Author Archives: James B. Kinsel

1. Copyright Infringement: Repeat Willful Violations Result in Permanent Injunction and High Damages

   November 16, 2011 2:07 pm Leave a Comment

   In a recent opinion, Seoul Broadcasting System Intl. v. Ro, an Alexandria U.S. district court granted Plaintiffs a permanent injunction and ordered steep damages against the defendants who were repeat copyright infringers and willfully ignored cease and desist letters, signifying a focus on deterrence to protect copyrights of businesses.

   Plaintiffs Seoul Broadcasting Corporation, Mun Hwa Broadcasting Corporation, and KBS America, Inc., profit from the sale and licensing of DVDs and videotapes of their proprietary programming and distribute Korean-language television programming in the United States.

   Plaintiff accused Defendants, Daewood Video, Inc. and owner Young Min Ro., Korean Korner, Inc., Sun Yop Yoo, of illegally distributing television programming. All Defendants are or were previously in the business of renting or selling videos and had past licensing agreements with Plaintiffs which had expired or were not renewed.

   The current opinion is a result of a bench trial held on the issue of damages and other relief. The court previously granted summary judgment of copyright infringement in favor of Plaintiffs.

   In copyright actions, courts traditionally grant permanent injunctions if liability is established and there is a continuing threat to the copyright. Opinion at 14, quoting Dea Han Video Prod., Inc. v. Chun, et al., No. 89-1470-A, 1990 WL 265976 at *1311 (E.D. Va. June 18, 1990). The court decided to issue a permanent injunction in this case because the Daewood defendants, with assistance from Korean Korner and Yoo, infringed Plaintiffs’ copyrights continuously over a period of more than a year. And Defendants, save one, all had a history of unlawful copying and selling Korean video programming. Moreover, the ease of making the copies made it more likely Defendants would infringe in the future if a permanent injunction was not entered.

   The court considered in depth the damages award. Statutory damages in copyright infringement cases, according to 17 U.S.C. § 504, are significantly higher if the court finds the infringement was done willfully. The damages imposed may be up to $150,000 per act of infringement. Opinion at 16.

   “Willfulness may be inferred where there is evidence that infringements continued after warnings or cease and desist letters from the plaintiff.” Opinion at 16, citing Masterfile Corp. v. Dev. Partners, Inc., No. 1:10cv134, 2010 U.S. Dist. LEXIS 100857, 14-15 (E.D. Va. Aug. 16, 2010). All Plaintiffs had sent cease and desist letters to Young Min Ro, owner of Daewood Video.

   The court awarded monetary damages, with a significantly higher damages award against Daewood Video, Inc. and owner Young Min Ro due to previous copyright infringement violations and because the court found that they acted willfully by refusing to follow the cease and desist letters. Daewood and Ro, jointly and severally, were ordered to pay $555,000.00. Defendant Yoo, the one defendant without a history of copyright infringement, was ordered to pay a considerably less amount of $16,951. These disparate amounts and steep fines for Daewood and Ro suggest the court’s unyielding desire to deter repeat violators from ignoring laws set up to protect businesses.

   A question is whether courts will use refusal to follow cease and desist letters as a justification for high damages awards in suits other than those involving copyright issues

2. Spiteful Motives, Lacking Improper Conduct, do not Support Tortious Interference Claim

   April 28, 2011 2:17 pm Leave a Comment

   In a recent opinion, the Supreme Court of Virginia held that actions motivated solely by ill will or personal spite, that don’t include improper conduct, do not support a claim for tortious interference with an at-will contract. The court provided a helpful definition of when conduct is considered improper and decided that it is not enough if the actions were merely spiteful. Click here for opinion.

   The facts of the case involve a Virginia law firm, Dunn, McCormack & Macpherson (“Dunn”), who had an at-will contract with the Fairfax County Redevelopment and Housing Authority (the “Authority”). Dunn had served as legal counsel for the Authority for around thirty years until the Authority terminated the contract in September 2005.

   Dunn sued Gerald Connolly (“Connolly”), Chairman of the Fairfax County Board of Supervisors, alleging that Connolly tortiously interfered with Dunn’s contract with the Authority by persuading Authority to break the contract. Dunn claimed that Connolly’s actions were motived solely by his personal spite, ill will and malice, because he didn’t get along with a partner at Dunn.

   The circuit court entered an order dismissing the action for Dunn’s failure to provide facts showing Connolly used illegal means or improper methods when he communicated with the Authority. This court reviewed the circuit court’s ruling de novo and came to the same conclusion.

   The elements to support a cause of action for tortious interference with contract rights are: (1) the existence of a valid contractual relationship or business expectancy, (2) knowledge of the relationship or expectancy on the part of the interferer, (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy, and (4) resultant damage to the party whose relationship or expectancy has been disrupted.

   Additionally, when a contract is at-will, an element is added: the defendant must have employed improper methods. Op. at 6, citing Duggin v. Adams, 234 Va. 221, 226-27, 360 S.E.2d 832, 836 (1987).

   The court explained that interference is improper if it is illegal, independently tortious, or violates an established standard of trade or profession. The court quoted the Duggin case, stating:

   Methods of interference considered improper are those means that are illegal or independently tortious, such as violations of statutes, regulations, or recognized common-law rules. Improper methods may include violence, threats or intimidation, bribery, unfounded litigation, fraud, misrepresentation or deceit, defamation, duress, undue influence, misuse of inside or confidential information, or breach of a fiduciary relationship…

   Methods also may be improper because they violate and established standard of a trade or profession, or involve unethical conduct. Sharp dealing, overreaching, or unfair competition may also constitute improper methods.

   234 Va. at 227-28, 360 S.E.2d at 836-37.

   Dunn’s argument that Connolly improperly interfered with its terminable at-will contract with the Authority because his actions were motived solely by Connolly’s personal spite, ill will and malice was found to be insufficient. The court found that Dunn failed to appreciate the limited nature of what constitutes “improper” interference. The court stated that it “will not extend the scope of the tort to include actions solely motivated by spite, ill will and malice.” Op. at 7. Because there were no facts alleged that showed improper interference, there was no merit to Dunn’s claim and the action was dismissed.

3. Publicly Available Software Code Can Be a Trade Secret if Compilation is Not Generally Known

   April 12, 2011 2:16 pm Leave a Comment

   A recent Fourth Circuit opinion analyzed when a software compilation can qualify for protection as a trade secret.  The plaintiff company claimed that although its software used publicly-available mathematical formulas, the combination and implementation of these formulas contained in the source code for the software constitutes a trade secret. The Fourth Circuit agreed, holding that a trade secret may be composed of publicly-available information if the method by which that information is compiled is not generally known. Processes that are publicly known can become trade secrets when combined into a source code and the manner and sequence of the processes is unique and unknown to the public.  The case is Decision Insights, Inc. v. Sentia Group, Inc., 2011 U.S. App. LEXIS 5151 (4th Cir. Va. March 15, 2011), and can be foundThe case can be found here.

   The case arose when Decision Insights, Inc. (“Decision Insights”) filed a complaint against Sentia Group, Inc. (“Sentia”) and individual former employees alleging that Sentia’s development of a competing software application was based on materials obtained from the Sentia’s misappropriation of Decision Insight’s trade secrets. The question considered by the district court was whether Decision Insight’s software application, as a total compilation, could qualify as a trade secret under Virginia law.

   Sentia had hired a former consultant for Decision Insights who worked to develop software for Sentia that would compete with Decision Insights’ software. According to Decision Insights, the software developed by Sentia is almost identical to its own. Decision Insights asserted that all the parameters, variables, and sequencing associated with the programs must have been the same as Decision Insights’ software to obtain such identical software.

   The criteria for establishing the existence of a trade secret under Va. Code § 59.1-336 includes whether or not the compilation has independent economic value, is generally known or readily ascertainable by proper means, and is subject to reasonable efforts to maintain secrecy.

   On appeal, the court considered whether Decision Insights adduced enough evidence at trial for a jury to reach the conclusion that Decision Insights’ software, as a compilation, is not generally known or ascertainable by proper means. At trial, Decision Insights had introduced two experts who testified that part of the source code was unknown to the public and the sequence of the processes was unique and not publicly available.  One expert identified 13 proprietary processes in the source code, and stated that “[t]he collection of these processes as a whole and the sequence of these processes also serve as a proprietary aspect of [Decision Insights’ software].”  Opinion at 14.The court held that due to the evidence offered by the two experts, the trial court erred in concluding that Decision Insights had not satisfied its evidentiary burden to show that its software compilation was not generally known or readily ascertainable by proper means.  The court noted that a trade secret may be composed of publicly-available information if the method by which that information is compiled is not generally known. The court cited Servo Corp. of America. v. General Electric Co., which held that a trade secret “might consist of several discrete elements, any one of which could have been discovered by study of material available to the public.” 393 F.2d 551, 554 (4^th Cir. 1968).  The court also found that numerous variables that were part of the Decision Insights software code were not in public literature or known outside the company.

   The court remanded and directed the district court to consider other criteria specified by the Virginia Trade Secret Misappropriation Act, including whether Decision Insights’ software code has independent economic value and whether Decision Insights engaged in reasonable efforts to maintain the secrecy of the software code.  See Va. Code. Section 59.1-336.

   In the past, parties have claimed that a company’s products or process are not trade secrets unless kept strictly and wholly confidential. This case is important because it allows some components of trade secret information to be publicly known in certain circumstances while maintaining their trade secret status so long as other important information, such as the way those public pieces of software code are put together, remains confidential.  The question of whether information was adequately kept confidential frequently arises in unfair business practices cases and this opinion helps clarify the issue.

4. Press Releases Can Cause Waiver of Work Product

   February 19, 2011 2:12 pm Leave a Comment

   Statements made in a press release, if based on attorney work product information, may waive work product as to the subject matter of the statements.  In E.I. DuPont de Nemours and Company v. Kolon Industries, Inc. (E.D. Va. July 30, 2010), click here, the court found that the plaintiff, E.I DuPont de Nemours and Company (“DuPont”) waived information that was otherwise non-discoverable work product because DuPont relied upon that information to support a statement in its press release.

   The case involves allegations by DuPont that the defendant Kolon Industries, Inc. (“Kolon”) misappropriated DuPont’s secret processes and technologies for manufacturing Kevlar. In addition to the civil litigation filed by DuPont, the F.B.I. had previously conducted a criminal investigation of a Kolon employee. During that criminal investigation, DuPont’s general counsel office had worked closely with government officials. In a previous opinion, the Court held that work product was not waived by Dupont’s sharing of documents with law enforcement agencies that were investigating the alleged misconduct.  E.I. DuPont de Nemours and Company v. Kolon Industries, Inc., (E.D. Va. Apr. 13, 2010).

   However, DuPont’s issuance of the press release was another story. The controversial statement read: “FBI investigation has revealed that, in August 2008, three Kolon managers flew to Richmond, the location of our global Kevlar technology and business headquarters, expressly for the purpose of obtaining confidential DuPont process technology.” DuPont was distributing the press release to DuPont’s customers, presumably in an attempt to gain a competitive advantage. Press releases are, of course, a common tactic used by companies to protect and bolster public opinion and brand name.

   Kolon sought discovery of work product information, contending that DuPont had waived its work product relating to the subject matter of the statement because the information relating to manager’s intent could have only be based on protected information. DuPont responded that the press release was based solely on publicly available information.

   The court found that the press release statement relied on more than just public information.  The court based its finding, in part, on its conclusion that the in-house counsel who drafted the statement had reviewed multiple sources of information relating to the meeting, and in drafting the statement in question, he could not possibly have “segregated the various categories of [publicly available and protected] information.” Therefore, the press release was not based solely on public information. Rather, the statement about Kolon’s purpose in attending the meeting was most likely based at least partly on privileged information that the in-house counsel had been exposed to throughout the course of his work with the government investigation.

   The court also addressed the scope of the waived subject matter.  Kolon sought production of “all communications in DuPont’s possession relating to the Government’s investigation of [Kolon’s employee] and Kolon.” The Court, however, more narrowly defined the scope of the waived subject matter to be those documents that “provide the factual basis for the statement in the press release that, in arranging for and attending . . . the meeting, Kolon had the purpose stated in the press release.”

   The Court also limited the waiver to fact work product and refused Kolon’s request for opinion work product to be produced, finding that opinion work product is only discoverable in extreme circumstances. And the court found that an issuance of a press release is a common, not an extraordinary, circumstance in business.

   This case serves as another warning to companies in litigation to carefully monitor the process of drafting press releases and what statements to include in them because press releases can lead to sanctions, waiver of work product and privileged information, and increase litigation costs.  At the same time, companies in litigation often feel compelled to try to shape the public’s perception of the litigation and the companies themselves.  This is particularly true in cases involving unfair business practices or competition when the survival of a company’s business model can be at stake.  But, in doing so, they need to carefully weigh the risks of what they are saying publicly.

5. A Misrepresentation Made During a Contract Performance May Not Constitute Fraud

   July 5, 2010 2:10 pm Leave a Comment

   In a newly released opinion, the Virginia Supreme Court reaffirmed the Virginia rule that a fraud claim cannot be based upon one contracting party’s false statements to another contracting party in absence of an independent common law duty. The opinion can be found here. This rule is designed to prevent ordinary breach of contract claims from turning into tort claims. The facts in the new case illustrate the principle neatly.

   In Dunn Construction Company, Inc. v. Cloney, Cloney contracted with Dunn Construction to build Cloney a house. Dunn Construction improperly constructed the front foundation wall, and after the wall failed inspection, Dunn Construction agreed to repair the cinderblock wall with steel reinforcing bars referred to as “rebar”. After a second inspection and further repairs, Dunn Construction presented Cloney a final invoice. Cloney disputed parts of the invoice and suggested putting the final payment in escrow, pending final inspection of the wall.

   After a “heated exchange,” Cloney gave Dunn a check for the invoice amount, and Dunn Construction gave Cloney a written statement “guaranteeing the wall’s stability for ten years and averring that the wall had been repaired by placing rebar in every cell of the cinderblocks and filling the wall to its top with concrete.”

   Cloney then hired a structural engineer “who determined that the wall had not been filled with reinforced concrete or adequately reinforced with rebar, as Dunn had represented to [County inspector] and Cloney.” Rather, “between one-third to one-half of the cells had no reinforcement” and the wall could not pass a building code inspection.

   Cloney filed a complaint against Dunn Construction for breach of contract, negligence and fraud. In addition to seeking compensatory damages, “Cloney sought $100,000 in punitive damages for the alleged fraud.” The jury returned a verdict for $25,000 in punitive damages.

   On appeal, Dunn Construction “contended that the circuit court impermissibly permitted Cloney to convert his breach of contract action into a tort action.”

   The Court agreed with Dunn Construction, even though it did “not condone [Dunn Constructon’s] misrepresentations”:

   “As a general rule, damages for breach of contracts are limited to the pecuniary loss sustained. However, a single act or occurrence can, in certain circumstances, support causes of action both for breach of contract and for breach of a duty arising in tort, thus permitting a plaintiff to recover both for the loss suffered as a result of the breach and traditional tort damages, including, where appropriate, punitive damages. To avoid turning every breach of contract into a tort, however, we have consistently adhered to the rule that, in order to recover in tort, the duty tortiously or negligently breached must be a common law duty, not one existing between the parties solely by virtue of the contract.

   Cloney contends that the present case can be distinguished . . . because the guarantee given by Dunn in exchange for Cloney making the final payment on the contract was used to procure a novation to the original contract and the false statement in the guarantee that the foundation wall had been properly repaired constituted a fraudulent inducement violative of a common law duty separate and apart from any duty arising under the contract. We disagree.

   Under the contract, Dunn had a duty to construct the foundation wall in a workmanlike manner according to standard practices. Clearly, the original wall was not constructed in accord with this duty, and Dunn was required to make repairs to bring the wall in compliance with the applicable building code under that same duty. Dunn’s false representation that he had made adequate repairs thus related to a duty that arose under the contract. The fact that the representation was made in order to obtain payment from Cloney does not take the fraud outside of the contract relationship, because the payment obtained was also due under the original terms of the contract.

   Nonetheless, . . . we cannot permit turning every breach of contract into an actionable claim for fraud simply because of misrepresentations of the contractor entwined with a breach of the contract.”

6. A Virginia Court Redefines a LLC’s Unanimous Consent Requirement to Permit the LLC to Sue One of Its Members

   July 3, 2010 2:10 pm Leave a Comment

   A circuit court in Virginia was faced with the question of whether a Limited Liability Company can sue one of its three Members when, under the LLC’s Operating Agreement, the decision to file a law suit required that all three Members agree, including the Member being sued. For obvious reasons, no Member would vote to be sued. The case is Infinite Design Electric Assoc. LLC, et al. v. Donald R. Hague, 2010 Va. Cir. LEXIS 27 (Fairfax Cir. Ct. 2010). The question presented the court with a classic legal dilemma by arguably pitting a just outcome against a technical legal interpretation that would deprive the aggrieved party of a remedy.

               The LLC member being sued in the Infinite Design case allegedly engaged in the unfair business practices of forming a competing company, courting the existing LLC’s clients using that LLC’s “client lists, estimate strategies, and proposal forms to out maneuver [the existing LLC] and steal its clients.”

               In reaching its decision, the court could have framed the legal question in a number of different ways, but chose to ask: “Should a manager of an LLC be able to hold the entity hostage when it is the bad acts of that manager that the LLC seeks to redress?” The problem for the court in answering that question is that it found “no Virginia statutory or case law directly on point with this situation . . . .” Thus, the court looked to “analogous authority from Virginia and other states.”

                But the court looked to more than just analogous statutes, relying instead on other states’ statutes that have no parallel in the Virginia Code; finding that “Pennsylvania does not allow interested managers to vote to sue if that manager has ‘an interest in the outcome of the suit that is adverse to the interest of the company.’  15 Pa.C.S. § 8992(2) (2009). New York’s LLC act precludes managers of LLCs from transacting with the LLC when that manager has a ‘substantial financial interest’ in the transaction.  NY CLS LLC § 411 (2010).” The decisions of the Pennsylvania and New York legislative bodies, however, may have no bearing on how Virginia’s General Assembly might address that issue in the future.

               The court also relied upon a 1937 Virginia Supreme Court case that “suggests that the vote of a director of a corporation who has a personal interest in a matter is not to be counted in relation to that matter,” citing Crump v. Bronson, 168 Va. 527, 537, 191 S.E. 663 (1937). The court’s use of the word “suggests” is apt because the Court in Crump faced the question of whether an interested director could be used to constitute a quorum under the old Code requirement that every corporation have at least three directors. Now, however, there are many single member LLCs where the member is necessarily an interested director for any vote pertaining to the member’s compensation and rights.

   The third leg supporting the Court’s decision was the LLC’s incorporation of Virginia Code § 13.1-1024.1 that “requires managers to carry out their duties with ‘good faith business judgment [that is in] the best interest of the [LLC].’”  The incorporation of this section, according to the court, was a clear reflection of the LLC’s “intention to hold managers’ actions to a certain standard.  A manager would never vote to authorize a suit against himself, but bringing suit is the only course of action an LLC ca[n] take in the case of manager misconduct.”

               For those reasons, the court held that the LLC “did not need unanimous approval of the managers to bring suit when the suit was intended to be brought against one of its managers. Such a reading of the Operating Agreement would amount to a situation of ‘suicide by operating agreement’, and would paralyze the LLC from remedying any suspected malfeasance by one of its managers.”

               The court, however, did not address several countervailing Virginia Code sections and legal principles. First, Virginia Code § 13.1-1002 defines an “Operating agreement” as “an agreement of the members as to the affairs of a limited liability company and the conduct of its business . . . .” Second, § 13.1-1001.1.C. provides that the Virginia Code sections governing LLCs “shall be construed in furtherance of the policies of giving maximum effect to the principle of freedom of contract and of enforcing operating agreements.” (Emphasis added.) Third, § 13.1021.A.1. states that “A limited liability company is bound by its operating agreement whether or not the limited liability company executes the operating agreement. An operating agreement may contain any provisions regarding the affairs of a limited liability company and the conduct of its business to the extent that such provisions are not inconsistent with the laws of the Commonwealth or the articles of organization.”

               In addition, a significant body of Virginia case law arguably dictates a different result. In a decision also coming out of Fairfax County Circuit Court, Coker v. State Farm Fire & Cas. Co., 45 Va. Cir. 510 (Fairfax Cir. Ct. 1998), the court explained that it was “precluded from rewriting a contract between two parties, quoting a series of Virginia Supreme Court cases that state: “It is not the province of this Court to rewrite contractual language. Rather, it is incumbent upon courts to construe the language drafted by the parties.”; “It is the function of the court to construe the contract made by the parties, not to make a contract for them.”; “Courts will not rewrite contracts; parties to a contract will be held to the terms upon which they agreed.”; “A court is not at liberty to rewrite a contract simply because the contract may appear to reach an unfair result.” (Citations omitted.)

               Finally, there are economic consequences to the LLC and the member being sued. Both the LLC and the member hired their respective attorneys. The member being sued, however, has to pay his pro rata share for both the LLC’s lawyer and his own lawyer, even if the member prevails at trial.

               The Infinite Design court’s decision to rewrite the operating agreement, if followed, presents future courts with the question of which circumstances justify rewriting operating agreements or other corporate documents. Although courts will invariably try to limit those circumstances, those attempts will be more difficult if courts frame the question like the Infinite Design court and ask: “Should a manager of an LLC be able to hold the entity hostage when it is the bad acts of that manager that the LLC seeks to redress?” For instance, the member being sued might vote against the LLC entering into profitable contracts to starve the LLC, thereby making it impossible for the LLC to pay for its attorneys. Would the court then waive the unanimous consent requirement and contractually bind the LLC against one member’s interests?

               It will be interesting to track whether the Infinite Design decision gets appealed to the Virginia Supreme Court, or whether other Virginia Circuit Courts follow or extend it.

7. Beware of the Web ‘Bots

   July 2, 2010 2:08 pm Leave a Comment

   Cvent, Inc. filed an intellectual property law suit against EventBrite, alleging multiple unfair business practices claims, including: (1) violation of Virginia’s business conspiracy statute; (2) copyright infringement and violating the Lanham Act governing trademarks; (3) violation of the U.S. Computer Fraud and Abuse Act and the Virginia Computer Crimes Act; and (4) violation of Virginia’s common law claims of business conspiracy, unjust enrichment and breach of contract. Click here for the complaint and here for the motion for a temporary restraining order and preliminary injunction.

   The facts described below are derived from the allegations in Cvent’s initial pleadings. Cvent and EventBright are competitor websites that help event coordinators plan events in numerous cities. Cvent invested substantial resources in developing its website and the information contained therein to develop a competitive advantage. Cvent’s website “includes detailed information about [meeting venues around the world], such as the availability and capacity of meeting rooms, venue amenities and services . . . .”

   According to Cvent’s allegations, EventBrite and several “John Doe” defendants conspired to use “robot” programs that “allow automatic, systematic download and copying of websites.” Those robot programs retrieved and copied data from “4,890 pages of Cvent’s site.” EventBrite then used many of those pages on its website in violation of copyright and trademark laws to the financial detriment of Cvent.

   Cvent’s breach of contract claim is based on the Terms of Use set forth on its website. The court will be faced with myriad questions about the enforcement of those terms and how, if at all, those terms shape Cvent’s tort based claims. For instance, the Virginia Supreme Court has established that a breach of contract alone cannot be the basis of a statutory business conspiracy claim. More here is alleged, but the court will need to sort through the claims. It is also interesting to note that Cvent did not claim a violation of Virginia’s trade secrets act, but quotes its Terms of Use that preclude someone from disclosing to anyone Cvent’s trade secrets. Of course, information displayed on a website is likely not secret.

   Cvent’s allegations, regardless of whether they are true, is a good reminder of how easy it can be for businesses to steal from their competitors over the internet. Companies need to ensure that they protect themselves from this behavior from both a technological and legal standpoint. Having a robust Terms of Use is a minimal requirement. Companies should discuss their particular concerns with counsel familiar with these issues.

8. Government Contractor Hit with $10 Million in Punitive Damages for Discriminatory Contract Termination

   July 1, 2010 2:08 pm Leave a Comment

   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:

   “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.

9. Virginia Petitions the U.S. Supreme Court to Reinstate Anti-Spam Law

   June 30, 2010 2:08 pm Leave a Comment

   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.

10. Court Dismisses Tortious Interference with Contract Claim Because It Only Alleged a Decrease in Business

    June 29, 2010 2:07 pm Leave a Comment

    In Signature Flight Support Corporation v. Landown Aviation Limited Partnership, the U.S. District Court dismissed the plaintiff’s tortious interference with contract because the plaintiff failed to allege an “intentional interference of contract inducing or causing a breach or termination of the relationship or expectancy.” 2008 U.S. District Lexis 93715 at *6-7 (E.D. Va. 2008) (emphasis added).

    Rather, the plaintiff “only alleged that Defendant has induced or caused a decrease in the business that it expected to gain as a result of the contract.” Id. at 7 (emphasis added). Thus, the Court found that “[b]y bringing a claim for ‘intentional interference with contract’ and failing to allege a breach or termination of that relationship, Plaintiff has failed to state a claim for tortious interference with contract.” Id. The court relied about the Virginia Supreme Court’s opinion in Chaves v. Johnson, 230 Va. 112 (1985)

    To state a claim for tortious interference with contract, a plaintiff must allege: “(1) the existence of a valid contractual relationship; (2) the interferor’s knowledge of the relationship; (3) intentional interference inducing or causing a breach or termination of the relationship; and (4) resulting damage to the plaintiff’s relationship. Id. at 5.

    It will be interesting to track this decision to determine whether Virginia state courts will follow this interpretation of Chaves and the claim for intentional interference with contract.