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    Author Archives: James B. Kinsel

    1. Subtle Pleading Difference Allows Claim for Intentional Interference with Business Expectancy to Go Forward

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      Judge James C. Cacheris’ most recent opinion in Signature Flight Support Corporation v. Landown Aviation Limited Partnership, 2009 U.S. Dist. LEXIS 1938 (E.D. Va. Jan. 13, 2009), is a good illustration of how subtle shifts in the way a case is plead can be the difference in whether a company can recover in an unfair business practices case. And, it serves as a valuable primer for claims for intentional interference with a business expectancy. A copy of the opinion can be found here.

      As we discussed in our prior post, found here, in an earlier opinion in Signature Flight, the court dismissed the plaintiff’s tortious interference with contract claim because the plaintiff did not allege an “intentional interference of contract inducing or causing a breach or termination of the relationship or expectancy.” Signature Flight, 2008 U.S. District Lexis 93715 at *6-7 (emphasis added).

      The plaintiff then amended its complaint to add a claim for intentional interference with a business expectancy as opposed to interference with a contract. To assert a claim for an intentional interference with a business expectancy, a “plaintiff must allege: (1) the existence of a business relationship or expectancy, with a probability of future economic benefit to a plaintiff; (2) defendant’s knowledge of the relationship or expectancy; (3) a reasonable certainty that absent defendant’s intentional misconduct, plaintiff would have continued the relationship or realized the expectancy; and (4) damage to plaintiff.” 2009 U.S. Dist. LEXIS 1938, *5. “In addition, when alleging a mere business expectancy, the plaintiff must show that the defendant’s actions were improper.” Id. (citations and internal quotations omitted).

      The meaning of “improper” methods proves to be expansive and malleable in order to accommodate wide-ranging bad acts that are not easily defined or itemized. “Methods that have been recognized as ‘improper’ include (1) ‘means that are illegal or independently tortious,’ (2) ‘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,’ (3) means that ‘violate an established standard of a trade or profession,’ (4) ‘[s]harp dealing, overreaching, unfair competition,’ or ‘other competitive conduct below the behavior of fair men similarly situated.’ Duggin v. Adams, 360 S.E.2d at 836-37 (internal quotations and citations omitted) (collecting cases).” Id. at *6.

      The defendant tried to attack the claim in a number of ways. First, it argued that the plaintiff “only allege[d] a possibility that Plaintiff would realize its expectancy, not a probability.” Id. at *9. The court rejected that argument because a “valid expectancy is still merely an expectancy. It need not be absolutely guaranteed.” Id.

      Next, the defendants argued that the “alleged actions do not qualify as improper because Plaintiff fails to allege every element of the separate torts of unfair competition or fraud.” Id. at *11. The court found, however, that “a plaintiff need not allege a separate and complete tort to state a claim for tortious interference,” citing the Restatement (Second) of Torts Sec. 767 cmt. c (1979) (“One may be subject to liability for intentional interference even when his fraudulent representation is not of such a character as to subject him to liability for other torts.”). Id.

      The court also found that the specific alleged improper conduct was sufficient to state a claim. The plaintiff alleged that the “Defendant made false, deceptive, and misleading statement to others with the intent to divert Plainitff’s repeat business to itself.” Id. at *12. “The Court finds that these types of statements constitute improper conduct because, as alleged, they fall under the rubric of ‘misrepresentations or deceit,’ ‘sharp dealing, overreaching,’ or ‘other competitive conduct below the behavior of fair men similarly situated.'” Id. (citing Duggin, 360 S.E.2d at 836-37).

    2. Court Sanctions Defendant Corporation for Issuing a Misleading Press Release

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      In litigating corporate crisis cases, a public relations strategy is often as an essential component as the litigation itself. That is because the company’s reputation may be so adversely affected during the litigation that the survival of the company or its products is at-risk, regardless of the litigation outcome. In these moments of crisis, a company often wants to present its story to the public to preserve confidence in the company.

      But what limits, if any, restrict a company’s public relations strategy? And, who enforces those limits? In American Science and Engineering, Inc. v. Autoclear, LLC, (E.D. Va. Dec. 16, 2008), the court found that it had the inherent power to sanction a company for its public statements in a press release. The opinion was written by U.S. District Court Judge Raymond A. Jackson and can be found here.

      In Autoclear, the defendants issued a November 16, 2008 press release stating that “a Federal District Court has rejected American Science and Engineering, Inc.’s motions for summary relief in their action with Control Screening, LLC, and AutoClear, LLC, its affiliate. Opinion at 9. The District Court also denied AS&E’s motion for injunctive and other relief. . . . [T]he Federal Court did not sustain AS&E’s objections to proceeding to full fact finding and a jury trial.” Id. Further, “‘the U.S. Patent and Trademark Office (USPTO) has formally rejected all claims of AS&E’s core . . . patent’ and those patent claims are now invalid.” Id.

      The court found that the press release “improperly suggests that the Court has denied Plaintiff’s motion for summary judgment or otherwise ruled on the merits of the case. Op. at 10. Plaintiff has not even filed a motion for summary judgment, and the Court has not yet ruled on the merits of the case . . . .” Id. “The Court also finds that that the statements regarding the USPTO’s actions are false.” Id.

      “Accordingly, the Court finds that Defendants’ press release contains false, misleading, and damaging statements, and that Defendants have acted improperly.” Id.

      Plaintiff alleged that “as a publicly traded company, it was damaged by misleading information available on popular financial internet publications, and that some of their investors did read the press release and called the company with concerns. Furthermore, Plaintiff argued that such nationally available information has the potential to influence any potential jury pool in this case.” Id.

      In response, the defendants “explained that the press release was meant to convey that the Court vacated the entry of default, and that any misleading statements were unintentional and the result of Defendants’ oversight.” Op. at 11. Defendants’ attorney admitted to editing an earlier version of the press release. Id. The court deemed the attorneys “capable of understanding the difference between default judgment and summary judgment . . . ,” and found it “difficult to believe that the issuance of this press release was accidental.” Id. at 12.

      The court rooted its ability to sanction the defendant in the defendant’s right to an impartial jury.

      The Supreme Court has held that civil litigants have a constitutional right to an impartial jury. Courts may disallow prejudicial extrajudicial statements by litigants that risk tainting or biasing the jury pool. Additionally, false and misleading statements are not protected by the First Amendment. Accordingly, the Court has authority to enjoin false statements, particularly those that could potentially taint the impartiality of a jury. Additionally, the Court has inherent authority to impose sanctions,including attorneys’ fees, under its inherent authority.

      Op. at 12 (internal citations and quotations omitted).

      The court’s sanctions included:

      (1) Within 24 hours of this Order, Defendants shall cause the removal of the November 16th press release from Business Wire and any other website which Defendants know are displaying the November 16th press release;

      (2) Defendants shall issue a corrected press release, in the form of Plaintiff’s Exhibit D to its Memorandum in Support of its Motion for Sanctions, and shall disseminate it in the same manner that the November 16th press release was disseminated;

      (3) To the extent that Defendants are or become aware of instances of dissemination by any third party of the November 16th press release or any article or publication based on the press release, Defendants will take the necessary steps to provide the corrected release to the publisher within 24 hours of notice;

      (4) Within 5 days of this Order, Defendants shall file a statement with the Court stating what steps it has taken to comply with this Order; and

      (5) Within 14 days of this Order, Defendants shall pay to AS&E the sum of $10,000 as partial reimbursement for the attorneys’ fees incurred by AS&E as a result of the issuance of the November 16th press release.

      Finally, the Court orders Defendants to reimburse Plaintiff for all attorneys’ fees and costs associated with bringing the second Motion for Sanctions, including any such fees and costs not covered by the $10,000 requested by Plaintiff.

      Op. at 13-14.

      The court’s sanctions should give every litigant pause before publishing any announcement about a pending litigation matter to ensure that it is entirely accurate. And, it is difficult to predict the reach of this opinion. For example, are all public statements by a litigant or its attorney potentially sanctionable? Does the answer depend on how many people did or can see or hear the statement? Or, does it depend on the type of media format in which the statement was published? What would happen if a private statement becomes publicized on the internet?

      We are probably safe in predicting that future courts will examine these issues now that Autoclear has provided them with a roadmap on how to deal with misleading press releases. We can also expect that the defendants in Autoclear will appeal the sanctions award to the 4th Circuit Court of Appeals.

    3. Starwood Hotels & Resorts Worldwide, Inc. Sues Hilton Hotels Corporation

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      For an excellent example of the high-stakes nature of unfair business practices cases, Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”) sued Hilton Hotels Corporation (“Hilton”) and several former Starwood employees on April 16, 2009. The allegations, if proven, are remarkable.

      Starwood claims that Hilton recruited the President and Senior Vice President of Starwood’s Luxury Brands Group to join Hilton. The executives were allegedly involved in developing Starwood’s luxury hotel brands: the St. Regis, W Hotels and The Luxury Collection. The allegations are a worst-case-scenario for a company because the executives were alleged to have both misused Starwood’s confidential information and recruited a group of senior-level Starwood employees to work for Hilton.

      Specifically, Starwood alleges that its former executive requested “large volumes of confidential information from Starwood employees, which he took home, had loaded on a personal laptop computer and/or forwarded to a personal e-mail account, and which he then took to and used at and for Hilton.” The Complaint outlines specific Starwood files that were taken to Hilton, including: Starwood’s Forward-Looking Strategic Development Plans, Starwood’s Property Improvement Plan, and confidential computer files containing the names and addresses of Luxury Brands Group owners, developers and designers compiled by Starwood. In total, Starwood alleges that its former executives took over 100,000 of its files to Hilton.

      The complaint also alleges that after Starwood asked Hilton to preserve information relating to one of the employees who switched companies Hilton delivered to Starwood ‘eight large boxes of computer hard drives, zip drives, thumb drives and paper records containing massive quantities of highly confidential and proprietary Starwood files . . . , including over 100,000 files downloaded from Starwood’s computers systems and files.

      To read the entire complaint (without exhibits), click here.

      Hilton’s response to the Complaint is also remarkable because Hilton takes corrective action almost immediately. A week after Starwood filed the case, Hilton agreed to a “Preliminary Injunction and Order Entered on Consent of All Defendants.” The Order recites Hilton’s steps to attempt to cure any damages suffered by Hilton. First, on April 21, “Hilton placed [the executives] and their entire luxury and lifestyle team . . . on paid administrative leave of absence, and suspended all further development of the [competing] brand.” Second, Hilton agreed to be enjoined from “knowingly using directly or indirectly in any way the Starwood Information, including without information contained therein or derived therefrom.” Third, “all other persons who are in active concert or participation with them who receive actual notice of this order by personal service or otherwise, are hereby preliminary enjoined and shall cease all further development of the [competing] brand . . . .” The Order contains additional agreed upon actions, and it can be found by clicking here.

      In addition, the parties agreed to stay the litigation pending further order of the court. It is a good bet that Starwood and Hilton are working to settle this dispute.

    4. Court Grants-in-part and Denies-in-part Injunction Request Based on Licensing Agreement

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      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.

    5. The Rough-and-Tumble Business World

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      Laws are designed to control, but not displace, the competitive marketplace. Correspondingly, most loss economic opportunities do not provide the losing party with a legal remedy. Take, for example, the Virginia Supreme Court’s ruling in Williams v. Dominion Technology Partners, L.L.C. http://www.courts.state.va.us/opinions/opnscvtx/1020392.txt. Williams involved a three-tiered employee placement arrangement whereby Donald Williams was placed at Stihl, Inc. by his employer, Dominion Technology Partners, L.L.C., which paid Williams $80/hour and billed his services at $115/hour to a third company, ACSYS Information Technology, Inc. ACSYS, in turn, contracted directly with Stihl for Williams’ services at a rate of $165/hour. While performing the contract, Williams discovered that his employer, Dominion, was making a profit of $35 per hour from his services. He then approached ACSYS about leaving Dominion and working directly for them on the Stihl contract for a pay raise, thereby eliminating Dominion’s middle-man role. After Williams gave Dominion a 30-day notice, ACSYS hired him as its employee and kept him on the Stihl contract for a $35/hour raise.

      Dominion sued Williams alleging a breach of fiduciary duty, interference with business relationships, and statutory business conspiracy. Interestingly, Dominion did not name ACSYS as defendant even though it alleged ACSYS was Williams co-conspirator. The case went to trial, and the jury returned a verdict against Williams on all three counts. The judge trebled the damages and awarded attorneys’ fees under the Virginia business conspiracy statute, Virginia Code § 18.2-500 http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+18.2-500.

      The Virginia Supreme Court reversed on all three counts. The court stated that the “dispositive question to be resolved on all three counts of liability is whether [Williams’] conduct . . . was sufficient to constitute a breach of Williams’ fiduciary duty of loyalty to [his employer].” The court found that “Williams had the right to make the necessary arrangements to resign from his employment . . . in such a way as to take advantage of a higher level of compensation . . . so long as these arrangements were not disloyal or unfair to [his employer].”

      Williams was not disloyal to his employer, according to the court, because he resigned in a manner to permit his employer to comply with its contractual obligations. In addition, the court stressed that Dominion, as the employer, could have readily protected itself if it had required Williams to sign a noncompete agreement preventing him from remaining at Stihl through another employer. As the court put it: “courts must be mindful that the fact that particular conduct of an employee caused harm to his employer does not establish that the conduct breached any duty to the employer. This is so because the law will not provide relief to every ‘disgruntled employer in the rough-and-tumble world comprising the competitive marketplace,’ especially where, through more prudent business practices, the harm complained of could easily have been avoided.”

      As in Peace v. Conway, 246 Va. 278, 435 S.E.2d 133 (1993) (unavailable via internet), discussed in our first blog entry, courts do not want to become backseat business managers and provide protections that could—and should—have been secured by the complaining party by contract before it sustained a loss. In areas where subcontracting is integral to the business landscape, such as the Washington D.C. metropolitan region, companies need to be especially vigilant to contractually protect their business opportunities.

    6. Competitor Raids Company’s Computer Data: Passwords Are Not Trade Secrets

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      Your company operates a website that provides data to paid subscribers that access your website through individual passwords. Your database is so successful that one of your former clients, which is also in a similar business, offers to buy it. But you decline. Around the same time you fire your marketing director. But you think your company is protected from being injured by that employee because he is subject to a non-compete and non-disclosure agreement.

      Readers of this blog, by now, know where this story is going.

      You then discover that your former client–now competitor–hired your former marketing director to compete against your company, despite his non-compete agreement. Then one of your long-time clients informs you that it is switching to your competitor’s services.

      Suspicious, you begin to investigate and discover that for the last four years, your database had been accessed 735 times from an IP address traced to your competitor’s home city. And your competitor seems to have accessed your database by using the passwords assigned to your long-time client that switched to your competitor.

      What do you do?

      In State Analysis, Inc. d/b/a Statescape v. American Financial Services, Assoc., et al., found here, the plaintiff, Statescape, brought suit in the U.S. District Court for the Eastern District of Virginia, asserting claims arising out of facts like those described above. Statecape filed suit against: 1) its former client — who set-up a competing business (the “Competitor”); 2) its former client that allegedly provided its password to the competitor (“Former Client”); and 3) its former employee.

      The defendants moved to dismiss many of StateScape’s claims. Several of the court’s findings are noteworthy because they involve unfair business practices claims.

      Computer Fraud and Abuse Act (“CFAA”)

      “18 U.S.C. Sec. 1030 (a) (2) prohibits ‘intentially access[ing] a computer without authorization or exceed[ing] authorized access, and thereby obtain[ing] . . . information from any protected computer . . .”

      “Exceeds authorized access” is explicitly defined as ‘to access a computer with authorization and to use such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter.'”

      Having recited the provisions, the court discussed the split between courts, some of which have limited the applicability of the CFAA to “computer hackers” who access computers without authorization. Those courts “reject[] attempts to apply the CFAA to cases where the defendants are not alleged to have ‘broken into’ the system but to have abused the privileges of a license.” “Other courts have held that the CFAA does apply to authorized users who use programs in an unauthorized way, including employees who obtain and use proprietary information in violation of a duty of loyalty, and licensees who breach an agreement restricting their use of the software.” (Internal citations omitted).

      The court then found that the plaintiff stated a claim against its competitor for accessing “StateScape’s website using usernames and passwords that did not belong to it. StateScape has pled that under the terms of their contract, only clients were authorized to use StateScape’s subscription services, and that [the Competitor] was not so authorized. [The Competitor] therefore acted ‘without authorization.'”

      But the court found that StateScape did not state a claim against its Former Client because the Former Company “never went beyond the areas that StateScape authorized [it] to access.” And the court did not have to resolve the case split because StateScape only reserved the right to terminate the Former Client’s contract instead of having the contract automatically terminate if the Former Client breached the contract. Thus, the Former Client was never without authorization.

      We have recently written about the applicability of the Computer Fraud and Abuse Act to departing employees who access their employer’s computer data after they intend to join a competitor, which can be found here.

      Electronic Communications Privacy Act (“ECPA”)

      The ECPA forbids “intentionally access[] without authorization a facility through which an electronic communication service is provided, or intentionally exceed[] an authorization to access that facility; and thereby obtain[], alter[], or prevent[] authorized access to a wire or electronic communication while it is in electronic storage.”

      The court found that “StateScape has stated a claim against [the Competitor] by alleging that [the Competitor], without any authorization from StateScape, accessed the password-protected areas of StateScape’s site.”

      StateScape’s claim against its Former Client, however, was dismissed under one of the ECPA’s exceptions because the Former Client was “contractually entitled to see all of the information it is alleged to have accessed.”

      Virginia Computer Crimes Act

      The court’s opinion is also noteworthy because it held that StateScape’s Virginia Computer Crimes Act claim was preempted by the federal Copyright Act. The claim was preempted since “software is within the subject matter of copyright” and, based on the alleged facts, the claims were not “‘qualitatively’ different from the Copyright Act claims.”

      Trespass

      StateScape’s claim for trespass to chattels is “based on the allegation that [the Former Client] accessed password-protected areas of StateScape’s website without authorization. A trespass to chattels occurs ‘when one party intentionally uses or intermeddles with personal property in rightful possession of another without authorization’ and ‘if the chattel is impaired as to its condition, quality, or value.'” (Internal citations omitted.)

      The Former Client argued that no “impairment” was alleged. But the court found the impairment criterion was satisfied: “given that StateScape charges fees for its passwords, the value of StateScape’s possessory interest in its computer network is diminished if unauthorized users access its password-protected areas.”

      Misappropriation of Trade Secrets

      StateScape alleged that the Former Client’s “sharing of its passwords for StateScape’s database with [the Competitor]” violated the Virginia Uniform Trade Secrets Act (“VUTSA”). The defendants attacked the VUTSA claim, arguing that “passwords lack ‘independent economic value,’ but are instead a security mechanism designed to control access to information, and therefore are not trade secrets.”

      The court first reviewed the definition of a “trade secret” under the VUTSA: “‘Trade secret’ means information, including but not limited to, a formula, pattern, compilation, program, device, method, technique or process, that: 1. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and 2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

      “Although the passwords at issue clearly have economic value given that they are integral to accessing StateScape’s database, they have no independent economic value in the way a formula or a customer list might have. Where a plaintiff has not alleged that its passwords are the product of any special formula or algorithm that it developed, the passwords are not trade secrets.”

      Blog Conclusion

      This case is another spin on the types of unfair business practices that can arise in today’s electronic world. Many companies make their money by providing password-protected data on their websites. Protecting that data through security features and, if needed, litigation is critical. But, on a positive note, this case again demonstrates that unfair business practices can often be unmasked by tracing electronic footprints.

    7. Virginia Supreme Court Overturns Virginia’s Anti-Spamming Law

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      In a rare move, the Supreme Court of Virginia withdrew its prior opinion in Jaynes v. Commonwealth, issued on February 29, 2008, and effectively reversed itself in a new opinion issued on September 12, 2008. The new opinion can be found here. In its new opinion, the Court found that Virginia’s anti-spamming law, Virginia Code section 18.2-152.3:1, was unconstitutional.

      The Court’s original 4-3 majority opinion, discussed in our prior blog entry, affirmed the criminal conviction of Jeremy Jaynes, who sent over 50,000 unsolicited email to AOL subscribers. Jaynes was found guilty in a jury trial and sentenced to nine years of imprisonment for violating Virginia Code section 18.2-152.3:1. See our prior blog post: http://unfairbusinesspractices.blogspot.com/2008/03/spammer-to-slammer-unfair-business-of.html.

      The withdrawn opinion can be found at this link: here (link does not work)Virginia Supreme Court Overturns Virginia’s Anti-Spamming Law.

      The Court issued its new opinion after granting a petition for rehearing pursuant to Rule 5:39 of the Rules of Supreme Court of Virginia. That Rule provides that: “No petition for rehearing shall be allowed unless one of the justices who decided the case adversely to the applicant is of opinion that there is good cause for such rehearing.”

      The Court’s new opinion declared that section 18.2-152.3:1 was unconstitutionally overbroad because it violated the U.S. Constitution’s First Amendment protections. Section 18.2-152.3:1 provides that “Any person who: 1. Uses a computer or computer network with the intent to falsify or forge electronic mail transmission information or other routing information in any manner in connection with the transmission of unsolicited bulk electronic mail through or into the computer network of an electronic mail service provider or its subscribers . . . is guilty . . . .”

      The Court first explained the constitutional test: a successful First Amendment overbreath challenge “suffices to invalidate all enforcement of that law upon showing that the law punishes a substantial amount of protected free speech, judged in relation to the statute’s plainly legitimate sweep.” Op. at 10 (internal quotes omitted).

      The Court expressed its concern that the statute chilled the protected right of anonymous speech:

      [B]ecause e-mail transmission protocol requires entry of an IP address and domain name for the sender, the only way such a speaker can publish an anonymous e-mail is to enter a false IP address or domain name. Therefore, . . . registered IP addresses and domain names discoverable through searchable data bases and registration documents necessarily result in a surrender of the speaker’s anonymity. The right to engage in anonymous speech, particularly anonymous political or religious speech, is an aspect of the freedom of speech protected by the First Amendment. By prohibiting false routing information in the dissemination of e-mails, Code [sec.] 18.2-152.3:1 infringes on that protected right.

      Id. at 22 (internal quotations omitted). The Court also found that the statute was not narrowly drawn to further a compelling state interest. Id. at 23.

      The Justices seemed to suggest that the Virginia legislature could redraft the statute to avoid constitutional infirmity: Sec. 18.2-152.3:1 “is not limited to instances of commercial or fraudulent transmission of e-mail, nor is it restricted to transmission of illegal or otherwise unprotected speech such as pornography or defamation speech. Therefore, . . . 18.2-152.3:1 is not narrowly tailored to protect the compelling interests advanced by the Commonwealth.” Id. at 24.

      Further, the statute “would prohibit all bulk e-mail containing anonymous political, religious, or other expressive speech. For example, were the Federalist Papers just being published today via e-mail, that transmission by Publius would violate the statute.” Id. at 26.

      The Court’s concern about suppressing free speech tracked those expressed by the dissenting Justices to the Court’s original opinion. In her dissenting opinion, Justice Elizabeth Lacy wrote that the “current use of the Internet as the marketplace for expressing political ideas, views and positions emphasizes the need for insuring that use of this medium not be chilled by the threat of criminal prosecution. Those persons wishing to use this medium should have the same ability to express their views anonymously as did Thomas Paine during the founding of our country.” Jaynes v. Commonwealth, 275 Va. 341, 367-68 (2008).

      The new opinion also addressed the Commonwealth of Virginia’s argument that 18.2-152.3:1 was in the “form of trespass and thus not entitled to First Amendment protection,” noting that section “does not prohibit the unauthorized use of privately owned e-mail servers.” Op. at 19. In this context, the Court drew a distinction between civil cases between private parties where “the courts have held that the unauthorized use of the Internet service providers’ property constituted common law trespass and that a First Amendment claim could not be raised against the owner of private property.” Id. at 20. Thus, this decision is not an open invitation to spammers or other types of businesses to engage in unfair business practices by wrongfully using another company’s servers or other computer equipment.

    8. Three Bad Acts Do Not a Conspiracy Make

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      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 here.

      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.

    9. Spammer to the Slammer – Unfair Business of Spamming Results in Jail Sentence

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      This post was based on the Virginia Supreme Court’s opinion rendered February 29, 2008. That opinion was subsequently withdrawn and a new opinion was issued on September 12, 2008. The post below was edited to remove the link to the old opinion because that link was changed. Otherwise, the post is unchanged. Click here for our post discussing the subsequently issued Jaynes opinion: http://unfairbusinesspractices.blogspot.com/2008/10/virginia-supreme-court-overturns.html.

      The conviction of a spammer was upheld by the Virginia Supreme Court in an opinion published on February 29, 2008. The case is styled Jaynes v. Commonwealth. This case is an example of unfair business practices that are so nefarious as to invite criminal prosecution.

      Criminal liability was based on Virginia Code Ann. Sec. 18.2-152.3:1 which provides:

      A. Any person who: 1. Uses a computer or computer network with the intent to
      falsify or forge electronic mail transmission information or other routing
      information in any manner in connection with the transmission of unsolicited
      bulk electronic mail through or into the computer network of an electronic mail
      service provider or its subscribers . . . is guilty of a Class 1 misdemeanor.

      B. A person is guilty of a Class 6 felony if he commits a violation of subsection A
      and: 1. The volume of UBE transmitted exceeded 10,000 attempted recipients in
      any 24-hour period, 100,000 attempted recipients in any 30-day time period, or
      one million attempted recipients in any one-year time period. . .

      An interesting aspect of the case was the Court holding that Virginia has jurisdiction to criminally prosecute the spammer who was located in North Carolina, but sent the spam emails through AOL servers located in Virginia. The Court held, in part, that jurisdiction was proper because ‘[b]y selecting AOL subscribers as his e-mail recipients, Jaynes knew and intended that his e-mails would utilize AOL servers because he clearly intended to send to users whose e-mails ended in ‘@aol.com.’ The evidence established that the AOL servers are located in Virginia, and that the location of AOL’s servers was information easily accessible to the general public.

      The Court rejected the spammer’s claim that he had standing to assert a First Amendment defense to argue that the statute was unconstitutionally overbroad on behalf of an “unknown individual’s potentially protected speech.” Opinion at 12. Similarly, it rejected the spammer’s argument that the statute was void for vagueness. The Opinion invited three dissenting Justices, who disagreed with the Court’s standing analysis.

      The court did not address how this unfair business practice might be treated for any civil claims that may be filed.

      The scope of the spammer’s activity and the number of emails in his possession were extraordinary, and it is worth reading extended excerpts from the Court’s factual summary.

      “From his home in Raleigh, North Carolina, Jaynes used several computers, routers and servers to send over 10,000 e-mails within a 24-hour period to subscribers of America Online, Inc. (AOL) on each of three separate occasions. On July 16, 2003, Jaynes sent 12,197 pieces of unsolicited e-mail with falsified routing and transmission information onto AOL’s proprietary network. On July 19, 2003, he sent 24,172, and on July 26, 2003, he sent 19,104. None of the recipients of the e-mails had requested any communication from Jaynes. He intentionally falsified the header information and sender domain names before transmitting the e-mails to the recipients, causing the Internet Protocol (IP) addresses to convey false information to every recipient about Jaynes’ identity as the sender. However, investigators used a sophisticated database search to identify Jaynes as the sender of the e-mails.”

      “During trial, evidence demonstrated that Jaynes knew that all of the more than 50,000 recipients of his unsolicited e-mails were subscribers to AOL, in part, because the e-mail addresses of all recipients ended in ‘ @aol.com ‘ and came from discs stolen from AOL. Jaynes’ e-mails advertised one of three products: (1) a FedEx refund claims product, (2) a ‘Penny Stock Picker,’ and (3) a ‘History Eraser’ product. To purchase one of these products, potential buyers would click on a hyperlink within the e-mail, which redirected them outside the e-mail, where they could consummate the purchase. Jaynes operated his enterprise through several companies which were not registered to do business in North Carolina, and evidence was introduced as to billing and payment activities for these companies, including evidence that registration fees were paid to AOL with credit cards held by fictitious account holders.”

      “While executing a search of Jaynes’ home, police discovered a cache of compact discs (CDs) containing over 176 million full e-mail addresses and 1.3 billion e-mail user names. The search also led to the confiscation of a storage disc which contained AOL e-mail address information and other personal and private account information for millions of AOL subscribers. Police also discovered multiple storage discs which contained 107 million AOL e-mail addresses. Richard Rubenstein, manager of technical security investigations at AOL, testified that the discs recovered at Jaynes’ home “contained proprietary information” of ‘pretty near all’ AOL account customers. The AOL user information had been stolen from AOL by a former employee and was in Jaynes’ possession.”

      “AOL, which houses all of its e-mail servers in Virginia, was directly affected by Jaynes’ spam e-mail attack. Brian Sullivan, the senior technical director for mail operations at AOL, testified that bulk e-mail ‘tends to create a lot of confusion’ for AOL customers and that AOL receives ‘7 to 10 million complaints per day’ regarding spam e-mails. Sullivan also described the impact of spam e-mails, explaining that ‘[i]f someone’s mailbox is full because they got a truckload of spam and there’s no more room, a message coming from Grandma is returned back to the sender. We can’t take it at that point.'”

      “Jaynes’ enterprises were apparently quite successful. Although not introduced as evidence during the guilt stage of the trial, counsel for the Commonwealth informed the Court following the jury verdict against Jaynes and during the discussion of bond for Jaynes that Jaynes’ ‘[p]ersonal financing statement list[s] assets at $17 million and a net worth of $24 million,’ and his income from all of his businesses exceeded $1 million in 2001, 2002 and 2003.”

    10. Virginia Business Conspiracy Claim Dismissed Because Alleged Injury was to Individual’s Employment Interests and Not to Business Interests

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      The U.S. District Court for the Eastern District of Virginia dismissed a Virginia statutory business conspiracy claim, holding that the plaintiff’s alleged harm of losing his job is a “personal right as opposed to a business interest.” And, damages to a person’s “employment relation” are not actionable under Virginia Code sections 18.2-499 and 500.

      In Mansfield v. Anesthesia Associates, Ltd., 2008 WL 1924029 (E.D.Va. 2008), published on April 28, 2008, the Court addressed a business conspiracy claim filed by Patrick Mansfield, M.D, who was a Board Certified anesthesiologist and an employee and shareholder of Anesthesia Associates, Ltd. Mansfield worked for Anesthesia Associates in Inova Alexandria Hospital (“Inova Hospital”). See http://www.williamsmullen.com/files/upload/ubp_blog060308.pdf .

      On June 17, 2005, Mansfield was informed that an Inova Hospital employee had accused Mansfield of sexually harassment. On July 5, Mansfield met with the Chairman of Anesthesia Associates who handed Mansfield a letter from Inova Hospital that “claimed that [Mansfield] had been accused of sexual harassment by an employee of Inova, the charges had been investigated, and Inova had concluded that Plaintiff posed a threat to the safety and security of Inova staff.” On the basis of this allegation, Anesthesia Associates eventually terminated Mansfield.

      Subsequently, Mansfield filed his lawsuit against Anesthesia Associates and Inova Hospital in Virginia state court. The defendants removed the case to federal court. Mansfield alleged that “Defendants did purposely and maliciously interfere with the Plaintiff’s Contract of Employment with Anesthesia Associates, Ltd and that the Plaintiff’s loss of contract was the anticipated outcome, if not the expressed purpose of removing him from both the defendant Association and Inova Alexandria Hospital.”

      In examining Mansfield business conspiracy claim, the Court first repeated the standards for recovery: section “18.2-499 makes it a Class 1 misdemeanor to conspire to ‘willfully and maliciously injur[e] another in his reputation, trade, business or profession by any means whatever.’ To recover in an action for conspiracy to harm a business, a plaintiff must prove: (1) a combination of two or more persons for the purpose of willfully and maliciously injuring the plaintiff in his business; and (2) resulting damage to the plaintiff.” Citations omitted.

      The Court then analyzed whether the statutes could provide any relief to Mansfield:

      Federal courts in Virginia have consistently held that the statutes are designed to provide relief against ‘conspiracies resulting in business-related damages’ and that a cause of action exists ‘only when malicious conduct is directed at one’s business, not one’s person.’ Courts have characterized the ’employment relation’ as ‘a personal right as opposed to a business interest’ and have consequently placed employment interests outside the reach of [sections 18.2-499 and -500]. Similarly, an individual’s ‘professional reputation and stock ownership in his own company’ have been found to be employment interests that fall outside the scope of the statutes. [Citations omittted.]

      The court also noted that the “Supreme Court of Virginia has also reached the conclusion that ‘personal reputation’ and ‘interest in employment’ are excluded from the scope of the statutes’ coverage.” Andrews v. Ring, 585 S.E.2d 780, 784 (Va. 2003).

      The court rejected Mansfield argument that “his claim is not that he ‘lost his job’ but that ‘he has lost the ability to pursue his profession,’ and that injury to one’s ‘profession’ is a recoverable injury under the statutes.”

      The Court also held that even if the statutes recognized the claimed injury, Mansfield conspiracy claim was deficient because his allegations were conclusory. Specifically, Mansfield failed to allege any agreement between Inova Hospital and Anesthesia Associates to injure him.

      This case is a good illustration of the limits of the Virginia business conspiracy statutes because they are not designed to remedy every injury. Further, Courts are increasingly examining the factual allegations to ensure that an actual conspiracy has been plead.