Category Archives: Corporate Defense

An Outsider’s Guide to the Manafort Cases


The Friday morning press congregation outside the Alexandria EDVa Courthouse will likely continue as United States v. Paul J. Manafort, Jr. moves towards its July 10, 2018 trial date in Judge Ellis’ courtroom. The Court heard arguments on Manafort’s Motion to Dismiss the Indictment on May 4, 2018. The parties will be back before Judge Ellis on May 25, 2018 for argument on the Motion to Suppress Residence Search Evidence. Motions in limine will be heard on June 29, 2018.

The Alexandria Indictment Case (1:18cr0083-TSE) is intertwined with the original Manafort Indictment pending in the federal court in the District of Columbia (1:17cr0201-ABJ). The DC Criminal Case is scheduled for trial starting September 17, 2018.

Manafort filed a related DC civil case (1:18cv011-ABJ) which was dismissed on a Rule 12(b)(6) motion.

The Search Warrants

Manafort appeared on the radar screen as early as 2014 in an underlying investigation. On July 25, 2017, Judge Buchanan approved a search warrant, supported by a 78-paragraph Affidavit, that authorized the FBI’s search of Manafort’s Alexandria condominium. The searches yielded a motherload of electronics, including an iMac and a MacBook, two iPads, four iPhones and seven iPods, and multiple thumb drives and additional storage devices.
There possibly have been as many as seven Manafort-related warrants.

The DC Criminal Case and Manafort’s Civil Case

In late October 2017, the Special Counsel filed an Indictment in the D.C. federal court naming Manafort and his business associate, Richard Gates. A Superseding Indictment followed in late February 2018. The lead allegations in the superseding 5-count indictment against Manafort (co-defendant Gates had reached a plea deal) are Conspiracy against the USA and a Money Laundering Conspiracy. A week later, Judge Berman Jackson entered her Scheduling Order that sets the September 17, 2018 trial.

Manafort has filed in the DC Criminal Case a Motion to Dismiss the Indictment. He also has filed Motions to Suppress the Search Evidence.

Manafort’s Civil Case against the Department of Justice filed in the DC federal court claimed that (1) appointment of the Special Counsel was an ultra vires act, and (2) the Special Counsel’s conduct indicting Manafort is beyond his jurisdiction under the Appointment Order. This Civil Case was reassigned to Judge Berman Jackson. The Government filed a Rule 12(b)(6) Motion to Dismiss, which the Court granted on April 27, 2018.

Judge Berman Jackson’s Opinion dismissing Manafort’s Civil Case rejects the use of a civil case to challenge a criminal indictment. She opines that Manafort has sufficient available options in the criminal matters to make his arguments. She is careful in her Opinion not to explore the merits of Manafort’s substantive arguments tied to the criminal case.

The EDVa Indictment

On February 22, 2018, an EDVa Grand Jury returned a 32-count indictment against Manafort and Gates (Gates has reached a plea agreement, which reduces the active counts to 18). The counts in this Indictment include multiple counts of tax evasion and bank fraud. The Special Counsel crossed the river to Alexandria because Manafort would not waive a venue objection to the added counts being brought in the DC federal court. The EDVa case is before Judge Ellis.

Manafort filed in the EDVa Court essentially the same Motion to Dismiss the Indictment and Motions to Suppress as he filed in the DC Criminal Case. Judge Ellis heard arguments on the Motion to Dismiss on his Friday, May 4, 2018 docket. The judge has taken the motion under advisement and has ordered the Special Counsel to provide him on an ex parte basis an unredacted copy of the August 2 Scope Memorandum.

Manafort’s Motions to Dismiss the Indictments

Manafort’s current Motions take aim at the Department of Justice’s appointment of the Special Counsel and the scope of the Special Counsel’s jurisdiction under the Appointment Order, including supplements to the Order. The focus seems to have moved to the 4-page August 2 Scope Memorandum, a confidential memorandum from the Acting Attorney General to the Special Counsel. This memorandum is a supplement to the original Order. The Special Counsel’s brief describes the memorandum as “classified and contains confidential and sensitive law enforcement information that cannot be publicly disclosed.” Only a redacted copy was provided to the Court and Manafort’s counsel.

Recall that in March of last year then-FBI Director James Comey testified before the House Intelligence Committee. In May 2017, Acting Attorney General Rod Rosenstein appointed the Special Counsel. Under the Appointment Order the Special Counsel “is authorized to conduct the investigation confirmed by then-FBI Director James B. Comey in testimony before the House Permanent Select Committee on Intelligence on March 20, 2017,” including:

(i) any links and/or coordination between the Russian government and individuals associated with the campaign of President Donald Trump; and

(ii) any matters that arose or may arise directly from the investigation; and

(iii) any other matters within the scope of 28 C.F.R. § 600.4(a).

Manafort contends that this Appointment Order exceeds the Attorney General’s powers; but if the Order is within the powers, the Special Counsel’s indictment of Manafort is nonetheless outside the boundaries of the Appointment Order. The catch-term in Manafort’s briefs is the “absence of political accountability.”

The Special Counsel responds that once appointed, the Special Counsel has “the full power of a United States Attorney to investigate and prosecute cases within [the Special Counsel’s jurisdiction.]” The brief’s argument is that

The Acting Attorney General appointed the Special Counsel, defined his jurisdiction, understands the scope of his investigation, and has specifically confirmed that the allegations that form the basis of this prosecution—i.e., that Manafort committed crimes “arising out of payments he received from the Ukrainian government before and during the tenure of President Viktor Yanukovych” (August 2 Scope Memorandum at 2)—are within the Special Counsel’s jurisdiction. In these circumstances, no serious question of political accountability can be raised.

In the DC Criminal Case, Judge Berman Jackson heard 2½ hours of arguments on Manafort’s Motion to Dismiss on April 19, 2018. A Politico writer reported that the judge “raised doubts about the scope of order used to appoint special counsel Robert Mueller.” Judge Berman Jackson has not yet ruled. In the EDVa Indictment Case, Judge Ellis heard arguments on May 4, 2018, and he should rule on Manafort’s Motion to Dismiss shortly after he reviews an unredacted copy of the August 2 Scope Memorandum. News media reported that Judge Ellis “was skeptical over the ability of special counsel Robert Mueller to bring charges against … Manafort.”

The specific counts in the two Indictments are quite different, so it would not be a great surprise if the rulings vary. For example, Judge Berman Jackson could rule that the 5 remaining counts against Manafort in the DC Criminal Case are within the scope the Special Counsel’s delegated authority, while Judge Ellis might place some or all of the 18 counts in the EDVa Indictment outside that authority.

Remaining Roads to Trial

Assuming at least some of the counts in both indictments survive Manafort’s Motions, the two matters then head to trial roughly two months apart. Judge Ellis will hear Manafort’s Motions to Suppress on May 25, 2018, and then consider motions in limine on June 25, 2018. Trial begins in his courtroom on July 10, 2018—this is an estimated 2-week trial. Judge Berman Jackson’s Scheduling Order identifies a hearing on pre-trial motions set for May 23-24, 2018. Briefing on in limine motions should be completed by July 30, 2018, with trial to commence on September 17, 2018.

Supreme Court of Virginia Addresses the Reach of Conspirator Liability under the Virginia Business Conspiracy Act

The Supreme Court of Virginia recently addressed conspirator civil liability under the Virginia Business Conspiracy Act, Va. Code §§ 18.2-499 and -500.  Borrowing from Illinois law, the Court recited that “[t]he function of the conspiracy claim is to extend liability in tort beyond the active wrongdoers to those who have merely planned, assisted or encouraged the wrongdoer’s acts.”   While the case does not really change the substance of Virginia law, the opinion in Gelber v. Glock offers language that will likely appear in every future Virginia brief on conspirator liability and in the conspiracy jury instructions.

Tucked into the back of a 39-page opinion dealing with a family feud over an estate, the Supreme Court provides its tutorial on conspirator liability.   Admittedly, this is not federal law, but VBCA claims often appear in E.D. Va. litigation when state claims are before the federal court under diversity jurisdiction or pendent jurisdiction.

The Family Feud Case

The case is Gelber v. Glock, Record No. 160500 (June 22, 2017), a decision from an appeal heard during the Supreme Court of Virginia’s February 2017 Session.  The facts are those of the classic family feud.  In an early will, Mrs. Gelber left her estate to be divided among her five children.  Subsequent estate documents seemingly altered this directive—Mrs. Gelber’s real and personal property was to go to just one of her daughters.  The Executors sued on multiple theories, including a claim that the lucky daughter was part of a civil conspiracy with one of her sisters and a brother-in-law.

The Circuit Court for Henrico County granted a Motion to Strike the conspiracy claim.   The Supreme Court found no error in this circuit court ruling.  Given this straightforward appellate finding, the Supreme Court perhaps likely could have addressed the conspiracy Assignment of Error in a single paragraph.  But the Justices chose to give us a powerful tutorial on conspirator liability under the VBCA.  The tutorial is perhaps dicta, but it is nonetheless part of the Supreme Court opinion.

The Language of the Virginia Business Conspiracy Act

The VBCA is a two-part statute found in Title 18 of the Virginia Code, the criminal law title.  Va. Code § 18.2-499 identifies the elements of the criminal conspiracy. The next section, Va. Code § 18.2-500, provides for civil remedies for conspiracy violations.  Subpart A of the section reads:

Any person who shall be injured in his reputation, trade, business or profession by reason of a violation of § 18.2-499, may sue therefor and recover three-fold the damages by him sustained, and the costs of suit, including a reasonable fee to plaintiff’s counsel, and without limiting the generality of the term, “damages” shall include loss of profits.

The Reach and Purpose of Civil Conspiracy Liability

The real punch from the Gelber decision is the confirmation of conspirator liability beyond the primary tortfeasor.  The decision explains, “the object of a civil conspiracy claim is to spread liability to persons other than the primary tortfeasor.”  Gelber at 37.  The Court expands its discussion in footnote 21.  Quoting from Beck v. Prupis, 162 F. 3rd 1090, 1099 n. 18 (11th Cir. 1998), aff’d, 529 U.S. 494 (2000), the Gelber Court adds that “[i]n a civil context … the purpose of the conspiracy claim is to impute liability– to make X jointly liable with D for what D did to P.”   This is language is straight from Prosser and Keeton on Torts § 46 (5th Ed. 1984).

The Gelber opinion continues, in the same footnote 21, “[t]hus, a civil conspiracy plaintiff must prove that someone in the conspiracy committed a tortious act that proximately caused his injury; the plaintiff can then hold other members of the conspiracy liable for that injury.”  In support of this statement, the Supreme Court cites authority not only from the 11th Circuit, but also from the 8th Circuit, and from the Utah federal court and the Illinois Supreme Court.

The cited Eighth Circuit decision, Simpson v. Weeks, 570 F.2d 240, 242-43 (8th Cir. 1978), provides a clever analogy, “[t]he charge of conspiracy in a civil action is merely the string whereby the plaintiff seeks to tie together those who, acting in concert, may be held responsible for any overt act or acts.”   The Utah federal court decision, Boisjoly v. Morton Thiokol, Inc., 707 F. Supp. 795, 803 (D. Utah 1988), explains that “[c]ivil conspiracy is essentially a tool allowing a plaintiff injured by the tort of one party to join and recover from a third party who conspired with the tortfeasor to bring about the tortious act.”

Finally, Gelber confirms that conspiracy liability is the same for low-level players as it is for conspiracy kingpins.  The cited Supreme Court of Illinois decision, Adcock v. Brakegate, Ltd., 645 N.E.2d 888, 894 (Ill. 1994), offers, “[t]he function of the conspiracy claim is to extend liability in tort beyond the active wrongdoers to those who have merely planned, assisted or encouraged the wrongdoer’s acts.”

Summary: Gelber and VBCA Conspirator Liability

The Supreme Court of Virginia ranges far and wide for its authority on conspirator civil liability perhaps because a clear statement of civil liability tied to a conspiracy claim was previously missing from the Virginia case law.  For instance, plaintiffs looking for authority for conspirator civil liability have frequently cited Carter v. Commonwealth, 232 Va. 122 (1986), a criminal case about vicarious liability for the use on a firearm in a felony.  This is not to say that Virginia law was any different before Gelber, but that it was challenging to find on-target Virginia citations supporting conspirator civil liability.

Expect that the Gelber language will be prominent in trial briefs and jury instructions for future VBCA claims in the state courts and in the federal courts.

Handling Overlapping and Duplicative Damages

In a recent case, Judge Liam O’Grady astutely handled in his Jury Instructions and a Special Verdict Form the prospect of a jury’s duplicative and overlapping damage determinations.  He then resolved the parties’ dispute on overlapping damages when he decided post-verdict remittitur motion.  This case provides a roadmap for practitioners on how to handle similar problems in future cases.

Multi-count Complaint and Overlapping Damages

The case of Hair Club for Men, LLC v. Ehson et al, Civil Action No. 1:16cv236–LO/JFA involved a two-year covenant not-to-compete.  Plaintiff (a former employer) sued to enforce the covenant against a departing employee and her new employer.  Plaintiff sought not only an injunction but also considerable damages.

The Complaint alleged the usual suite of claims found in covenant-not-to-compete cases. The leading claim was for Breach of Contract, followed by claims for Trade Secrets Misappropriation, Tortious Interference, Unjust Enrichment, and Breach of Fiduciary Duty.

The case narrowed at summary judgment when the Court held that the defendants were liable on certain counts.  Judge O’Grady ruled that the non-compete covenant was enforceable, and that, as a matter of law, the ex-employee breached her fiduciary duty.  But still the Trade Secrets and Tortious Interference claims had to be tried, and the measure of damages for all claims was left open for trial.  Perhaps surprisingly, the case did not settle after these rulings.

Seven months after filing of the Complaint, the case went to a jury trial for four days.  The jury’s Special Verdict Form awarded Breach of Contract damages of $156,096, and then awarded damages of $258,330 on each of the three remaining counts.  Additionally, the jury responded to the question of whether the damages awarded were duplicative by circling “Yes.”

Jury Instructions and Special Verdict Form

Judge O’Grady’s jury instructions navigated through the duplicative damages issue, and the Special Verdict Form focused the jury on the key question of duplication.  Jury Instruction No. 39 addressed the possibility of overlapping damage awards:

In this case, Hair Club seeks to recover the same type of damages for lost profits on its breach of contract, breach of fiduciary duty of loyalty, misappropriation of trade secrets and tortious interference with contract and business advantage claims. A party is not entitled to multiple recovery for its losses. However, if you find that Hair Club has proved every element of each of its damages, and is entitled to recover for its claimed losses, you will be asked whether the recovery is duplicative, so that Hair Club does not recover more than it is entitled.

On the Special Verdict Form, Question No. 7 asked “Are any of the answers to questions 1, 3, 5, or 6 duplicative?”, followed by a simple “Yes/No” option.  (The four identified questions corresponded to Plaintiff’s four separate remaining counts.)

Dealing with Duplicative Damages

Despite the simple “Yes/No” question, the jury’s verdict left uncertainty as to the overall damages.  If the Court simply added all of the multiple damage awards, then the result would be a judgment for $934,086.  Plaintiff agreed that the jury intended that the three awards of $258,330 were for the same conduct and damage.  But Plaintiff also argued that the Breach of Contract damages should be added to the common damages, for a total damage award of $414,426.  Judge O’Grady, however, concluded that the appropriate total damage award was $258,330.

Virginia law prohibits the award of duplicative damages “when the claims, duties, and injuries are the same.” Wilkins v. Peninsula Motorcars, Inc., 266 Va. 558, 587 S.E.2d 581 (2003).  Judge O’Grady added that the “two claims are not duplicative if the conduct underlying the claims is different.”  For this, he cited Advance Marine Enterprises, Inc. v. PRC Inc., 256 Va. 106, 501 S.E.2d 148 (1998), and his analysis tracks the Wilkins opinion.  The trial court must “evaluate whether multiple damage awards constitute impermissible double recovery” and that under Virginia law it is the responsibility of the trial court in reviewing a verdict to supervise “the damage awards to avoid double recovery.”

Plaintiff relied on Advanced Marine to argue that the damages were in part separate and therefore should be added to yield the aggregate damage award, but Judge O’Grady distinguished Advance Marine.   In that case, the plaintiff proved a common set of compensatory damages under separate claims for Trade Secrets Misappropriation and Business Conspiracy.  While the plaintiff was limited to only one set of compensatory damages, the plaintiff was allowed to recover both punitive damages under the Trade Secrets claim and to treble the compensatory damages under the Business Conspiracy claim.

Judge O’Grady summed his conclusion by stating that “compensatory damages for the same injury, based on the same evidence, should be awarded only once.  This was consistent with Advance Marine.  This rule holds even if the injury is articulated in multiple causes of action with separate burdens of proof.”  But equally important, the judge ruled that it was his responsibility to make the determination using the jury’s answers on the Special Verdict Form.


The dilemma of overlapping and repetitive damages arises frequently.  In the case before Judge O’Grady, the jury considered damages on four separate counts.  The trial evidence, however, addressed the damages as a single compensatory loss.  When the jury answered that the damages were duplicative, it was then the trial judge’s responsibility to resolve the parties’ disagreement on the extent of the duplication.

Too often, a jury’s verdict states only its liability findings and separate awards on multiple counts.  In this situation, a judge ventures into potentially dangerous territory if he or she imputes that the damages are duplicative.

A question for both trial lawyers and judges is how best to manage this issue to steer away from the quagmire.  Judge O’Grady’s jury instruction in Hair Club cleanly instructs on duplicative damages.  He coupled his Instructions with the simple Special Verdict Form question about duplication.  In Hair Club, this seems to have worked well, and perhaps is the model for multi-count cases where the claimed damages overlap.

Defend Trade Secrets Act of 2016 Delivers New Relevancy for the “Long Arm” of FRCP 4(k)(2)

In this blog post, we reach back to a 2003 Judge Ellis opinion applying FRCP Rule 4(k)(2). In Graduate Management Admission Council v. RPV Narasimha RJU d/b/a, 241 F. Supp. 2d 589 (E.D. Va. 2003) (the “GMAC Case”), the judge applied this little-known rule to rescue a complaint from dismissal for lack of in personam jurisdiction.  The decision has had little visibility, but with the recent enactment of the Defend Trade Secrets Act of 2016 (“DTSA/2016”) the rule and the Judge Ellis’s opinion have new relevancy.   Stated differently, Rule 4(k)(2), as applied by Judge Ellis thirteen years ago, potentially turbocharges DTSA/2106’s role in trade secrets litigation involving overseas defendants.

Rule 4(k)(2), the Federal Long-arm Statute

Rule 4(k)(2) is buried deep in Rule 4, which has the innocent title of “Summons.”  Rule 4(k), titled “Territorial Limits of Effective Service,” also seems easily overlooked.   Our target, subpart 4(k)(2), provides:

(2) Federal Claim Outside State-Court Jurisdiction. For a claim that arises under federal law, serving a summons or filing a waiver of service establishes personal jurisdiction over a defendant if:

     (A) the defendant is not subject to jurisdiction in any state’s courts of general jurisdiction; and

     (B) exercising jurisdiction is consistent with the United States Constitution and laws.

It’s a decent bet that most of us (except some of the patent bar), even those with decades of federal court experience, have never before encountered Rule 4(k)(2).  Since its arrival in 1993, the rule has only rarely been applied, and the limited appearances have mostly been in patent and copyright cases.

The 2003 GMAC Case

In the GMAC Case, Judge Ellis rescued a copyright infringement complaint by resorting to Rule 4(k)(2) on behalf of a plaintiff who was having difficulty establishing in personam jurisdiction using Rule 4(k)(1) and the Virginia long-arm statute.   The issue was jurisdiction over an Indian citizen who was selling copyrighted GMAT questions marketed as test preparation resources for aspiring MBA candidates.   The solicitations and sales of the test preparation materials were made over the Internet, and seemingly were not directed to any one state but at a broader United States market.  The defendant failed to answer GMAC’s complaint notwithstanding adequate service in India.

Following routine court procedures, Judge Ellis referred the case to Magistrate Sewell to prepare the R&R report.  The magistrate considered the jurisdiction claim under Rule 4(k)(1) and the Virginia-long arm statute as the complaint alleged.  The magistrate concluded that while the conduct fell within the expansive reach of the long-arm statute, the constitutional due process requirements for in personam jurisdiction were not met.

The case might have disappeared from the radar screen at that point, but Judge Ellis saved the case using Rule 4(k)(2).  GMAC’s complaint came before Judge Ellis when the plaintiff challenged the R&R report.  The judge agreed with the magistrate’s conclusions regarding the Virginia long-arm statute, but he applied retroactively Rule 4(k)(2) (the plaintiff had not alleged jurisdiction under Rule 4(k)(2)), which is often referred to as the Federal long-arm statute, to find in personam jurisdiction.   Citing authority from the 1st Circuit and the 7th Circuit, Judge Ellis explained:

Rule 4(k)(2) was added in 1993 to deal with a gap in federal personal jurisdiction law [identified in Omni Capital Int’l, Ltd v. Rudolph Wolff & Co., 484 U.S. 97 (1987)] in situations where a defendant does not reside in the United States, and lacks contacts with a single state sufficient to justify personal jurisdiction, but has enough contacts with the United States as a whole to satisfy the due process requirements.

The GMAC Case fell into the gap identified in the referenced 1987 Supreme Court decision, only to be rescued by the little-known rule.

Judge Ellis’ decision is important not just because it reminds that Rule 4(k)(2) is part of the landscape, but also for his retroactive use of the rule and how he assigned the burden of the tricky third element in the analysis under the rule.

Three-part Analysis Under Rule 4(k)(2)

When Rule 4(k)(2) comes into play, it tracks a three-part analysis taken directly from the rule’s text.  First, the rule applies the same minimum contacts due process analysis that is conducted under Rule 4(k)(1), but with the significant difference that the relevant forum is the United States as a whole, not an individual state.  The second element of the rule is that the claim arises under federal law.   In the GMAC Case, Judge Ellis cited five federal statutes, including the Copyright Act, invoked in the complaint.

The third and final element—the tricky element—requires a showing that the defendant is not subject to the jurisdiction of the courts of general jurisdiction in any particular state.  Courts have wrestled with how to assign the burden on this element.  Does the plaintiff have to prove a negative across 50 states?  Or does the burden fall to the defendant to establish that at least one state should have jurisdiction?

Judge Ellis answered the burden question—it is the defendant’s burden to identify some other forum state, and if no state is identified then Rule 4(k)(2) applies.   The defendant in the GMAC Case was in default and did not appear; Judge Ellis found that there was no evidence showing the jurisdiction was not available in any one state, and from there moved to his conclusion that Rule 4(k)(2) gave the court jurisdiction.  The judge followed a mix of the 1st Circuit’s pure burden shifting approach from United States v. Swiss American Bank, 191 F.3d 30 (1st Cir. 1999) and the 7th Circuit’s more pragmatic approach in ISI Int’l, Inc. v. Borden Ladner Gervais, LLP, 256 F.3d 548 (7th Cir. 2001) where a defendant must name a suitable forum state or concede that jurisdiction is not available in any state.   Under Judge Ellis’s logic, a defendant who has general contacts with the United States but who coyly argues that it cannot be sued in the forum state and then refuses to identify any other state where the suit could be brought faces in personam jurisdiction under Rule 4(k)(2).

The Rule 4(k)(2) case law in the years since the GMAC Case is sparse outside the patent arena.  Not surprisingly, because the cases where the rule has been applied are mostly patent and copyright matters, the Federal Circuit has spoken.    In Merial Ltd. v. Cipla Ltd, 681 F.3d 1283 (Fed. Cir. 2012), the Federal Circuit employed an analysis much like Judge Ellis’s GMAC Case opinion, and approved retroactive application of the rule.

The 4th Circuit’s consideration of Rule 4(k)(2) is not completely blank.   In the few reported cases, the court has been generally hostile to Rule 4(k)(2) argument, but has not offered much analysis.  In Base Metal Trading v. OJSC Novokuznetsky Aluminum Factory, 283 F.3d 208 (4th Cir. 2002), the Court rejected jurisdiction based on Rule 4(k)(1), and noted that there was insufficient evidence generally of contacts with the United States to support the Rule 4(k)(2) argument.   The same result for the same reason appears in Saudi v. Northrop Grumman Corp., 427 F.3d 271 (4th Cir. 2005).  More recently, in Unspam Techs., Inc. v. Chernuk, 716 F.3d 322 (4th Cir. 2013), in a case that alleged a conspiracy involving illegal prescription drugs, the appellate court rebuffed the Rule 4(k)(2) jurisdiction argument against four foreign banks that processed the associated credit card transactions.  The opinion cryptically states that jurisdiction “would not, in the circumstances here, be ‘consistent with the United States Constitution and laws.’”

The Combination of Rule 4(k)(2) and DTSA/2016

As suggested above, Rule 4(k)(2) and the GMAC case might easily have been left in the irrelevancy bin.  In copyright, patent, and trademark cases where the defendant is foreign, perhaps from India or China, the evidence often is sufficient to pinpoint one or more states, or at least to provide sufficient contacts to satisfy the due process concerns associated with suing the foreign persons or entities in the federal courts in those states.  These cases likely arise after infringing goods are being sold and/or marketed, which means that there typically is evidence which supports jurisdiction under Rule 4(k)(1) and state long-arm statutes.  In the few cases where a defendant might contest state-specific activity, Rule 4(k)(2) allows the plaintiff to hold the defendant in the proceeding.

Claims alleging trade secrets misappropriation, on the other hand, very well might present facts that confirm misappropriation, but where the facts precede any significant targeted sales and marketing by the misappropriator.   The plaintiff could be seeking at an early stage to enjoin sales, and perhaps is aiming to employ DTSA/2016’s civil seizure remedies, including the ex parte remedies.   The conduct might come within DTSA/2016’s broad “misappropriation” definition, but limited facts connecting the activity to any one state could defeat in personam jurisdiction under Rule 4(k)(1) and state long-arm statutes.

Until the DTSA/2016 enactment, trade secrets claims were governed by state laws, which meant that Rule 4(k)(2)’s application was blocked because the second element of the analysis could not be satisfied.  Under DTSA/2016, just about every trade secrets claim is now a federal claim, and the rule’s three-step analysis can now be satisfied.  This does not negate the requirement of established contacts with the United States generally, but trade secrets cases against foreign defendants now have a fortified argument to get around the earlier nemesis of the lack of in personam jurisdiction


The combination of Rule 4(k)(2), as applied by Judge Ellis back in 2003 in the GMAC Case, and the enactment of DTSA/2016 potentially opens wide the doors of federal courthouses to trade secrets litigation against overseas defendants.   For litigators who represent foreign companies, there is new concern that their clients can now be forced to defend trade secrets cases in the U.S. federal courts.  And for those attorneys whose clients have reason to complain about misappropriation of their trade secrets by overseas entities, the combination of Rule 4(k)(2) and DTSA/2016 is an invitation to bring their claims here.

Is the Standard for Summary Judgment Evolving in EDVA?

Is the standard for summary judgment evolving, and has the Eastern District kept up with the evolution? 

In a July 6, 2016 decision in Guessous v. Fairview Property Investments, LLC, (Dkt. No. 15-1055), the Fourth Circuit reversed Judge Lee on all six counts in a fairly standard discrimination case.  The Court found repeatedly that the record was sufficient to permit a reasonable jury to find for the plaintiff, yet the District Court had credited the Defendant’s summary judgment evidence and granted summary judgment.  Stated differently, the appellate court reminds us that a district court’s weighing the evidence at summary judgment is impermissible.

The adjustment to the summary judgment standard traces to a May 2014 Supreme Court decision in what was a fairly routine § 1983 case.  In Tolan v. Cotton, 572 U.S. __ , 134 S.Ct. 1861 (2014), a Texas district court had granted summary judgment to a police officer deciding that his conduct in a police shooting was “objectively reasonable.”  There was evidence on both sides of the summary judgment issues; the district court weighed the evidence and came down in favor of the police officer.

The Fifth Circuit affirmed, albeit on different grounds, but three judges on that court voted in favor an en banc hearing. The case could easily have been passed over at the certiorari stage (Justice Alito, joined by Justice Scalia, wrote a concurring opinion complaining that the case was so routine that the Court should not have granted certiorari), but it seemed that several of the Supreme Court justices were looking for the opportunity to remind lower courts that a judge’s function at summary judgment is not to weigh the evidence but to determine whether there is a genuine issue for trial.”  This is the time-honored directive from Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986), but the Court’s Tolan decision suggests that justices believed that the standard needed some reinforcing.

The Fourth Circuit followed Tolan a few weeks later in McAirlaids, Inc. v. Kimberly-Clark Corp., 756 F.3d 307, 310 (4th Cir. 2014).  It then quoted from Tolan: “It is an ‘axiom that in ruling on a motion for summary judgment, [t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor.’”   Not long afterwards, in March 2015, the Fourth Circuit provided “further elaboration” of the summary judgment standard in Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568 (4th Cir. 2015).  In an ominous introduction that highlighted a “clear misapprehension of summary judgment standards”, the panel of Judges Floyd, Keenan, and Harris cited Tolan:

Ordinarily we would begin our discussion with a brief restatement of the standard of review for a motion for summary judgment. When “the opinion below reflects a clear misapprehension of summary judgment standards,” however, further elaboration is warranted. Tolan v. Cotton (citations omitted) (per curiam).

Given this harsh treatment of the district court, it was no surprise that the Fourth Circuit reversed in part and remanded for trial.  The Court observed that in the Tolan case the district court had “fail[ed] to credit evidence that contradicted some of its key factual conclusions” and “improperly ‘weighed the evidence’ and resolved disputed issues in favor of the moving party.”

The Tolan and Jacobs decisions arguably provide a course correction in the summary judgment standards in cases where there is conflicting record evidence. The frequent Tolan quote is this:

Where there is conflicting evidence, the court must credit the evidence of both sides and acknowledge that there is a genuine issue of material fact that cannot be resolved by summary judgment. See Tolan v. Cotton (stating that summary judgment is inappropriate where each side has put forward competent evidence that raises a dispute about a material fact).

Westlaw identifies more than 870 case citations to Tolan.  Granted, many of the citations are for the § 1983 issues, but the case still stands tall because of the adjustments to the summary judgment standard.  Since Tolan, the above quote appears in multiple summary judgment rulings by Judge Cacheris, and in several ruling by Judge O’Grady.  Magistrate Judge Buchanan has also cited Tolan.  The Westlaw search shows, however, no other reliance either way on Tolan in the Alexandria Division of the Eastern District.

Sometimes district courts cite only the controlling circuit court decision without mentioning the Supreme Court case. The leading Fourth Circuit authority is the Jacobs decision.  Westlaw confirms that Jacobs has been cited in 136 cases, with most of these from within the circuit; there are more than 70 citations from the Maryland District Court, but only four from the Eastern District of Virginia, and just one of those four is from the Alexandria Division.

The Fourth Circuit’s Guessous decision relies on both Tolan and JacobsThe Court writes:

The court must “view the evidence in the light most favorable to the [nonmoving] party.”  Tolan v. Cotton, 134 S. Ct. 1861, 1866 (2014) (internal quotation omitted).   “The court . . . cannot weigh the evidence or make credibility determinations.” Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568-69 (4th Cir. 2015).  In general, if “an issue as to a material fact cannot be resolved without observation of the demeanor of witnesses in order to evaluate their credibility, summary judgment is not appropriate.” Fed. R. Civ. P. 56 advisory committee’s note to 1963 amendment.

Guessous at 16-17.  It is after these pointed citations that the Court launches into its “reasonable jury” analysis.   “A reasonable jury could easily conclude, however . . .”       Id. at 22. “This alone would be enough to allow a reasonable jury to conclude. . .”   Id. at 23.  “[T]he record is sufficient to permit a reasonable jury to conclude . . .” Id. at 28.  “[A] reasonable jury would certainly be entitled to reach a different conclusion . . .”   Id. at 30.  The Court’s unanimous decision reversed and remanded on all six counts.

Because so much of the Eastern District’s civil docket encounters summary judgment, Tolan and Jacobs are important precedents.  Other districts within the circuit, mostly notably the District of Maryland, seem to have recognized the course adjustment.  The Guessous decision perhaps is a wake-up call to the rest of the circuit, including the Eastern District of Virginia, to recognize the appellate direction for a tighter summary judgment standard.

New Federal Trade Secrets Law: Defend Trade Secrets Act of 2016 Signed into Law on May 11, 2016

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”) , which dramatically expands federal jurisdiction over trade secret claims.  The impetus for this law was to provide some response to the reports of Chinese and possibly Iranian hacking into U.S. corporate and government sites.  Prior bills were introduced in 2013 and 2014.  These served as models for the eventual statute.  The new law, however, closely resembles in many ways the current state trade secrets laws but provides jurisdiction in federal courts.

The federal Intellectual Property protection scheme until now has been a three-legged approach: Patent protection, trademark laws, and copyright provisions.  After the DTSA, however, the trade secrets protection of the enactment becomes the fourth leg.  While the new law overlaps in many respects the Uniform Trade Secrets Act (“UTSA”) on the books in 47 states (including Virginia, Maryland, and D.C.), the DTSA changes the federal jurisdiction analysis, expands the definition of “trade secrets,” adds new remedies, and includes express whistleblower protections.  While the DTSA does not significantly alter the substance of U.S. trade secrets law, the procedures and available civil remedies – especially the civil ex parte seizure terms – introduce new and potentially powerful enforcement tools.

The DTSA arrives as an amendment to the Economic Espionage Act of 1996, 18 USC  § 1331 et seq.   The coverage below highlights five points in the new law.

  1. Federal Jurisdiction. Just about any trade secret claims is now a federal claim which can provide subject matter jurisdiction in the federal courts.  2(b)(1) allows for civil actions this way:

An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

This expansive coverage seemingly reaches to the limits of the Commerce Clause as a basis for Congressional action and federal court jurisdiction.

Previously, the Economic Espionage Act was mostly a criminal statute that offered no private civil action route.  Now with passage of the DTSA, nearly any trade secret claim can be brought by a private party in the federal courts.  It is no longer necessary to cleverly plead a Computer Fraud and Abuse claim (18 § USC 1030 et seq.) or some other federal claim to get a case into federal court when there is no diversity jurisdiction.

  1.    Broader Definition of “Trade Secrets?”   Much of the new law’s substance is found in the Definitions, either already included in or added to 18 USC § 1839.  For example, the current “trade secrets” definition reads:

(3) the term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—

(A) the owner thereof has taken reasonable measures to keep such information secret; and

(B)  the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public [].

Most any type of information can qualify as a trade secret under this definition provided the information is a secret and the owner took reasonable steps to maintain the secrecy.  This is slightly different than the UTSA definition, which list eight specific types of trade secrets but then applies roughly the same two-part test found in subparts (A) and (B) above.  If there is a difference, then the DTSA offers the broader definition.

The statute also adds definitions of “misappropriation” and “improper means.”  These track almost exactly the UTSA definitions.

  1. Ex Parte Seizure Remedy.   The DTSA goes beyond the state laws where it includes in Sec. 2(b)(2) a “Civil Seizure” remedy:

(i) APPLICATION.—Based on an affidavit or verified complaint satisfying the requirements of this paragraph, the court may, upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.

The drafters plainly contemplate a preliminary civil remedy that goes beyond any currently available Fed. R. Civ. P. 65 TRO or Preliminary Injunction.

The statute spells out the process for obtaining a Seizure Order, and limits what a court may order.  The seizure is not a private action, but would be conducted by federal or local law enforcement.  Then the court “shall secure the seized material from physical and electronic access during the seizure and while in the custody of the court.”

But even with the various statutory protections, the availability of an ex parte seizure remedy markedly expands the potency of the law.

  1. Trade Secrets Misappropriation as Racketeering Activity.   3(b) amends the RICO statute’s definition of Racketeering Activity found in 18 USC 1961(1) to include “sections 1831 and 1832 (relating to economic espionage and theft of trade secrets).”

If RICO claims have faded in the last decade, this will surely boost their popularity and frequency.  Expect to see DTSA claims coupled with a RICO count built around the trade secrets allegations.

  1. Whistleblower Protection. 7(b) provides immunity from all criminal and civil liability for disclosure of trade secrets made “in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney” provided the disclosure is “solely for the purpose of reporting or investigating a suspected violation of law . . .”

Employers are now required to provide notice of this immunity.  Sec. 7(a)(3)(A) includes this language:

An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.

Subsequent paragraphs restrict remedies available to employers who fail to include the immunity notice; the failure precludes recovery of exemplary damages and attorneys’ fees in a subsequent suit against disclosing employee.  Also, the statute by its terms applies to all contracts entered into or updated after the law’s enactment (on May 11, 2016).   This notice requirement and remedy restriction seemingly applies to employment contracts, employee handbooks, consulting contracts, and even to routine employee/consultant non-disclosure agreements.

  1. Summary—What to Expect from the DTSA

The first consequence of the DTSA in the EDVa will likely be a shifting of trade secrets litigation from the state courts to the federal court.  As mentioned, the necessity of pleading other claims to secure federal jurisdiction has been removed.  Also, we can expect frequent tag-along RICO counts, at least until case law addresses the consequences of the RICO definition adjustments to include trade secrets.

We also should see some early clarifying opinions on the DTSA definitions—is the substantive law essentially unchanged, or is there a broader “trade secrets” definition to be applied?

The Civil Seizure provisions will also be tested early.   Expect the courts to use these rarely, and to impose stringent requirements.  The quasi-criminal process will probably be pushed back except for the most egregious cases, and certainly the court and the clerks will show minimal interest in having to supervise seizures and take possession of the offending materials.  The DTSA allows for the appointment of special masters to handle details of seizures—expect the courts to utilize this option.

The remaining consequence is that entities should and will quickly modify and amend their agreements to include the DTSA immunity notice.

Written—but Unsigned—Agreement Is Sufficient to Compel Arbitration

In a high-profile gender discrimination case filed in the Richmond federal court against a law firm, Judge Robert E. Payne sent the dispute to arbitration despite that the plaintiff had not signed the firm’s Shareholder Agreement that included the required arbitration clause. In Michelle Burke Craddock v. LeClairRyan, 3:16-cv-11 (E.D. Va. Apr. 12, 2016), the Court concluded that “a written but unsigned contract, otherwise accepted, is sufficient to invoke the Federal Arbitration Act.” With this, the Court denied Ms. Craddock’s motion to stay arbitration and granted LeClairRyan’s motion to compel arbitration.

The four-count Complaint alleges in Count 1 a violation of the Lilly Ledbetter Fair Pay Act of 2009, the first bill signed into law by President Obama. This law overturned the Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc., 550 U.S. 618 (2007), which restricted the time period for filing complaints of employment discrimination concerning compensation. Ms. Craddock’s Complaint continued with alleged violations of the Equal Pay Act, retaliation, and constructive discharge. The case was first assigned to Judge Hudson, who recused himself because of a conflict.

District Court’s Order and Opinion

In its April 12, 2016 Memorandum Opinion, the Court determined that Ms. Craddock had accepted the terms of the law firm’s Shareholder Agreement by her conduct. LeClairRyan conceded that Ms. Craddock never signed the unaltered agreement, but argued that after the firm invited her to become a shareholder her conduct over nearly two years evidenced acceptance. Judge Payne, ruling without a hearing, found that the conduct was sufficient to support a contract and to enforce the arbitration clause in the agreement.

The Court’s ruling, at least for now, moves the case out of the headlines and away from a jury. Plaintiff wasted no time in noticing her appeal to the Fourth Circuit—she filed her Notice the day after Judge Payne’s ruling. The FAA authorizes an immediate appeal if a motion to compel arbitration is denied; an appeal when arbitration is ordered, as in this case, is perhaps blocked by the FAA except as an appeal of an interlocutory order pursuant to 28 USC § 1292(b). Courts, including the Fourth Circuit, have recognized, however, that an order compelling arbitration might in certain circumstances be appealable as a final order pursuant to 9 USC § 16(a)(3).

Central Facts and Finding of Contract by Conduct

Ms. Craddock’s professional accomplishments alone make the case news-worthy. She was part of LeClairRyan’s litigation team that procured a $77 million settlement in 2013; the firm collected a $20+ million contingency fee in the case, the firm’s largest fee ever. For her part in the successful representation, LeClairRyan paid (according to the law firm’s pleadings) Ms. Craddock a $1.1 million bonus. Claiming discrimination in subsequent compensation and promotion decisions, Ms. Craddock pursued her dispute to the EEOC, which provided a “right to sue” letter. She filed her $1.2 million lawsuit in January 2016.
The central fact here is that even though Ms. Craddock eventually signed the LeClairRyan Shareholder Agreement she crossed-out at the time the arbitration clause. There is no version of the agreement signed by Ms. Craddock that includes the clause. The Court observed that the firm’s shareholder invitation came in January 2013; while Ms. Craddock did not sign the document, she did accept the benefits and responsibilities of being a LeClairRyan shareholder. It was nearly two years later, in December 2014, when she signed the written agreement with the crossed-out arbitration clause. Applying Virginia contract law, the Court determined that a contract between Ms. Craddock and LeClairRyan had been formed as early as January 2013, and that she could not later reject the contract.

An “unsigned written agreement”

The crux of the Court’s ruling is that while the FAA requires a written arbitration agreement, it does “not require an arbitration agreement be signed by the parties entering into the agreement.” Memorandum Opinion at 25. The FAA, 9 USC § 2, provides that “an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable . . .” The Court is correct that the FAA does not specify a signed written agreement. But an “unsigned written agreement” sounds like an oxymoron.

District Court Bypassed the Statutory Jury Provision

The Court side-stepped having a jury determine whether Plaintiff had in fact accepted the arbitration clause—in a footnote the Court concluded, “there do not appear to be any disputes of material fact in the arbitration issue.” Section 4 of the FAA provides for a special jury trial to resolve this issue when it arises. Ms. Craddock not only demanded a jury in her Complaint, but in a separate pleading specifically demanded a jury “on the issue of whether the parties have entered into a written agreement to arbitrate.” Even though the Complaint allegations support a compelling argument that Ms. Craddock never agreed to the arbitration clause, the Court breezed past the issue.

Interlocutory Appeal — 28 USC § 1292(b)?

Ms. Craddock has appealed Judge Payne’s ruling. But the statutory avenue to an appeal at this juncture is 28 USC § 1292(b) (see acknowledgment above that 9 USC § 16(a)(3) offers a possible, alternate appellate route). The section allows for the interlocutory appeal of an otherwise unappealable order when a district court certifies that the order “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” As of this writing, no certification has been filed by the district court.


In its three-month lifespan in the federal courts, Craddock v. LeClairRyan delivered full-semester coverage of federal civil procedure, contracts, and employment law. If Judge Payne’s ruling moves the dispute behind an arbitration veil, then the continuing CLE contributions of the case likely will come to an end. But the Fourth Circuit still must rule, and we probably have at least one more round of legal education ahead from this case.