Virginia's Attorney General is petitioning the U.S. Supreme Court to uphold the verdict against spammer, Jeremy Jaynes, and reverse the Virginia Supreme Court's decision rendering unconstitutional Virginia's anti-spam statute. Virginia's petition for a writ of certiorari to the U.S. Supreme Court, dated December 11, 2008, can be found here.
As we discussed in our prior posts, found here and here, Jaynes' was convicted of violating Virginia's anti-spam statute after sending millions of spam emails through AOL's computer servers. The Virginia Supreme Court declared the anti-spam statute unconstitutional after initially finding the statute constitutional. The statute was unconstitutional, the Court ultimately found, because it potentially chilled the right to anonymous speech.
It will interesting to see whether the U.S. Supreme Court hears this case since spamming is so prevalent. According to the petition, AOL servers received over one billion spam emails every day at the time of Jaynes' actions. But, Virginia is one of the few if any states that forbid any type of spam -- not just commercial spam. So if the U.S. Court reinstates the Virginia anti-spam law, other states may quickly broaden their anti-spam laws.
Monday, December 15, 2008
Friday, December 12, 2008
Breach of Fiduciary Duty -- Traps for the Unwary
Many unfair business practices cases, such as those involving conspiracies, arise out of claims that the defendants breached their fiduciary duties. So what does that mean? In Virginia, Maryland and the District of Columbia, officers, directors and employees (“Employee”) owe the company an undivided duty of loyalty. In other words, an Employee cannot allow his own self-interest to conflict with his duty to his employer. PM Services Co. v. Odoi Associates, Inc., 2006 U.S. Dist. LEXIS 655 (D.D.C. January 4, 2006); Adelman v. Conotti, 213 S.E.2d 774 (Va. 1975); Maryland Metals, Inc. v. Metzner, 382 A.2d 564 (Md. 1978). These duties are particularly significant in that they are based upon the common law and are applicable even in the absence of a written covenant not to compete.
Such claims often arise when an Employee makes plans to go to work for a competitor or form a competing company. They usually involve one of the following: (1) the departing Employee solicits other co-workers to join her at the new company; (2) the departing Employee solicits clients to follow her, thus guaranteeing immediate work and income; or (3) the Employee takes his employer’s confidential information without permission and uses it to benefit the new employer. Unless the Employee follows certain rules, such conduct may make him liable to the former employer for breach of the duty of loyalty or breach of fiduciary duty.
First, while an Employee may make plans to compete, he may not recruit his co-workers to join him while still employed if it leads to a mass resignation. Feddeman & Co. v. Langan Associates, 530 S.E.2d 668 (Va. 2000); Maryland Metals, supra; Riggs Investment Management Corp. v. Columbia Partners, LLC, 966 F. Supp. 1250 (D.D.C. 1997).
Second, the Employee may not solicit his employer’s customers to move their accounts to the new entity. Furash & Co. v. McClave, 130 F. Supp.2d 48 (D.D.C. 2001); PM Services, supra; Maryland Metals, supra; Feddeman, supra. Similarly, an individual, while still employed, may not divert to a competitor business opportunities presented to him if it is within the employer’s line of work, the employer can afford to take advantage of it and, after disclosure, the employer is interested in the opportunity. PM Services, supra.
Finally, the Employee may not use his employer’s confidential information to benefit the new employer or help it gain a competitive advantage. Furash & Co., supra; Riggs, supra; PM Services, supra; Maryland Metals, supra; Feddeman, supra. This preclusion continues after the Employee joins a new company. Bull v. Logetronics, Inc, 323 F. Supp. 115 (E.D.Va. 1971).
Of course, whether an Employee’s conduct rises to a level of breach of fiduciary duty is, in each case, very fact specific. These rules, however, seek to strike a balance between the need to protect vigorous competition and the strong policy that competition be conducted with honesty and fair dealing.
Such claims often arise when an Employee makes plans to go to work for a competitor or form a competing company. They usually involve one of the following: (1) the departing Employee solicits other co-workers to join her at the new company; (2) the departing Employee solicits clients to follow her, thus guaranteeing immediate work and income; or (3) the Employee takes his employer’s confidential information without permission and uses it to benefit the new employer. Unless the Employee follows certain rules, such conduct may make him liable to the former employer for breach of the duty of loyalty or breach of fiduciary duty.
First, while an Employee may make plans to compete, he may not recruit his co-workers to join him while still employed if it leads to a mass resignation. Feddeman & Co. v. Langan Associates, 530 S.E.2d 668 (Va. 2000); Maryland Metals, supra; Riggs Investment Management Corp. v. Columbia Partners, LLC, 966 F. Supp. 1250 (D.D.C. 1997).
Second, the Employee may not solicit his employer’s customers to move their accounts to the new entity. Furash & Co. v. McClave, 130 F. Supp.2d 48 (D.D.C. 2001); PM Services, supra; Maryland Metals, supra; Feddeman, supra. Similarly, an individual, while still employed, may not divert to a competitor business opportunities presented to him if it is within the employer’s line of work, the employer can afford to take advantage of it and, after disclosure, the employer is interested in the opportunity. PM Services, supra.
Finally, the Employee may not use his employer’s confidential information to benefit the new employer or help it gain a competitive advantage. Furash & Co., supra; Riggs, supra; PM Services, supra; Maryland Metals, supra; Feddeman, supra. This preclusion continues after the Employee joins a new company. Bull v. Logetronics, Inc, 323 F. Supp. 115 (E.D.Va. 1971).
Of course, whether an Employee’s conduct rises to a level of breach of fiduciary duty is, in each case, very fact specific. These rules, however, seek to strike a balance between the need to protect vigorous competition and the strong policy that competition be conducted with honesty and fair dealing.
Wednesday, November 19, 2008
Government Contractor Hit with $10 Million in Punitive Damages for Discriminatory Contract Termination
In a government contractor dispute between prime and subcontractor companies, a jury empanelled in the U.S. District Court for Eastern District of Virginia found that the prime contractor racially discriminated against the subcontractor, tortiously interfered with the subcontractor's employee contracts, breached the parties' contracts and breached the implied duty of good faith and fair dealing. The jury awarded over $5 million in compensatory damages and $10 million in punitive damages against the prime contractor.
The Court's September 22, 2008 opinion sets forth the evidence which the jury considered and ultimately believed in reaching the verdict. That evidence, the Court found, was sufficient to uphold the verdict. The opinion can be found here.
The plaintiffs were two related companies, World Wide Network Services, LLC and its subsidiary World Wide Network Services International (hereinafter "WWNS"). WWNS was certified as an "8(a)" small disadvantaged company. WWNS was awarded a subcontract with Defendant DynCorp International, LLC ("DynCorp") to assist DynCorp with its contracts with the U.S. Department of State in Iraq and Afghanistan.
According to the Court, "in the fall of 2005 the relationship between DynCorp and WWNS began to cool." Opinion at 7. "WWNS employees began to observe displays of racial animus towards WWNS in the form of derogatory comments . . . , as well as deliberate exclusion from planning meetings, failing to respond to e-mail requests for information and assistance . . . and failing to renew/provide WWNS employees with the proper security badges WWNS’s employees were required to have in order to perform their work and to access remote work sites. Additionally, DynCorp’s evaluations of WWNS's performance turned critical." Id.
In examining the discrimination claim filed pursuant to Section 1981, the Court maintained the burden-shifting analysis used in Title VII discrimination claims. It found that WWNS was required to show that it: "(1) is a member of a minority group; (2) was qualified to perform the obligations set forth in the subcontracts; (3) despite its qualifications and performance, it was terminated; and (4) after its termination, DynCorp retained another company from an unprotected class." Op. at 18. DynCorp would then have to "produce evidence that the plaintiff was rejected, or someone else was preferred, for a legitimate nondiscriminatory reason." Id. If those burdens were met, WWNS would have to show that DynCorp’s proffered reason was "mere pretext and that race based discrimination was the real reason" for DynCorp's actions. Id.
As to the tortuous interference with contract claim, the Court rejected DynCorp's argument that the jury's verdict was unsupported as a matter of law. DynCorp argued it did not tortiously interfere with WWNS's employment contracts because there was "no evidence that DynCorp intentionally induced any former WWNS employee to fail to provide 15 days notice of termination of their employment agreements with WWNS . . . ." Op. at 22-23. The Court found that the jury's finding was supported by the evidence of DynCorp's meeting with WWNS's employees to notify them that the subcontract "would be terminated August 11, 2006, and that as of July 26, 2006, all WWNS employees should report to DynCorp . . . ." Op. at 23. And, after receiving a letter from WWNS's counsel, DynCorp "convened another meeting . . . at which DynCorp recanted its statements . . . and notified WWNS personnel that they continued to be considered WWNS employees and would no longer work in support of the [subcontract] after August 11, 2006." "Thereafter, DynCorp began to make employment offers to select WWNS employees in Iraq in order to prevent a ‘disruption of service.'" Id.
The Court also found that there was enough evidence to support the punitive damages award and the finding that DynCorp acted with malice:
That conduct, the Court held, "demonstrates DynCorp"s intent to not only cease working with WWNS, but to destroy WWNS’s ability to continue to operate in Iraq and Afghanistan." Op. at 58.
The jury returned a verdict in favor of DynCorp for the following counts: tortious interference with prospective economic advantage, common law civil conspiracy, Virginia statutory conspiracy and a breach of contract counterclaim.
It is clear from the number of issues raised that the case was hotly contested. It is likely that the case will be appealed and the Fourth Circuit will revisit many of the District Court’s findings.
The Court's September 22, 2008 opinion sets forth the evidence which the jury considered and ultimately believed in reaching the verdict. That evidence, the Court found, was sufficient to uphold the verdict. The opinion can be found here.
The plaintiffs were two related companies, World Wide Network Services, LLC and its subsidiary World Wide Network Services International (hereinafter "WWNS"). WWNS was certified as an "8(a)" small disadvantaged company. WWNS was awarded a subcontract with Defendant DynCorp International, LLC ("DynCorp") to assist DynCorp with its contracts with the U.S. Department of State in Iraq and Afghanistan.
According to the Court, "in the fall of 2005 the relationship between DynCorp and WWNS began to cool." Opinion at 7. "WWNS employees began to observe displays of racial animus towards WWNS in the form of derogatory comments . . . , as well as deliberate exclusion from planning meetings, failing to respond to e-mail requests for information and assistance . . . and failing to renew/provide WWNS employees with the proper security badges WWNS’s employees were required to have in order to perform their work and to access remote work sites. Additionally, DynCorp’s evaluations of WWNS's performance turned critical." Id.
In examining the discrimination claim filed pursuant to Section 1981, the Court maintained the burden-shifting analysis used in Title VII discrimination claims. It found that WWNS was required to show that it: "(1) is a member of a minority group; (2) was qualified to perform the obligations set forth in the subcontracts; (3) despite its qualifications and performance, it was terminated; and (4) after its termination, DynCorp retained another company from an unprotected class." Op. at 18. DynCorp would then have to "produce evidence that the plaintiff was rejected, or someone else was preferred, for a legitimate nondiscriminatory reason." Id. If those burdens were met, WWNS would have to show that DynCorp’s proffered reason was "mere pretext and that race based discrimination was the real reason" for DynCorp's actions. Id.
As to the tortuous interference with contract claim, the Court rejected DynCorp's argument that the jury's verdict was unsupported as a matter of law. DynCorp argued it did not tortiously interfere with WWNS's employment contracts because there was "no evidence that DynCorp intentionally induced any former WWNS employee to fail to provide 15 days notice of termination of their employment agreements with WWNS . . . ." Op. at 22-23. The Court found that the jury's finding was supported by the evidence of DynCorp's meeting with WWNS's employees to notify them that the subcontract "would be terminated August 11, 2006, and that as of July 26, 2006, all WWNS employees should report to DynCorp . . . ." Op. at 23. And, after receiving a letter from WWNS's counsel, DynCorp "convened another meeting . . . at which DynCorp recanted its statements . . . and notified WWNS personnel that they continued to be considered WWNS employees and would no longer work in support of the [subcontract] after August 11, 2006." "Thereafter, DynCorp began to make employment offers to select WWNS employees in Iraq in order to prevent a ‘disruption of service.'" Id.
The Court also found that there was enough evidence to support the punitive damages award and the finding that DynCorp acted with malice:
"DynCorp’s malicious intent towards WWNS is illustrated in DynCorp's conduct during the time period leading up to and after it decided to terminate its relationship with WWNS. For example, WWNS introduced evidence at trial that [DynCorp] reached out to EDO Corporation [which was a competitor to WWNS] well before DynCorp notified WWNS of its decisions to terminate their contractual relationship. [DynCorp] hired EDO Corporation to evaluate WWNS's workmanship with the Codan Radios. [DynCorp] terminated EDO Corporation’s contract because assessments of the Codan Radio system had already been completed by another firm. However, [DynCorp] indicated in an e-mail to EDO Corporation that [it] would look for ways to work with EDO Corporation in the future. Less than one month later, and before notifying WWNS of the impending contract termination, Mr. Walsh contacted EDO Corporation and requested that the company begin planning to take over the Codan Radio network. Shortly thereafter, [DynCorp] and a representative from EDO Corporation met with [a] WWNS employee . . . . At the meeting [the WWNS employee] provided [DynCorp] and EDO Corporation with a list of WWNS employees he recommended DynCorp and EDO hire. [the WWNS employee] also provided resumes and confidential salary information to DynCorp via e-mail to DynCorp [a] employee . . . ." Op. at 57.
That conduct, the Court held, "demonstrates DynCorp"s intent to not only cease working with WWNS, but to destroy WWNS’s ability to continue to operate in Iraq and Afghanistan." Op. at 58.
The jury returned a verdict in favor of DynCorp for the following counts: tortious interference with prospective economic advantage, common law civil conspiracy, Virginia statutory conspiracy and a breach of contract counterclaim.
It is clear from the number of issues raised that the case was hotly contested. It is likely that the case will be appealed and the Fourth Circuit will revisit many of the District Court’s findings.
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