The U.S. District Court for the Western District of Virginia, in Schlegel v. Bank of America, rejected a Virginia business conspiracy claim because "but for" allegations are insufficient to prove a conspiracy. In Schlegel, the plaintiff alleged that one of Bank of America's senior vice presidents, Charles H. Hill Ewald ("Ewald"), wrongfully allowed a former director, Christopher C. Grieb ("Grieb"), of a closely-held corporation, Piedmont Building & Development Corporation ("Piedmont"), to withdraw money from the corporate accounts and deposit the funds into Grieb's personal account. See http://www.vawd.uscourts.gov/OPINIONS/MOON/3.07CV00022SCHLEGELV.BANKOFAMERICA(GRANTINGDMTD).PDF
When informed of the improper withdrawal, Bank of America froze Grieb's personal account. About four months later, Hill contacted Piedmont's former corporate attorney, Ralph Eugene Maine, Jr. ("Maine"), who was also Grieb's personal attorney, to inquire about the propriety of the withdrawal.
Schlegel brought a Virginia statutory business conspiracy claim against Bank of America, alleging that Ewald's request from Maine was unlawful, the bank acted improperly, and Maine acted unlawfully in responding to Ewald's request. The court granted Bank of America's motion to dismiss, finding that Schlegel failed to allege a concerted action between the bank, bank officials, and Maine.
The court first set forth the meaning of "concerted action" as contained in Sec. 18.2-499, requiring proof that someone "'combined, associated, agreed, mutually undertook, or concerted together' with someone else in the injurious conduct." "This means that a plaintiff must prove that the defendants combined together to effect a preconceived plan and unity of design and purpose."
The court dismissed the conspiracy claim because the plaintiff "essentially bases his conclusion that there must have been a conspiracy on a 'but for' argument: 'Ewald would have been unable to continue the freeze of funds had Maine not provided him with the information he did, and Maine individually has no way of effecting bank policy in his client's (Grieb's) favor. Thus it became a mutual undertaking because it had to, neither alone able to achieve the result desired, which they did when their efforts were combined.'" "In other words, plaintiff argues that but for Ewald's actions and Maine's actions, he would not have been injured."
In rejecting the plaintiff's argument, the court reasoned: "But to read a 'but for' test of 'conspiracy' and 'concerted action' into Virginia's civil conspiracy statute would mean that two people acting independently would be civilly liable any time their independent acts resulted in a harm to a person's reputation, trade, business or profession, regardless of whether the two people actually came to an agreement (whether explicit or implicit) regarding the purpose of their actions. Such a reading would be far too expansive."
"[P]laintiff here has merely alleged that Ewald independently acted improperly, Maine independently acted improperly, and the Bank officials independently acted improperly, all to plaintiff's detriment. Ergo, he says, those three must have acted in concert. Plaintiff simply has not alleged any facts that would allow the court to infer that Maine and the Bank acted together. His claim must therefore be dismissed."
This opinion reinforces the point that not every collection of bad acts give rise to a business conspiracy claim. And, courts closely examine the allegations to determine whether to even allow plaintiff discovery to investigate the facts.
For a discussion of the elements of a Virginia statutory business conspiracy claim see http://unfairbusinesspractices.blogspot.com/2008/01/elements-of-business-conspiracy.html#links
Wednesday, March 12, 2008
Friday, March 7, 2008
Court Grants-in-part and Denies-in-part Injunction Request Based on Licensing Agreement
In an easy-to-read and short opinion, the trial judge in TCC Sports, LLC v. Sports Group, Ltd., Case No. 47397 in the Circuit Court of Loudon County, Virginia, granted in part the injunction petition filed by TCC Sports, as the publisher of Game Day magazine, against Sports Group, Ltd., the publisher of Inside Sport magazine based on the licensing agreement between the two companies. See http://www.williamsmullen.com/files/upload/TCCSportsOpinion.pdf .
The Court granted the injunction based on the non-competition provision that provided that: "[d]uring the Term of the Agreement and for a period of two (2) years after termination thereof for any reason, or for no reason at all, Licensee shall not, without the express written consent of the Licensor, individually or on behalf of any other person, corporation, firm or other entity, solicit or encourage any employee, agent or contractor or Licensor or its affiliates, solicit the business of any client, customer or other licensee of Licensor or solicit or encourage any client, customer, licensee or vendor to terminate his, her or its relationship or affiliation with the Company." Opinion at 3.
The court applied the four factor test for determining whether to grant an injunction as set forth in Blackwelder Furniture Co. v. Seilig Mfg. Co., 550 F.2d 189 (4th Cir. 1977), which weighs: (1) the likelihood of irreputable harm to the plaintiff in the event the preliminary injunction is denied; (2) the likelihood of harm to the defendant if the request is granted; (3) the likelihood the petitioner will succeed on the merits; and (4) the public interest.
In applying Blackwelder test, the Court determined that "the hardships weigh in favor of granting relief to the petitioners." Therefore, "a lesser showing of success on the merits is required." And, as to the likelihood of success on the merits, the Court found "a causal reading of the publications would suggest clients, customers or other licensors of 'Game Day' magazine might reasonably expect to be confused with a contact from 'Inside Sport' magazine." It thus entered the requested injunction. An argument can be made, however, that the scope of the noncompetition clause is overly broad because it purports to be binding on "'. . . Licensee, and its affiliates, officers, shareholders, owners, members, directors, agents and employees . . .'"
The Court denied the injunctive relief request as to a much broader provision in the licensing agreement, which sought to prevent Sports Group during the period specified from publishing the Inside Sport magazine. That provision limited the Sports Group's ability to compete with TCC Sports "in the Commonwealth of Virginia or in any other state of the United States or in any country in the world where licensor engages in business, or proposes to engage in business on the date of the termination of the agreement." As the Court pointed out, granting the injunction would put Sports Group out of business. The Court was not prepared to do so when the relative harm/benefit analysis was "in equipoise," and there was a "scant record" as to whether the petitioners were likely to succeed at trial.
The court’s ruling is clearly aimed at separating TCC Sports justifiable pre-trial interests (e.g. not having its clients solicited by Sports Group) from those interests that may be difficult to prove at trial, such as preventing all of Sports Group’s officers, shareholders, and employees, etc. from establishing an arguably competitive magazine.
The Court granted the injunction based on the non-competition provision that provided that: "[d]uring the Term of the Agreement and for a period of two (2) years after termination thereof for any reason, or for no reason at all, Licensee shall not, without the express written consent of the Licensor, individually or on behalf of any other person, corporation, firm or other entity, solicit or encourage any employee, agent or contractor or Licensor or its affiliates, solicit the business of any client, customer or other licensee of Licensor or solicit or encourage any client, customer, licensee or vendor to terminate his, her or its relationship or affiliation with the Company." Opinion at 3.
The court applied the four factor test for determining whether to grant an injunction as set forth in Blackwelder Furniture Co. v. Seilig Mfg. Co., 550 F.2d 189 (4th Cir. 1977), which weighs: (1) the likelihood of irreputable harm to the plaintiff in the event the preliminary injunction is denied; (2) the likelihood of harm to the defendant if the request is granted; (3) the likelihood the petitioner will succeed on the merits; and (4) the public interest.
In applying Blackwelder test, the Court determined that "the hardships weigh in favor of granting relief to the petitioners." Therefore, "a lesser showing of success on the merits is required." And, as to the likelihood of success on the merits, the Court found "a causal reading of the publications would suggest clients, customers or other licensors of 'Game Day' magazine might reasonably expect to be confused with a contact from 'Inside Sport' magazine." It thus entered the requested injunction. An argument can be made, however, that the scope of the noncompetition clause is overly broad because it purports to be binding on "'. . . Licensee, and its affiliates, officers, shareholders, owners, members, directors, agents and employees . . .'"
The Court denied the injunctive relief request as to a much broader provision in the licensing agreement, which sought to prevent Sports Group during the period specified from publishing the Inside Sport magazine. That provision limited the Sports Group's ability to compete with TCC Sports "in the Commonwealth of Virginia or in any other state of the United States or in any country in the world where licensor engages in business, or proposes to engage in business on the date of the termination of the agreement." As the Court pointed out, granting the injunction would put Sports Group out of business. The Court was not prepared to do so when the relative harm/benefit analysis was "in equipoise," and there was a "scant record" as to whether the petitioners were likely to succeed at trial.
The court’s ruling is clearly aimed at separating TCC Sports justifiable pre-trial interests (e.g. not having its clients solicited by Sports Group) from those interests that may be difficult to prove at trial, such as preventing all of Sports Group’s officers, shareholders, and employees, etc. from establishing an arguably competitive magazine.
Tuesday, March 4, 2008
Finding the Electronic Smoking Gun in Unfair Business Practices Cases
Unfair business practices, corporate raiding, breach of fiduciary duty and business conspiracy cases all have much in common. Usually there are one or more disloyal employees and often an aggressive competitor. The fact patterns follow a number of predictable scenarios. For example, a disloyal employee who wants to be marketable to a competitor may misappropriate proprietary information that he then provides to a new employer to earn instant goodwill. Or, if a conspiracy is present it may involve one or more employees who desire to start a competing company because they believe they can make more money than they are currently being paid or who have been approached by a competitor who wants to hire a group of key employees from the competitor firm. In such cases because they are either risk averse or are experiencing pressure from the competitor to bring work with them, the employees pilfer proprietary data from their employer that might be useful to the new company in creating efficiencies or expediting revenue. The end result is the same: loss of key employees, clients and profits.
For the plaintiff’s lawyer representing the victim employer, electronic data may be the source of the most important evidence in the case. So where do you look?
First, start with the client’s IT system. But, before any search methods are employed, engage a forensics expert to make a bit map image of the server or any hard drives that might contain relevant evidence. In addition, take the last set of full backup tapes, if they exist, out of rotation. That way, no discoverable electronic data should be lost that could later serve as a basis for a spoliation (unlawful destruction) motion.
Then, examine the renegade employees’ emails, user files and electronic faxes. Most jurisdictions do not protect employees’ communications using work computers from review by their employer. From this information, you may find evidence that supports your claim against the departed employees, but it may also reveal evidence of concerted action by other individuals who are still employed by your client.
Once a lawsuit is filed, serve comprehensive document requests that require the production of documents from the individual defendant’s personal computers and PDAs in electronic form. It is important to negotiate a protocol for the form of production with opposing counsel in advance or seek approval of one from the court. Make certain that the metadata for all documents and emails is produced. It will provide details of when documents were created, modified, last accessed and by whom. Again, emails may hold the key to the identities of others who may be involved. Cell phone records are another fertile ground for evidence of complicity.
Twenty first century litigation is almost wholly dependent upon electronic evidence. If you are still chasing the paper, you will likely miss 90% of potentially relevant evidence. Working closely with a competent forensic expert will help you identify other potential sources of electronic data that can assist in evaluating your case early, before costs escalate and can possibly enable you to find that smoking gun that will lead to an early settlement of the litigation.
For the plaintiff’s lawyer representing the victim employer, electronic data may be the source of the most important evidence in the case. So where do you look?
First, start with the client’s IT system. But, before any search methods are employed, engage a forensics expert to make a bit map image of the server or any hard drives that might contain relevant evidence. In addition, take the last set of full backup tapes, if they exist, out of rotation. That way, no discoverable electronic data should be lost that could later serve as a basis for a spoliation (unlawful destruction) motion.
Then, examine the renegade employees’ emails, user files and electronic faxes. Most jurisdictions do not protect employees’ communications using work computers from review by their employer. From this information, you may find evidence that supports your claim against the departed employees, but it may also reveal evidence of concerted action by other individuals who are still employed by your client.
Once a lawsuit is filed, serve comprehensive document requests that require the production of documents from the individual defendant’s personal computers and PDAs in electronic form. It is important to negotiate a protocol for the form of production with opposing counsel in advance or seek approval of one from the court. Make certain that the metadata for all documents and emails is produced. It will provide details of when documents were created, modified, last accessed and by whom. Again, emails may hold the key to the identities of others who may be involved. Cell phone records are another fertile ground for evidence of complicity.
Twenty first century litigation is almost wholly dependent upon electronic evidence. If you are still chasing the paper, you will likely miss 90% of potentially relevant evidence. Working closely with a competent forensic expert will help you identify other potential sources of electronic data that can assist in evaluating your case early, before costs escalate and can possibly enable you to find that smoking gun that will lead to an early settlement of the litigation.
Subscribe to:
Posts (Atom)
