach of contract. A similar rule is known as the “source of duty” rule. It looks to the source of the duty alleged to have been violated. Before a court will allow a contracting party to recover on a tort theory, it must be satisfied that the duty tortiously or negligently breached is a common law duty, and not one existing solely by virtue of a contract between the parties. If the source of the duty allegedly violated is a contract, then the plaintiff should be limited to remedies available in breach-of-contract actions.

February 12, 2018

Loss or Damage Is Sufficient Under CFAA

by Lee E. Berlik

Under the Computer Fraud and Abuse Act, “loss” and “damage” are not synonyms. The CFAA provides that “any person who suffers damage or loss” caused by a violation of its terms can sue for compensatory damages and or equitable relief. A natural assumption might be that the lawyers who drafted the statute didn’t intend “loss” to mean anything materially different than “damage” and that they just threw in an extra word or two for good measure as lawyers are wont to do. (Only a lawyer would write, “I hereby give, devise, and bequeath” instead of just “I give.”) In the case of the CFAA, however, “loss” and “damage” are not interchangeable; each has a distinct meaning. And suffering either one of them is sufficient to support a compensable claim. Let’s look at a recent real-world example.

Space Systems/Loral v. Orbital ATK was (and remains) a dispute in Virginia federal court between two companies specializing in the design and manufacturing of geostationary satellites, space systems, and robotics technology. In 2015, NASA solicited project proposals through an RFP entitled “Utilizing Public Private Partnerships to Advance Tipping Point Strategies.” NASA awarded Space Systems a contract for its “Dragonfly” project and Orbital a contract for its “CIRAS” project. NASA set up a server to facilitate the sharing of information with the various contractors, and gave both Space Systems and Orbital access to it. Some time later, NASA determined that one or more Orbital employees accessed at least four files on the shared server that contained Space Systems’ proprietary data.

January 5, 2018

How a Strategic Counterclaim Can Backfire

by Lee E. Berlik

Nobody likes to get sued. It can be an expensive and soul-draining proposition, even if you win. Under the so-called “American Rule,” litigants are responsible for paying their own legal fees, regardless of which party wins the case. Obviously, this system engenders some abuse, as crafty, litigious plaintiffs can file frivolous lawsuits knowing that–at the very least–they will cause the defendant to incur large sums of attorneys’ fees. As a defendant in American litigation, a victory at trial merely means you don’t have to pay the plaintiff any money. But you do you have to pay your own attorneys for their time and effort. So even a “win” is often viewed as a net loss in financial terms. One common way to turn the tables on plaintiffs is to file a counterclaim. Assuming the counterclaim itself isn’t completely groundless, it can put the parties on equal footing: if both parties have claims against the other, then both parties have something to lose beyond mere legal fees. Now, even the plaintiff can be liable for a money judgment.

If you file a counterclaim, however, you better mean it. The court may not allow you to withdraw it later if you decide your claims should have been brought as a separate action in a different jurisdiction. If the case has progressed to the point where trial is imminent, you may be forced to litigate the claim or lose it forever.

November 30, 2017

Focus on Fraud: The Expectation of Influencing Conduct

by Lee E. Berlik

Fraud is a confusing and widely misunderstood tort. I wrote about the elements of fraud on this blog a few years ago, and last month I dug deeper into what it means to make a fraudulent misrepresentation. This month, I’m going to elaborate a bit more about the requirement that fraudulent misrepresentations be made with the intent to mislead someone before liability will arise. In other words, we’re talking about the expectation on the part of the speaker that the person hearing the statement (i.e., the person being defrauded) will take some action–or refrain from taking some action–as a direct result of hearing the statement. To win a case for actual fraud, you need to establish that the defendant not only misrepresented a fact, but did so intending to influence your behavior.

Who can sue? Generally speaking, anyone whose conduct the speaker intended to influence and who was, in fact, influenced as intended. Sometimes the defendant intends to defraud a single person. Sometimes the defendant seeks to influence an entire group of people. Even if a defendant did not specifically intend to defraud a particular plaintiff, if the defendant had reason to expect that the plaintiff would act or refrain from acting in reasonable reliance on his untrue statement, liability may attach. There may be a valid defense, however, if the defendant could not have anticipated that a particular plaintiff would hear the fraudulent statement and take action upon it. Let’s look at some examples.

November 19, 2017

VCPA Applies to Consumer Transactions, Not Consumer Goods

by Lee E. Berlik

The Virginia Consumer Protection Act is a Virginia law designed to protect consumers against fraudulent and deceptive business practices. In situations where it applies, defrauded consumers won’t be limited to suing for fraud; they will be entitled to pursue the additional remedies allowed by the VCPA, such as reimbursement of legal fees and–if the deception was willful–triple damages. The statute’s application, however, is limited to “consumer transactions.” What are those? According to the official statutory definition, “consumer transaction” means:

The advertisement, sale, lease, license or offering for sale, lease or license, of goods or services to be used primarily for personal, family or household purposes;
Transactions involving the advertisement, offer or sale to an individual of a business opportunity that requires both his expenditure of money or property and his personal services on a continuing basis and in which he has not been previously engaged;
Transactions involving the advertisement, offer or sale to an individual of goods or services relating to the individual’s finding or obtaining employment;
A layaway agreement, whereby part or all of the price of goods is payable in one or more payments subsequent to the making of the layaway agreement and the supplier retains possession of the goods and bears the risk of their loss or damage until the goods are paid in full according to the layaway agreement; and
Transactions involving the advertisement, sale, lease, or license, or the offering for sale, lease or license, of goods or services to a church or other religious body.

(See Va. Code § 59.1-198). The most common application of the VCPA is under the first part of the definition: “goods or services to be used primarily for personal, family or household purposes.” Does that mean that every contract to make or sell a personal or household item will be subject to the VCPA, regardless of the identity of the parties to the contract? The Virginia Supreme Court hasn’t yet spoken to this issue, but in a recent ruling out of Fairfax Circuit Court, the court said no.

November 1, 2017

Determining Validity of Noncompete Requires Evidence

by Lee E. Berlik

Restrictive covenants in employment agreements (e.g., noncompete and nonsolicitation clauses) are enforceable in Virginia if they are (1) narrowly drawn to protect the employer’s legitimate business interests, (2) not unduly burdensome on the employee’s ability to earn a living, and (3) are not against public policy. There was once a time when litigation brought to enforce noncompete and nonsolicitation agreements would be routinely dismissed at the outset of a case based on a finding that one of these elements was lacking. For example, a noncompete provision restricting a former employee from taking a similar job with a nearby competitor for five years might have been quickly dismissed based on the judge’s quick determination that five years is simply too long.

This changed with the 2013 Virginia Supreme Court decision in Assurance Data, Inc. v. Malyevac. There, the court pointed out that every case is different, and held that an employer seeking to enforce a restrictive covenant must be given the opportunity to present evidence demonstrating reasonableness. Since this decision, some judges–like Fairfax County Circuit Court Judge John M. Tran–have opined that in appropriate cases, courts can still dismiss noncompete cases without an evidentiary hearing, such as when an employer fails to even proffer a legitimate business interest. Others hold that Assurance Data forecloses facial attacks on restrictive covenants. This appears to be the more common interpretation of the case.

The VirginiaBusiness Litigation Blog

Step One: Write an enforceable noncompete agreement.