The U.S. Supreme Court overruled two precedents about the First
Amendment rights of corporations by a 5-to-4 decision handed down
yesterday in Citizens United v. FEC.
Under previous Supreme Court precedent, corporations were barred from
spending freely to support or oppose candidates. This decision has
changed the law for corporate fundraising and will dramatically
transform campaigning for president and Congress in the future.
Under the new decision, the government may not ban political
spending by corporations in candidate elections. The decision does not
specifically address unions; however, the lift of the ban of corporate
political spending will also apply to them. The majority also struck
down part of the Bipartisan Campaign Reform Act, also known as the 2002 McCain-Feingold campaign finance law, that banned corporations and unions for paying for political ads.
Not all restrictions for corporate political spending in candidate
elections were lifted. Some of the limits that remain are: corporations
cannot provide money directly to federal candidates or national party
committees and nonprofit groups that advocate for political candidates
must still comply with disclosure requirements.
The Richmond City Circuit Court appears to be one of the first
Virginia state courts to adopt the tougher preliminary injunction
standard set forth by the U.S. Supreme Court in Winter v. Natural Resources Defense Council, Inc. In the case of Strong Foundation Youth Initiative, LLC v. Robert Ashford, Jr., the Virginia Circuit Court considered its preliminary injunction ruling under the new Winters test concluding that the plaintiff in this matter satisfied all four prongs for an injunction –
likelihood of success on the merits;
likelihood that plaintiff will suffer irreparable harm in the absence of preliminary relief;
the balance of equities tips in plaintiffs’ favor; and
the injunction is in the public interest.
As we noted in a post last month on Virginia Business Law Update, the Fourth Circuit previously adopted the Winters test emphasizing that a preliminary injunction was an “extraordinary” remedy. In doing so, the Fourth Circuit overturned the Blackwelder standard which had been relied upon for over 30 years. Under Blackwelder,
a preliminary injunction could be entered if the plaintiff made a
strong showing of irreparable harm but had merely shown “serious
questions” in the case, as opposed to likelihood of success. Thus, it
provided some flexible interplay between the various factors considered
at an injunction hearing. Flexibility which Winters has eliminated.
In light of this recent Virginia decision, businesses and their
attorneys seeking preliminary injunctions in Virginia state courts
should be now prepared to show the Judge that they satisfy every factor
of the preliminary injunction test at the injunction hearing - rather
than accentuating the facts supporting certain prongs.
In light of the mobility of employees in today’s workforce, businesses
face the arduous task of protecting their confidential and proprietary
information. In Northern Virginia, through which technology companies
of all sizes adorn the Dulles Technology Corridor, the issue of
employee theft of trade secrets is one that routinely crosses an
attorney's desk. Fortunately for Virginia businesses, the Virginia Uniform Trade Secrets Act provides an avenue of recourse to avenge an employee’s theft of a company’s trade secrets.
What is a “trade secret” under Virginia Law?
Although most people associate the term “trade secret” with
technology or intellectual property, a trade secret can be as simple as
a company’s customer list, pricing data, or marketing strategy. (The
Trade Secrets Act provides that a trade secret can be a “formula,
pattern, compilation, program, device, method, technique, or process.”)
Under Virginia law, the determination as to whether a company’s
information constitutes a trade secret is not based on the type of
information at issue. The key is whether the information derives
independent economic value (actual or potential) from being unknown and
not readily available to someone who can obtain economic value from the
use or disclosure of the information. Additionally, the company must
take reasonable efforts to maintain the secrecy of the information.
A classic example of a trade secret is the formula for Coca-Cola. The
formula has economic value because it is unknown and not available
(i.e., if the formula were known, then anyone could make and sell
Coca-Cola). And, Coca-Cola takes reasonable steps to keep its prized
formula a secret. (According to urban legend, two executives know half
of the formula but no one in the company knows the entire formula.)
What does it take to succeed on a trade secrets claim in Virginia?
To succeed on a trade secrets claim in Virginia, a company must not
only prove in court that its information is, in fact, a trade secret,
the company must also show that its trade secret was misappropriated.
Generally, under the Trade Secrets Act, a misappropriation can occur
through the acquisition, disclosure or use of a trade secret.
What damages are available for misappropriation of a trade secret?
If misappropriation of a trade secret is proven, the company can get
an injunction to prevent its trade secret from being used or disclosed.
Additionally, the company can recover damages for the actual loss
caused by the misappropriation or for the unjust enrichment caused by
the misappropriation. If the company can prove that the
misappropriation was willful and malicious, it can also receive
punitive damages (up to twice the amount of damages for actual loss and
unjust enrichment).
It is important to note that misappropriation of trade secrets
cases are often brought not only against the former employee who took
the trade secrets but also against the company who hired the employee
and may have benefited from use of the trade secret. The addition of a company defendant typically ensures a deep pocket from which a judgment can be collected.
Stay tuned for Part 2 of the Virginia business litigation claims series, which will focus on breach of non-compete agreements.
Marc Ward posted an interesting article on his blog at the year's end involving a recent piercing the corporate veil decision in a U.S. District Court in Georgia. The issue did not involve liability, but the venue of the dispute. The Court decided in Rayonier Wood Products, LLC v. ScanWare, Inc.
that although the shareholder was not a signatory to the contract at
issue, it was still bound by the terms of the contract, including the
choice of law provision limiting venue to the Georgia court. As a
result, the Finnish company shareholder was forced to litigate the
dispute in Georgia. We recently discussed forum selection clauses on Virginia Business Law Update,
and noted the advantages to Virginia businesses of litigating in their
home state. This case is another example of the importance of such a
provision when dealing with foreign business partners.
As a Virginia attorney with a mix of business and litigation clients, I am often engaged by businesses to assess the viability of litigation claims. The first step in that assessment is ensuring that the client understands what it would have to establish in order to succeed in a court of law. Whether a business seeks to pursue litigation or has just received notice that it has been sued, it is important that it understand the nature of the claims. With that in mind, this blog will feature a post each week (over the next six weeks) on a different Virginia business litigation claim.
Part 1: Misappropriation of Trade Secrets (under the Virginia Trade Secrets Act)
Part 2: Breach of Covenant Not to Compete
Part 3: Breach of Fiduciary Duty
Part 4: Tortious Interference with a Contract
Part 5: Conspiracy to Injure a Business (under the Virginia conspiracy statute)
Part 6: Employer Liability for Employees’ Actions
Stay tuned! Part 1 of this blog’s Virginia Business Litigation Claims series will start next week!
The U.S. Supreme Court heard arguments yesterday on an important
matter that will have a tremendous effect on the debt collection
process. In Jerman v. Carlisle, the Court considered whether a debt collector’s legal error qualifies for the bona fide error defense under the Fair Debt Collection Practices Act (FDCPA).
Under the FDCPA, debt collectors must, as part of their initial
contact, provide consumers with certain prescribed notices.
In this case, the creditor issued a notice which it believed was in
compliance with the Act. Unfortunately for the creditor, its collection
notice requiring the person to contest the debt “in writing” violated
the law. Under the FDCPA, both the Federal Trade Commission
and consumers subjected to collection abuses may bring civil suits
against debt collectors for violations of the Act, and subject
creditors to damages. The law proscribes some exemptions for debt
collectors - debt collectors can avoid liability if the act was done in
conformity with any advisory opinion of the Federal Trade Commission or
if the violation was not intentional and resulted in a bona fide error
notwithstanding the maintenance of procedures reasonably adapted to
avoid such error. The question in this case is whether this creditor’s
misunderstanding of the law (i.e., requiring a writing to dispute the
debt) fell within the bona fide error defense.
The homeowner successfully obtained the dismissal of the foreclosure
lawsuit against her because her debt had already been fully paid.
Thereafter, she pursued an action challenging the debt collection
practices of the creditor under the FDCPA. She lost her case in both
the trial court and appellate court based upon the creditor’s bona fide
error defense, and appealed to the U.S. Supreme Court.
Ruling in favor of the homeowner here would result in monetary
losses for some such good-faith debt collectors who accidentally
violate the Act. But, as Justice Ginsburg noted during oral argument
in this matter, there is no "Federal statute that makes mistake of law
a defense." As we all know, rarely is ignorance of the law a defense
to civil liability or criminal penalties.
If the U.S. Supreme Court rules against the creditor in this case,
debt collectors who are unsure about the interpretation of the law will
be forced to request and receive an advisory opinion from the Federal
Trade Commission prior to any collection notice to receive
protection from liability. There have only been seven instances of such
requests and only four answered in the past decade. I have similar
questions on this issue as Chief Justice Roberts posited during oral argument
– why is the number of advisory opinions so small? Does receiving an
advisory opinion take an unreasonable amount of time? Is this practical
for debt collectors?
The Rules of the Supreme Court of Virginia have a new online address.
Whereas they were previously maintained on the General Assembly's
legislative information system's website, they are now hosted on the
site for Virginia's judicial system and are available in .pdf format.
Happy downloading!
From the National Law Journal comes a report on the Incorporation Transparency and Law Enforcement Assistance Act,
a proposed bill that is currently pending before the United States
Senate Committee on Homeland Security and Governmental Affairs. The bi-partisan bill (S.569), which was introduced by Sens. Carl Levin (Michigan), Charles Grassley (Iowa), and Claire McCaskill (Missouri),
would require states to collect and maintain information on the
“beneficial owners” of corporations and limited liability companies in
furtherance of preventing terrorism and money laundering.
If this legislation passes, each applicant seeking to form a
corporation or an LLC would have to disclose, during the formation
process, the names and addresses of its beneficial owners. Corporations
and LLCs already in existence would have to provide this information in
its annual filing or, if no annual filing is required, each time a
change is made in the beneficial ownership of the company. Under the
bill, the term “beneficial owner” is ambiguously defined as
an individual who has a level of control over, or entitlement to,
the funds or assets of a corporation or limited liability company that,
as a practical matter, enables the individual, directly or indirectly,
to control, manage, or direct the corporation or limited liability
company.
States would be required to maintain beneficial ownership
information for a 5-year period and would have to provide such
information upon receiving a subpoena or summons from a state agency,
federal agency, or congressional committee. If a corporation or LLC
provides false beneficial ownership information, it may face civil or
criminal penalties.
The proposed law would have a tremendous impact on businesses in
states, such as Virginia, where little, if any, information about the
identity of a company’s ownership is required. (For instance, an
applicant for an LLC in Virginia does not have to disclose any
ownership information upon formation.) States and businesses alike will
bare a potentially onerous administrative burden in their respective
efforts to comply with the law. The bill’s sponsors aver that such a
burden is a small price to pay for information that will help law
enforcement detect, prevent, and punish terrorism and money laundering.
Although I am certainly in favor of eradicating terrorism and other
forms of criminal activity, I have a number of issues with the proposed
legislation. As an attorney with small business clients, I can
think of several non-criminal examples where privacy is of paramount
significance to business owners – particularly those businesses that
are formed to invest in legitimate projects.
Additionally, as is often the case with legislation of this nature,
the ultimate burden will fall on the very companies that are least
likely to break the law. While the vast majority of corporations and
LLCs are expending time and resources to understand the definition of a
“beneficial owner” so as to avoid the imposition of a penalty, those
with illicit intent will simply exploit other business structures for
criminal gain.
Currently, the Incorporation Transparency and Law Enforcement Assistance Act is in the beginning stages of the legislative process.
Given the attention that it is already receiving, it will be
interesting to see whether it will garner the requisite support to
become a law.
Implementing a systematic strategy for obtaining government
contracts can produce substantial revenue results in just one year. An
example of whirlwind growth in the government contracts arena is Dovel Technologies Inc., a woman owned small business headquartered in McLean, VA, which was selected as 2009 Contractor of the Year (under $25 million in revenue) by the Greater Washington Government Contract Awards.
Dovel provides a broad array of information technology services and
solutions, and about 95 percent of its revenue is from government
contracts with the bulk of its work in subcontracting. Its upward
spiral only noticeably began in April 2008. Congratulations to Dovel -
what a difference a year can make!
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