Since the amount of damages sought on a lost profits claim can be substantial, any variations in the standard will likely have a drastic impact on the recovery.  The Maryland Court of Appeals (the highest court in the state) in CR-RSC Tower I, LLC v. RSC Tower I, LLC recently addressed the issue of whether the trial court properly excluded post-breach market conditions to mitigate consequential lost profits in a jury trial which resulted in an award of $36 Million in damages. 

The landlord defendants in CR-RSC Tower I, LLC deliberately breached a real estate agreement causing plaintiff developer’s financing to fall through.  The developer sued for breach of contract and sought recovery of lost profits basing its market projections at the time of the breach.  The landlords did not dispute the breach, but countered that the current market conditions were relevant and necessary to meet the requirement that lost profits be proven with “reasonable certainty.” The landlords sought to offer the testimony of an expert to show that the developer would not have suffered any damages given the subsequent downturn in the real estate market. 

The Court explained that the contract in this case did not address or allocate the possibility of future market downturns.  The only evidence established that, at the time the parties entered into the agreement, the parties contemplated a relatively stable market and did not foresee the cataclysmic crash of real estate.  Thus, evidence of post-breach booms or even busts was not relevant to the determination of the expected value of performance as of the time of breach.  As a result, the Court upheld the trial court’s exclusion of the defendants’ evidence of “post-breach market conditions.” 

Written By Angela H. France

If an employee misappropriates their current or former employer’s proprietary information, and discloses such information to its new employer and/or any other unauthorized person(s), that is enough to establish a violation under the Virginia Uniform Trade Secrets Act (“VUTSA”) so says the Virginia Supreme Court. There is no requirement under the Act that the employee or new employer actually use the misappropriated information to compete with the former employer.

In the case of Geographic Services, Inc. v. Collelo, et al. (2012), the Virginia Supreme Court held that once an employer establishes the existence of a trade secret, all that they are then required to show is that the trade secret was misappropriated as that term is defined under the Trade Secrets Act. The entity from which the trade secret was misappropriated does not have to show that defendants used the trade secret in order to establish a claim under the VUTSA and recover damages. Disclosure of the trade secret is sufficient where it can be shown that the new employer and/or person to whom the trade secret was disclosed knew, or had reason to know, that the trade secret was acquired by improper means. In such cases, where the plaintiff cannot readily prove measurable damages, then the VUTSA provides that the court can impose a reasonable royalty upon the wrongdoers for the unauthorized disclosure of the trade secret.

This decision by Virginia’s highest court provides a cautionary note for Virginia employers: if you know, or should have known, that an employee has obtained proprietary information from its prior employer without its knowledge, you could be on the hook for damages if the employee discloses the information to your company – even if your company never uses the information. The disclosure, in and of itself, will be enough to expose companies to monetary damages. Conversely, companies in which an employee has taken proprietary information can seek legal redress and possibly obtain damages even if the employee and its new company did not use the information.

Written By Malik K. Cutlar

PCT Law Group, PLLC is pleased to announce that Angela France has been recognized by her peers as a Rising Star by Virginia Super Lawyers and Washington, D.C. Super Lawyers. The process consists of nominations from lawyers of the best attorneys who are 40 or under, or who have been practicing for 10 years or less. They are instructed to nominate lawyers they have personally observed in action — whether as opposing counsel or co-counsel, or through other firsthand courtroom observation. In addition to the general survey, the research team reviews the credentials of potential candidates. No more than 2.5 percent of the lawyers in the state are named to the list.

Almost every modern business is organized under some sort of limited liability platform. Perhaps this is in response to what the press has dubbed a “frivolous lawsuit problem.” Nevertheless, these platforms are a great starting point for any business, especially when it comes to insulating the owners from external liabilities like suits from customers.  Significantly less press attention is focused on the fact that most business litigation is actually a result of internal conflicts, such as suits between and among owners, shareholders, directors, partners, members, and officers. A problem I often come across is that most people do not understand that, in the future, serious complications among owners and partners can arise due to merely electronically filing the bare minimum to get your limited liability status.

When I am retained by entrepreneurs to help start a business, the last topic anyone wants to discuss is circumstances that would trigger the dissolution of their newly formed organization. I usually get the same response, “we are all good friends and we will work that out.”  The fact is, entire books of case law exist that are filled with cases beginning with a phrase similar to, “they were all friends, and then…”

In Florida, whether you choose to be a Florida Corporation, a Florida Limited Liability Company, or a Limited Partnership, the respective business organization statute calls for an additional internal governance document to be drafted.  These are bylaws for Corporations, operating agreements for Limited Liability Companies, and partnership agreements for Limited Partnerships.  In my opinion, the internal governance document is the single most important document an organization may have.  It is a binding agreement between the business owners and managers, outlining internal relationships, as well as duties to the business and each other.  It explains your rights as an owner, the procedures for voting and resolving disputes, as well as, the un-mentionable: dissolution.  Most importantly, this document is, after all, an agreement and, in most cases, your agreement overrides any statutory rules that contradict it.

So that fact that all the owners of the business are currently great friends, is actually the best reason to resolve all of the issues before an event occurs that can only be resolved through litigation because there was no agreement.

As I explain to anyone that I assist with business formation, there are lots of free and cheap resources online that can aid in the legal end of starting a business.  In fact, most of the initial electronic filing, registering of a tax ID number, and a state sales tax number, can easily be done without attorney supervision or paying one of these incorporation services that we hear advertised on the radio. The internal governance documents, however, can get rather complicated.  The owners of a newly formed business can receive a great benefit from having their legal duties to each other, as well as their organization, thoroughly explained to them.  If I could recommend having an attorney for any one part of the business formation, it would be to assist in drafting the internal governance documents.

That being said, I know that not every business, or start-up, is in a position to afford an attorney and, in the business world, one will not be assigned to you.  I think that people would be surprised how many business attorneys, such as myself, would be willing to provide their assistance solely to form that initial relationship, and to help your business get to a position where you can not only afford to, but are glad to retain us to assists with all your legal needs.

Written by Vladimir DuBovis

The Virginia Supreme Court recently granted a writ of appeal in a noncompete case from the Fairfax County Circuit Court. In Home Paramount Pest Control Companies, Inc. v. Justin Shaffer, the issues before the Court include whether the lower court erred in finding the noncompete overly broad. In finding the noncompetition agreement unenforceable, the Fairfax Circuit Court considered the scope of the restricted activities, but did not consider the portion of the agreement in light of the narrow geographic scope of the restriction which applied only to certain limited geographic boundaries within Fairfax County.

Noncompetition agreements in Virginia are strictly construed against the employer, but a court will enforce the parties’ agreement if it is reasonable and narrowly tailored to protect the legitimate business interests of the company. In assessing the enforceability these types of restrictive covenants, Virginia courts scrutinize three aspects for reasonableness: (1) duration of the restriction; (2) geographic scope of the restriction; and (3) breadth of the restricted activities.

In Virginia, the enforceability of noncompetes is governed by common law principles (i.e., case law and precedent). Thus, the body of law on this subject is constantly evolving with each new court decision.  The Virginia Supreme Court’s decision in this matter will shed further light on employer's ability to restrict post-employment activities of its workers. 

As we have discussed previously, simply having an agreement in place may not properly protect a Virginia business from competition by a former employee. To be upheld under Virginia law, the non-compete agreement must be drafted in accordance with Virginia court case precedent.

Written by Angela France
 

Employers should take notice that the Internal Revenue Service (IRS) has announced a standard business mileage reimbursement rate of 51 cents per mile for 2011. The business mileage reimbursement rate is used by many employers for computing the appropriate employee reimbursement amount in instances where an employee uses a personal vehicle for a work-related purpose. The new mileage reimbursement rate, which takes effect on January 1, 2011, represents a slight increase from the rate set by the IRS in 2010 of 50 cents per business mile driven.

Employers with an established personnel policy should update their employee handbooks by year-end to reflect this change. Those employers who do not have an established policy for reimbursing employees for business miles traveled in personal vehicles should consider instituting a mileage reimbursement policy for 2010 and adopting a good mileage log reimbursement form for employees.

Employers should consult the IRS website for more information on the mileage reimbursement guidelines.

Written by H. Scott Johnson, Jr.

As previously noted on the Virginia Business Law Update, theVirginia State Corporation Commission (SCC) is in the process of rolling out a new suite of electronic filing capabilities on its SCC eFile website. The latest enhancement is a welcome addition to all Virginia corporations -- the ability to file corporate annual reports and pay corporate annual registration fees online.

Over the coming months, the SCC plans to further expand the services available on its SCC eFile website. Specifically, Virginia corporations and limited liability companies will be able to submit organizational documents electronically and pay associated fees on the SCC eFile website. Additionally, Virginia businesses will be able to file Uniform Commercial Code (UCC) documents and pay UCC filing fees online.

Written by H. Scott Johnson, Jr.

The Virginia Supreme Court has granted the appeal of a Fairfax County business who is challenging a controversial special tax established to fund the extension of the Metrorail to Dulles International Airport. FFW Enterprises, a commercial real estate company in Tysons Corner, filed the appeal after a Fairfax County Circuit Court judge granted the Fairfax County Board of Supervisors’ motion for summary judgment in June of last year.

At issue in the case is whether the Fairfax County Board of Supervisors’ creation of a special tax district to fund the county’s share of the Dulles Metrorail expansion project is constitutional. The county charged commercial and industrial real estate owners in the special tax district 22 cents per $100 of assessed property value (in addition to their normal property taxes), but exempted residential property owners.

It is FFW Enterprises’ position that the tax is unlawful because the Virginia Constitution requires a uniform application of taxes, so that tax burdens are equally distributed amongst commercial, residential, and industrial tax payers. 

This is an important case for Fairfax County businesses and residents alike as the Virginia Supreme Court’s determination will have a substantial impact on how Fairfax County finances its share of the Metrorail expansion project.

A decision from the Virginia Supreme Court should come later this year. We will keep you updated on any new developments with this case.

Written by H. Scott Johnson, Jr.

Governor McDonnell announced today that he will propose reinstating a tax deduction for Virginia employers in the biennial budget in hopes of spurring economic development. Since 2004, Virginia law has allowed companies to claim the federal Internal Revenue Code Section 199 Domestic Production Activity Deduction, which encouraged U.S. manufacturing. The tax break initially allowed a 3 percent deduction, and was increased to 6 percent then 9 percent. However, this deduction is set to gradually phase out by 2014. Governor McDonnell asserts that the elimination of the deduction would result in an estimated $30 million tax increase for Virginia employers, and is proposing an amendment to prevent this result.

McDonnell said in a statement that “[t]his is a pro-job creation amendment that will help keep employers in the commonwealth, encourage businesses to locate in Virginia and give us a further advantage over other states.” Major employer, Northrop Grumman, which is weighing whether to locate its headquarters in Virginia or Maryland, would qualify for the tax break.

The amendment will have no fiscal impact in FY 2011, according to the Governor, and an estimated $10 million in FY 2012. The Governor has until midnight Tuesday to send any further amendments to the budget to the legislature, which will be considered on April 21. 

Written by Angela France

Small businesses with Federal contracts have to be especially mindful of ensuring compliance with equal employment opportunity (EEO) requirements. The failure to comply with the EEO guidelines set forth in Executive Order 11246 (which prohibits employment discrimination by Federal contractors and subcontractors as well as federally-assisted construction contractors and subcontractors) may very well result in the cancellation of a contract, termination, suspension (in whole or in part), or the debarment of the contractor. As the Office of Federal Contract Compliance Programs (OFCCP)requires contractors to engage in their own internal EEO compliance analysis, small businesses often run afoul of satisfying their obligations under Executive Order 11246. 

To ensure compliance with the basic EEO requirements imposed by Executive Order 11246 -- and to avoid the wrath of the OFCCP – contractors should adhere to the following OFCCP guidelines:

Don’t Discriminate! Contractors must refrain from engaging in workplace employment discrimination on the basis of race, color, religion, sex, or national origin. Although most people think of intentional discriminatory acts, employment discrimination can also arise when a neutral policy or practice has an adverse impact on the members of any race, sex, or ethnic group.

Post an EEO Poster. Federal contractors must post OFCCP’s EEO poster in a location that is easily seen (e.g., a lunchroom, break room, or locker room).

Include an EEO Tag Line in Employment Advertising. Contractors should include a sentence in all solicitations and advertisements for employment stating that “all qualified applicants will receive consideration for employment without regard to race, color, religion, sex or national origin.”

Keep Records. Contractors must maintain their personnel records and employment records including job descriptions, job postings, job offers, applications and resumes, interview notes, tests and test results, written employment policies and procedures, personnel files, and time-keeping records.

Develop and Maintain an Affirmative Action Program. Contractors with 50 or more employees and a contract of $50,000 or more must develop and maintain a compliant affirmative action program (AAP).

Small businesses with Federal contracts should regularly review their EEO policies and procedures to ensure that they are compliant with Executive Order 11246. Certainly, given the potential penalties, it is better to be safe than sorry!

Written by H. Scott Johnson, Jr.