Supreme Court Decision Highlights Need for Robust Employee Communications Policies

June 21, 2010

The Supreme Court reached a 9-0 decision last week in City of Ontario v. Quon, finding that the defendant had not violated the Fourth Amendment when it searched the pager messages of its employee, because (1) the search was motivated by a legitimate work-related purpose, and (2) because it was not excessive in scope.

Although Quon involved a government-employer, which raises distinct Constitutional issues that are not present when a private-employer is involved, the Court’s opinion suggests that this standard may also be applicable outside of the government-employer context. In addressing some of the concerns voiced by Justice Scalia, Justice Kennedy, for the majority, stated that the standard used in Quon – that the “employer had a legitimate reason for the search, and that the search was not excessively intrusive in light of that justification” — indicated to the Court that the search “would be regarded as reasonable and normal in the private-employer context.”

Although this case will be an important precedent for private employers, because the Court declined to set forth broad rules governing the scope of the Fourth Amendment in the digital age, much of this area of law will remained unsettled. Still, there are important hints in the opinion for how private employers can best protect themselves.

The Court’s limited decision may have been influenced by the Electronic Frontier Foundation, who filed an amicus opinion in the case arguing that “[t]his Court accordingly should proceed with caution, and take care to limit its decision here to the specific factual situation before it. The Court’s ruling otherwise could have unjustified and unintended, but extremely significant, implications for the continued protection under the Fourth Amendment of Americans’ most private communications, which increasingly are conducted using these new technologies.” The Court acknowledged in its holding that a broad opinion was not warranted at this time:

[T]he Court would have difficulty predicting how employees’ privacy expectations will be shaped by those changes or the degree to which society will be prepared to recognize those expectations as reasonable. Cell phone and text message communications are so pervasive that some persons may consider them to be essential means or necessary instruments for self-expression, even self identification. That might strengthen the case for an expectation of privacy. On the other hand, the ubiquity of those devices has made them generally affordable, so one could counter that employees who need cell phones or similar devices for personal matters can purchase and pay for their own. And employer policies concerning communications will of course shape the reasonable expectations of their employees, especially to the extent that such policies are clearly communicated.

A broad holding concerning employees’ privacy expectations vis-à-vis employer-provided technological equipment might have implications for future cases that cannot be predicted. It is preferable to dispose of this case on narrower grounds.

Thus, while the Quon decision is a narrow one, there is a key lesson for employers here: an employer’s communications policy is of the utmost importance when it comes to determining whether or not an employee possesses a reasonable expectation of privacy. In Quon’s case,

Before acquiring the pagers, the City announced a Computer Usage, Internet and E-Mail Policy” (Computer Policy) that applied to all employees. Among other provisions, it specified that the City “reserves the right to monitor and log all network activity including e-mail and Internet use, with or without notice. Users should have no expectation of privacy or confidentiality when using these resources.” In March 2000, Quon signed a statement acknowledging that he had read and understood the Computer Policy.

Although the Computer Policy did not cover text messages by its explicit terms, the City made clear to employees, including Quon, that the City would treat text messages the same way as it treated e-mails. At an April 18, 2002, staff meeting at which Quon was present, Lieutenant Steven Duke, the OPD officer responsible for the City’s contract with Arch Wireless, told officers that messages sent on the pagers “are considered e-mail messages. This means that [text] messages would fall under the City’s policy as public information and [would be] eligible for auditing.”

The language of the employee communications policy in Quon was robust enough to prevail before the Supreme Court, although the employer’s case could have been even stronger had it taken care to enumerate all the communications methods that the policy covered. In light of Quon, here are the steps private employers should take in order to best protect their right to monitor work-place computer equipment:

(1) Have a robust employee communications policy in place, which disclaims any possible reasonable expectation of privacy in the communications conducted over employer-owned equipment;

(2)
Make sure that all relevant communications mechanisms are covered by the policy, and, as communication methods evolve and change, regularly update your employees on how the communications policy applies in light of those changes;

(3) Have employees sign a release that affirmatively acknowledges that they have read and understood the employer’s communications policy; and,

(4) Employers should actually abide by and follow the policy they have in place. If the policy is there for legal reasons, but not actually followed in the course of daily business operations, the protections afforded by the policy will be severely weakened.


When It Comes to Million Dollar Verdicts and Settlements In Virginia, Bodily Injury Is King

March 5, 2010

Virginia Lawyers Weekly has released its 2009 compilations for Virginia’s multimillion settlements and verdicts. Out of the 57 total, the lion’s share of the awards went to claims resulting from bodily injury or death. The breakdown between the sources of the awards was:

Million dollar settlements — 36.
Million dollar verdicts — 21.

Verdicts handed down by judges were not tallied.

Of the top 36 settlements in Virginia in 2009, a full 26 involved personal injury claims, and another 6 were for medical malpractice. Of the remaining 5 settlements, 2 were for products liability, eminent domain picked up another 2 (although both were in the top five by total), and the last was for a single contract claim. (And if you’re concerned about that math, note that there were 37 contenders, as two tied for the 36th place.) This means that, as far as settlements in 2009 go, a grand total of 34 of the the 37 biggest settlements were for claims arising from bodily injury or death.

Things were slightly more varied on the verdict side. Of the 21 $1 million+ jury verdicts, only 4 were for personal injury, although 7 were still for medical malpractice. However, the reported awards for 5 of those 7 med-mal verdicts are rather misleading. Under Virginia Code § 8.01-581.15, medical malpractice awards are subject to a cap — and the actual verdicts were reduced to a max of $1.85 million. With the cap, only a single medical malpractice case even makes it to the top 10.

Environmental damage, false advertising, assault, defamation, and premises liability also made appearances on to the top verdicts list. The false advertising claim resulted in the largest verdict, for $13.5 million, and involved a dispute over baby food — as it turns out, brand-name baby foods are not nutritionally superior than the store-brand variety, and Mead Johnson & Company could have saved itself some pocket money if it hadn’t claimed they were.


The Difference Between .Org and .Com

March 3, 2010

Both .com and .org are generic top-level domains (gTLDs). Although both gTLDs are administered in a similar fashion, there may be an important legal distinction between them, at least in respect to whether a domain registered under them can be used to satisfy a judgment. For a creditor seeking to enforce a claim against a debtor, “debtor.com” may be attachable, but “debtor.org” is still off limits.

Why? Because .com is administered by VeriSign, which operates out of Mountain View, California, while .org is administered by Public Interest Registry (PIR), located in Reston, Virginia. And Virginia and California courts have differed in whether or not a domain name can be treated as “property.”

The Ninth Court handed down a decision last week in Office Depot v. Zuccarini, holding that domain names are intangible personal property, subject to execution by the court with jurisdiction over the applicable gTLD registrar. Because the registrar for both .com and both .net is located in Mountain View, California, the Northern District of California has type two quasi in rem jurisdiction over all .com and .net domain names. This means that if a judgment debtor happens to own a valuable .com domain name, such as “debtor.com”, then a creditor can attach the domain name as intangible property located in N.D. Cal., and have a receiver appointed to sell it off.

In Virginia, however, the story is different. Under Network Solutions, Inc. v. Umbro Int’l, Inc., 259 Va. 759, 770 (Va. 2000), domain names are “contract rights” rather than “property rights,” and therefore not subject to attachment. Because .org’s registrar operates out of Virginia, this means that if the same debtor happens to own both “debtor.com” and “debtor.org”, the creditor may be able to satisfy the judgment with the debtor.com address – but will not be able to do the same for debtor.org, which ‘lives’ in Reston.


It Is Not Contributory Negligence As A Matter Of Law To Merely Bite Into Food Served Hot By A Restaurant

March 2, 2010

For recent developments in the ever-important jurisprudence of hot chicken sandwiches, last month the Fourth Circuit reversed the U.S. District Court in Alexandria for granting summary judgment to McDonald’s and a McDonald’s franchisee for claims involving negligently prepared fast food:

In the Virginia case, Sutton, 62, of Brooksville, Fla., who assembles and repairs carnival rides, testified that he was with family and friends when he stopped at a McDonald’s at the Daniel Boone Truck Stop in Duffield, Va., at about 1:30 a.m. He said he had to flag down employees who were loitering outside to prepare his order.

When he bit into the sandwich, “grease flew all over his mouth,” according to friend Bill Giffon.

Sutton testified that his lips were blistered and bleeding the next morning. His wife testified that the burns made it difficult, if not impossible, for her to kiss her husband. Several months after the incident, a doctor treated Sutton with lip balm.

For these injuries, the plaintiff is seeking $2 million for lost wages, medical bills, and pain and suffering.

As an initial matter, the Fourth Circuit reversed the district court’s grant of dismissal to McDonald’s Corporation. In McDonalds’ motion to dismiss, it argued that the corporation had no agency relationship with the franchisee restaurant where the incident with the allegedly negligent chicken occurred, and that therefore only the franchisee was a proper defendant in the matter. McDonald’s motion was supported only by an affidavit from its general counsel — and with no franchise agreement attached to the motion. For this oversight and for the judge’s over-eagerness in dismissing the law suit, McDonald’s will pay by continuing to remain party to the suit. The Fourth Circuit found that summary judgment was improper as the plaintiff had not been able to obtain all the discovery he was entitled to seek and had tried to acquire, namely the franchise agreement between McDonald’s and the Franchisee.

Secondly, the Fourth Circuit reversed the district court’s finding that, as a matter of law, Sutton had failed to present any evidence of a standard of care. Sutton argued on appeal that the sub-dermal pocket of grease was in itself sufficient evidence, or, alternatively, that the evidence he presented had in fact established an applicable standard of care.

After noting that Sutton was not, as a matter of law, contributorily negligent merely for biting into a hot sandwich, the court denied his argument that the grease itself provided a prima facie case.

Although “[u]nder Virginia law, a plaintiff need not present evidence of a standard of care in an unwholesome foods case.” However, in order to show that the case he is presenting is in fact an unwholesome foods case, the plaintiff must show “that the food product contained foreign matter.” The court denied Sutton’s argument on this ground, cautioning that “a sub-dermal pocket of hot grease” is not foreign to a chicken sandwich. According to the Fourth Circuit,

Though [Plaintiff] is right that hot grease is a foreign substance to chicken generally, hot grease is necessary and expected (even desired) for fried chicken.

The court ultimately sided with Sutton, however, in finding that the plaintiff had presented sufficient evidence of a standard of care in the form of a reasonable consumer expectation. The standard of care was shown through two separate lines of evidence.

First, immediately following the accident, a McDonald’s employee had informed Sutton that “[t]his is what happens to the sandwiches when they aren’t drained completely.” The court found this constituted evidence of “actual industry practice.” Second, the court found that Sutton’s companions’ reactions to his injury, and their obvious alarm at the prospect of a chicken sandwich exploding with hot grease, was evidence of “what reasonable purchasers considered defective.”

The consumers did not expect Sutton’s fried chicken sandwich to contain a hot pocket of grease, and the [Franchisee's] employee’s statement serves as strong corroboration for the reasonableness of this expectation. These facts reveal “what society demand[s] or expect[s] from” a fast-food, fried chicken sandwich. Under Virginia law, this constitutes evidence of a standard of care.


Trial Court To Issue “Limited” Injunction Against Gripe Site

January 12, 2010

We reported earlier on litigation between a New Jersey law firm, Levinson Axelrod, and a disgruntled former associate, Edward Heyburn, who had created a gripe site specifically targeting the firm.  Originally Heyburn hosted his site at www.levinsonaxelrod.net, while the firm’s actual website is located at www.levinsonaxelrod.com.  Now the gripe site is located at www.levinsonaxelrodreallysucks.com, with traffic to the former site being redirected to the new site.  The law firm filed claims under the Lanham Act and alleged unfair competition, among other claims, and Heyburn filed a motion to dismiss.  The law firm also sought an injunction against Heyburn to take down the site.

On Monday, the district court judge stated from the bench that she would be issuing a “limited” injunction against Heyburn, with the details of that injunction to issue in the next couple of days.  Heyburn speculated that the injunction would be limited to his use of www.levinsonaxelrod.net, since that site might be confused with the law firm’s official site, but otherwise did not think the court would shut his gripe site down entirely, according to this article in the New Jersey Law Journal.

Given the difficulties that employers have had in seeking legal relief against gripe sites, the court’s order in this case will be of particular interest, and may provide companies with some options against former disgruntled employees.


The Rise Of “Twitigation?”

January 7, 2010

The blog for the Virginia Lawyers Weekly compiled a recent spate of lawsuits resulting from posts on the popular Twitter website.  Many of these lawsuits predictably concern allegations of libel, although employers need to consider how employee and manager/executive tweets can create problems in the workplace, affecting discrimination/harassment claims, the dissemination of proprietary information and trade secrets, and other problems.  The rise of online social media, as we have discussed previously here, may provide a fertile ground for lawsuits in 2010 and beyond, and employers should be quick to adopt policies to address these issues before issues arise.


New Circuit Court Opinion: Virginia Preliminary Injunctions Now Subject To Winter Test

January 4, 2010

The order in Strong Foundation Youth Initiative, LLC v. Robert Ashford, Jr., is very brief, a mere three pages, with barely any facts concerning the case itself.  What makes the decision by Judge Margaret P. Spencer out of the Circuit Court for the City of Richmond worth reporting about is the fact that the judge considers whether to maintain a previously ordered preliminary injunction under the standard set forth by the U.S. Supreme Court in Winter v. Natural Resources Defense Council, Inc., 129 S. Ct. 365 (2008), and subsequently adopted by the U.S. Court of Appeals for the Fourth Circuit in The Real Truth About Obama, Inc. v. FEC.  As we speculated before, it was not clear whether Virginia courts would abandon the more permissive Blackwelder test for preliminary injunctions in favor of the Winter test, although such a development was likely.  This decision may be the first written one by a Virginia state circuit court explicitly adopting the Winter test.


New Opinion: Gripe Site Immune From Suit

December 30, 2009

As we have discussed on this blog before, businesses are still grappling with how to deal with online “gripe sites” that allow consumers to vent frustrations about products and services, often anonymously.  The Communications Decency Act has been a primary impediment to legal recourse against such sites by affording immunity to interactive service providers for information created and developed by third parties.  And such sites have generally refused requests to release any information about their anonymous contributors. 

In Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., the aggrieved business tried to get around the CDA’s immunity for ISPs by simply accusing the ISP — Consumeraffairs.com in this case — of “soliciting the complaint, steering the complaint into a specific category designed to attract attention by consumer class action lawyers, contacting the consumer to ask questions about the complaint and to help her draft or revise her complaint, and promising the consumer that she could obtain some financial recovery by joining a class action lawsuit.”  In doing all of these things, Nemet Chevrolet hoped to portray the ISP as the actual content provider, and thus not be entitled to immunity.  Nemet Chevrolet also alleged that the ISP fabricated certain complaints on the basis that Nemet could not identify the customers making the complaint based on the information available on the site, thus again pulling the ISP out of the realm of immunity by accusing it of directly providing the offending content.

The district court decided that Nemet’s allegations were not enough to show a cause of action against the gripe site, and granted Consumeraffairs.com’s motion to dismiss.  Yesterday, the U.S. Court of Appeals for the Fourth Circuit affirmed that decision, holding that such conclusory allegations, without more facts regarding what content the gripe site provided, failed to rise to a cause of action that could survive a motion to dismiss under Ashcroft v. Iqbal.  Judge G. Steven Agee, for himself and Judge Robert B. King, also held that the allegations supporting the “fabricated” posts were also mere speculation, and dismissed those claims as well.  Judge James P. Jones dissented on the “fabricated” posts, arguing that Nemet did make out a cognizable claim against the ISP, saying, “It cannot be the rule that the existence of any other plausible explanation that points away from liability bars the claim.  Otherwise, there would be few cases that could make it past the pleading stage.”

The Nemet case is another indication that, given the state of the CDA and the heightened pleading standards mandated under Twombly and Iqbal, businesses are fighting a losing battle trying to litigate against gripe sites.  We offered some alternative ideas here.


VLW’s Most Important Opinions Of 2009

December 28, 2009

Virginia Lawyers Weekly features its list of the most important Virginia opinions of the past year.  The opinions are helpfully broken down by topic, so that business lawyers do not have to sift through divorce cases to find nuggets of law pertaining to employment, contracts, and commercial law.


U.S. Supreme Court To Determine Privacy Of Employee Text Messages

December 15, 2009

We have been discussing (perhaps ad nauseum) the recent court trends regarding whether employee emails sent from employer computers were entitled to privacy protection.  Well, now the big dog, the U.S. Supreme Court, has decided to wade into the fray.  Yesterday, the Court agreed to hear City of Ontario v. Quon, where California police officers challenged their city’s ability to read texts those officers sent on their city-issued pagers that were intended for work use only.  This case is in the context of the Fourth Amendment, however, in that the texts turned out to be fodder for criminal actions against the officers, and the officers are now seeking to use the exclusionary rule to keep those texts out. 

This is somewhat different from the attorney-client privilege the previous cases addressed, since courts are much happier to enforce that privilege than they are to let criminals off the hook on a technicality.  Some think that the Court may rethink the general expectation of privacy that employees have argued for in the past.  There is some interesting analysis on why the Court may have chosen to take the case over at the Volokh Conspiracy.


Another Court Blocks Employer — This Time The Government — From Access To Private Emails Sent While At Work

December 14, 2009

As we have discussed previously, courts appear to be more willing to prevent an employer from accessing an employee’s private emails to the employee’s attorney even when the employee is sending the email on the employer’s computer, and during work hours.  The U.S. District Court for the District of Columbia has recently followed suit, only this time the employer is the U.S. Government, and a third party is trying to get the emails.  A new article in the National Law Journal describes the effort of a former federal prosecutor, who maintains he was fired for being a whistleblower, to obtain emails sent by a current federal prosecutor, Jonathan Tukel, to Tukel’s attorney while at work.  The former prosecutor argued that there was no reasonable expectation of privacy in the emails since they were sent through a government computer during work hours.  One would also presume that the U.S. government, as touchy about security as it is, would have a tight leash on the private use of government computers.  However, Chief Judge Royce Lamberth denied access to the emails.  “The DOJ maintains a policy that does not ban personal use of the company email. Although the DOJ does have access to personal emails sent through this account, Mr. Tukel was unaware that they would be regularly accessing and saving emails sent from his account. Because his expectations were reasonable, Mr. Tukel’s private emails will remain protected by the attorney-client privilege,” the judge ruled.

The opinion does leave open the possibility that an employer (or third party) could gain access to attorney-client emails if the employer’s policy is absolutely rigid in saying that under no circumstances may the employee use the employer’s computer(s) for personal communications.  But given the realities of the workplace these days, it would seem that such a policy would be difficult to enforce.


Will The U.S. Supreme Court Uphold The Public Company Accounting Oversight Board?

December 8, 2009

A big part of the Sarbanes-Oxley Act was its creation of the Public Company Accounting Oversight Board that would help regulate accounting companies in the wake of Enron and WorldCom.  The Board is part of the Executive Branch, subject to oversight from the Securities and Exchanges Commission.  The SEC appoints the five-member Board (while the President appoints the SEC), and Board members are subject to removal only “for cause,” and not for policy positions.  But all Executive branch entities must be subject to the President’s power, so the question becomes whether the Board’s subjugation to the SEC is enough to make it constitutionally beholden to presidential authority.  Yesterday, the U.S. Supreme Court heard argument in Free Enterprise Fund v. Public Company Accounting Oversight Board, in which the petitioners argued that the Board was unconstitutional because the President lacked sufficient power and authority over the Board. 

Interestingly, Court-watchers seemed to be of two minds on how argument went.  Tony Mauro of the National Law Journal thought the Court would likely uphold the Board, while Lyle Denniston of SCOTUSBlog saw some significant concessions made by defenders of the Board, such as the fact that the President could not directly remove any Board member, but would have to ask the SEC, pretty-please, to do it.  Justice Antonin Scalia then said that he himself could do as much, thus implying that the President had no more authority than a Justice over the Board. 

Whether the Board survives constitutional challenge will lie in whether the Court views the question as between how much influence the SEC has over the Board, or how much influence the President has over the Board.  Those Justices that see the SEC as a suitable proxy for the President will likely uphold the Board, while those Justices that demand direct presidential oversight will likely vote to strike it down.  From Denniston’s view of oral argument, it seems as though the Court eventually started asking questions from the latter view, and that bodes well for the petitioner.


New Opinion: Texas Law Allowing Attorney’s Fees Applies Even When Court Finds That Texas Law Otherwise Does Not Apply

November 30, 2009

Some state laws include provisions allowing a prevailing party to also recover attorney’s fees.  For example, § 70.301 of the Texas Property Code allows a “person who stores, fuels, repairs, or performs maintenance work on an aircraft has a lien on the aircraft” for the sums contracted for.  Then, § 70.306 allows a prevailing party under § 70.301 to recover attorney’s fees incurred.  But what if a court finds that Texas law doesn’t apply?  In Westwind Acquisition Co. LLC, et al. v. Universal Weather and Aviation, Inc., the U.S. District Court for the Eastern District of Virginia held that § 70.301 did not apply, but § 70.306 did, in an interesting bit of reasoning that should put claimants on notice.

Universal issued credit cards to a company that performed aircraft maintenance and management on two planes owned by Westwind.  The maintenance company went bankrupt, leaving Universal with a lot of unpaid credit card bills.  Universal sought to put liens on the planes through § 70.301, on the theory that some of the fueling and maintenance occurred in Texas.  Westwind filed a declaratory judgment action in EDVA seeking to release the liens.  Judge T. S. Ellis, III held that § 70.301 did not apply because the vast majority of the refueling and maintenance occurred outside of Texas, and because Universal did not actually perform the fuelling and maintenance — it only provided the credit to pay for these things. 

But then Westwind asked for its attorney’s fees under § 70.306.  “At first glance, it seems rather audacious to request fees under a statute whose applicability plaintiffs have just successfully attacked,” Judge Ellis noted.  However, the Court noted that § 70.306 grants attorney’s fees to a prevailing party “in a suit brought under this subchapter,” which includes § 70.301, regardless of where the suit is brought.  And since Universal tried to assert § 70.301 and lost, that meant Westwind was a prevailing party and thus entitled to attorney’s fees under § 70.306.

The upshot of this is to remind litigants that any time you try to invoke rights under a chapter of state law, any attorney’s fees provision in that chapter will likely still apply even if the original state law is found to be inapplicable.  Attorney’s fees provisions can be two-edged swords in that regard.


New 4th Circuit Opinion: Arbitrator’s Interpretation Of Contract Upheld Unless It Completely Ignores Plain Language

November 20, 2009

A new opinion by the U.S. Court of Appeals for the Fourth Circuit reaffirms that when parties go to arbitration, the arbitrator’s decision in a contract dispute, good or bad, will not be touched by the courts unless it goes against the very text of the contract itself.  In PPG Industries, Inc. v. Int’l Chemical Workers Union Council of the United Food and Commercial Workers, et al., the issue was whether workers who were on strike qualified as “Actively Employed” for eligibility to receive a bonus under the company’s bonus plan.  The bonus plan contained an arbitration clause, so the parties took their dispute there.  The bonus plan did not specifically address whether striking workers were “Actively Employed.”  The arbitrator ultimately decided, based on statements made by the company, that the striking workers were Actively Employed, and thus entitled to their bonuses.  The company believed that the arbitrator effectively added provisions to the bonus plan that did not exist, and petitioned the federal courts to overturn.  The district court did so, and the workers appealed.

The Fourth Circuit, in an opinion by Judge Diana Gribbon Motz on behalf of a unanimous panel, reversed.  Noting that an arbitrator’s decision must be upheld unless it “ignore[s] the plain language of the contract,” Judge Motz held that the arbitrator here did not ignore the contract at all, and in fact went to great lengths to seek evidence for how the bonus plan’s terms should be construed.  Thus, “as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed a serious error does not suffice to overturn his decision.”  As much as the company (and at least one federal trial court judge) believed the arbitrator got it wrong, the Fourth Circuit has made clear that as long as the arbitrator is at least trying to construe the contract at issue, even a bad decision will be upheld.

This is something of a warning to those who rely on arbitration provisions in their contracts – bad results are notoriously hard to overturn.


New Opinion: Anticipatory Breach Defense Fails When There Is Any Performance

November 12, 2009

The “anticipatory breach” defense is fairly simple: when one party to a contract informs the other that they will not perform on the contract, the other party can sue for breach even though the actual breach has not yet occurred.  So if, say, you have a contract with Sony in which Sony will deliver to you a television by January 1, 2010, but Sony then tells you today that it will not give you a television at any time, you can immediately sue Sony — you do not have to wait until January 2, 2010, assuming you have not breached the contract yourself.  And once Sony has anticipatorily breached the contract, you are no longer obligated to perform under the contract.

In Tandberg, Inc. v. Advanced Media Design, Inc., Tandberg had shipped roughly $3 million in videoconferencing equipment to AMD through June of 2009, which AMD had failed to pay for.  On May 8, 2009, Tandberg told AMD that it was terminating the contract between them, effective June 30.  On May 20, Tandberg refused to ship certain equipment that AMD had ordered.  When Tandberg sued, AMD claimed that Tandberg’s refusal to send the equipment was an anticipatory breach of the contract, thus exonerating AMD from having to pay some or all of its outstanding debt to Tandberg.

Judge T. S. Ellis, III easily dispatched AMD’s defense, and granted summary judgment to Tandberg.  In order to benefit from the anticipatory breach defense, the defendant must prove that the “plaintiff . . . unconditionally refused to perform the contract in all circumstances.”  (Emphasis in original.)  Any continued performance on the contract precludes the defense.  Although Tandburg refused to ship certain orders around May 20, it still shipped some other orders through June, and thus had not unconditionally refused to perform. 

AMD also tried to argue that Tandberg had waived its right to the sums owed on the basis that when Tandberg terminated the agreement on May 8, it did not reference AMD’s failure to pay as the reason for termination.  That, too, fell far short of the standard for waiver, which requires “clear, precise and unequivocal evidence” of an “intent to relinquish that right.”

The key lesson from this case is for companies to note that the “anticipatory breach” defense is not a broad one, and must be total and unambiguous before anybody is off the hook.  Companies should be cautious in relying on this defense and foregoing their remaining contractual obligations.


Justices Appear To Favor Using The Headquarters As A Corporation’s “Principal Place Of Business”

November 11, 2009

In oral arguments for Hertz, Inc. v. Friend, a majority of justices on the U.S. Supreme Court appeared to favor using a company’s headquarters as its “principal place of business” for the purposes of determining where a company resides, and rejecting the 9th Circuit’s approach that considered where the company does the most business, according to this article by the National Law Journal.  Justice Ginsburg noted that under the 9th Circuit’s test, “California is going to be the big winner in this. It’s going to be able to keep all those cases in its state court because so many multistate corporations, I would imagine, would come out, just the way Hertz does[, and do more business in California than in any other state].”  In other words, simply by being a big state with a lot of people it means that corporations will tend to do more business in California, and thus be stuck in California’s plaintiff-friendly state courts when sued there under the 9th Circuit’s test.  That seemed to not sit well with the justices.  In a follow-up question by Chief Justice Roberts, he asked counsel for the trial court plaintiffs where Seattle-based Starbucks’ principal place of business would be under the 9th Circuit’s test.  The answer: California.  “That’s a surprise,” retorted Justice Scalia.


New Opinion: Employee Eligible For Workers’ Compensation After Being Struck By Car

November 10, 2009

July 19, 2006 was a bad day for Betsy Loveless.  As she was performing her job duties at a nursery garden shop, shutting off sprinklers that abutted Route 17 in Gloucester County, she heard the screeching of tires and looked up to see a vehicle “flying off” the highway in her direction.  She made a run for some trees to dodge the oncoming car, but had to also get around some slippery weed mats and potted plants that were in her way.  Poor Betsy was but a foot from a protective tree when the car hit her, causing injuries.  She thereupon made a claim for workers’ compensation, and the Commission ruled that since the injury “arose out of the course of her employment,” she was eligible.  The employer, who was probably wondering how a random out-of-control car accident could be considered part of her employment as a nursery employee, appealed to the Virginia Court of Appeals.

The Court, in Green Hand Nursery, Inc., et al. v. Loveless, affirmed the Commission’s determination.  Judge Robert P. Frank, on behalf of a unanimous panel, reaffirmed that Virginia courts use the “actual risk” test to determine whether an injury “arises out of” the employment.  That test holds that “if the injury can be seen to have followed as a natural incident of the work and to have been contemplated by a reasonable person familiar with the whole situation as a result of the exposure occasioned by the nature of the employment, then it arises ‘out of’ the employment.”  Surely it could not be argued that it was a natural incident of working at a nursery that cars would jump off the road to hit the employees, or that reasonable people would assume that would happen, right?

But as the Court explains, we’re looking at the wrong thing.  The car isn’t the focus of the inquiry — it’s the slippery weed mats and potted plants that are.  If not for those obstructions, which were all clearly work-related, our friend Betsy would have made it to the trees and perhaps escaped injury.  In other words, the fact that a nursery employee works around items that make it difficult for the employee to evade incoming harm shows that any injury thereafter suffered as a result of having to dodge those items is work-related, and thus subject to workers’ compensation.

Perhaps the most important caveat of this published opinion came in the first sentence of the second paragraph: “On appeal, we view the evidence in the light most favorable to the prevailing party before the commission.”  Given that edge, the Court was pretty well obligated to believe that Betsy would have been fine (although a little shaken) if she had a fraction of a second more to get behind a tree.  That may have made the biggest difference in the outcome of this case.


Litigation Not The Best Answer To “Gripe Sites”

November 9, 2009

The Internet has made it easier than ever for disgruntled consumers and employees to vent their opinions online, whether by creating their own website like www.[name of company]sucks.com or using a site like Ripoff Report.  Often these critics choose to remain anonymous.  Naturally, companies don’t tend to like this kind of attention, and frequently ask us what can be done about it. 

A new article in the New York Law Journal examines efforts by businesses to sue the posters and the website hosts to quell such speech, and concludes that litigation is rarely the best answer.  Even when a post might actually be legally defamatory, reaching out to the consumer/former employee or being more proactive in pushing the company’s message online may be better (and cheaper) solutions.  Given that the Communications Decency Act has rendered Internet service providers immune from liability, and courts have generally declined to force those providers to disclose the identities of users that post critical or defamatory material, it may be just the cost of doing business today that company deal with some amount of online criticism.

UPDATE: Just to show that law firms are not immune to this problem, the New Jersey Law Journal reports that Levinson Axelrod has sued its former associate, Edward Heyburn, for creating and maintaining a gripe site aimed specifically at the law firm.  Heyburn apparently did not take too well at being fired by the firm, and created the site to mock pretty much everything about his former employer, including the appearance of several partners.  The firm has alleged claims of cybersquatting and unfair competition, among others, but has interestingly not alleged defamation.  Heyburn has no intention of removing the gripe site, and reports a huge increase of traffic.  This case may prove the limitations of litigation, but we will continue to monitor the matter.


Wal-Mart Settles Largest Wage-And-Hour Class Action

November 4, 2009

The Nevada U.S. District Court approved a settlement resolving 39 class action cases brought on behalf of roughly three million employees against Wal-Mart for allegedly failing to compensate for off-the-clock work and overtime, denying them rest breaks, and falsifying time records.  It’s the largest wage-and-hour class action on record, according to an article in the National Law Journal. 

Wage-and-hour claims against employers are multiplying in number, and employers need to make sure that their employment and compensation policies are consistent with federal and state law, especially the Fair Labor Standards Act.  If you have questions about whether your company’s policies are compliant, please contact Jessica M. Kelty.


New Opinion: Uniform Trade Secrets Act Does Not Preempt Business Torts When Trade Secrets Are Disputed

November 3, 2009

Often when a company discovers that its trade secrets and confidential proprietary information has been stolen by a competitor, the resulting lawsuit typically includes several causes of action, from a count alleging violation of Virginia’s Uniform Trade Secrets Act (“VUTSA”), to tortious interference with business/contractual relations, to statutory conspiracy to harm another’s business.  Tucked into the VUTSA is oft-overlooked preemption provision, Va. Code § 59.1-341, that mandates that except for contractual and criminal claims, “this chapter displaces conflicting tort, restitutionary, and other law of this Commonwealth providing civil remedies for misappropriation of a trade secret.”  Litigants often wonder whether this provision forces them to choose between a VUTSA claim and the business tort claims when drafting their complaints.

The short answer is no, at least depending on how the defendant responds.  In E.I. DuPont de Nemours and Co. v. Kolon Industries, Inc., et al., DuPont sued Kolon under the VUTSA and had counts for the other business torts as well, alleging that Kolon hired a DuPont employee and then got that employee to divulge DuPont’s trade secrets and other confidential information, in violation of the employee’s contract with DuPont to safeguard those secrets.  Kolon argued that DuPont could not maintain the VUTSA claim and the other business tort claims at the same time, and moved to dismiss the business torts.  The U.S. District Court for the Eastern District of Virginia, Senior Judge Robert E. Payne presiding, denied Kolon’s motion to dismiss because Kolon was contesting whether the information divulged constituted a trade secret.  Thus, DuPont was able to maintain alternative claims — DuPont could not recover under the VUTSA and any business tort claim, but could maintain both kinds of claim so long as it was a question whether trade secrets were at issue.  Had Kolon admitted that the information at issue was a trade secret, Kolon may well have succeeded in forcing DuPont to give up its alternative remedies.  Of course, that would have meant that Kolon would have admitted one of the two prongs to show liability under the VUTSA, which may not have been a good idea strategically.  The court also noted that business torts that did not depend on the use or theft of trade secrets

Hat tip to the Unfair Business Practices Blog.


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